Global Fund Update – July 2025
After a difficult first quarter, global equities rebounded strongly in the second quarter, driving positive returns for most markets in the first half of the year. However, the weakness of the US Dollar, which declined by just under 10% over the period against Sterling, had a material effect on absolute performance. The Goshawk Global Fund ended the period 2.4% lower.
We reduced our exposure to US equities and therefore the Dollar earlier this year and over the six-month period and this was beneficial to relative performance. However, it did hinder performance during the second quarter as US stocks rallied much more strongly than we anticipated. Markets rallied despite continued concerns around White House policy on tariffs, increasing geopolitical tensions and the continued attacks by President Trump on Federal Reserve Chair Jerome Powell, whose term is due to end next May. There is also a degree of uncertainty created by the so-called ‘Big Beautiful Bill’, which is designed to extend expiring tax cuts from Trump’s first term, but is also likely to increase market anxiety around the ever-increasing fiscal deficit. This could have an impact on the cost of funding America’s vast amount of debt which needs to be refinanced in the next eighteen months. Despite this, US ten-year Treasury yields were little changed over the period.
In China, the full impact of US tariff policy remains unclear. Chinese government policy has been supportive of an improvement in domestic consumption that is designed to help the 2025 GDP growth target of 5% to be achieved. We expect further measures to be introduced over the remainder of the year to help stimulate growth, which we hope will lead to an improvement in the performance of our struggling luxury goods stocks, LVMH and Moncler. During the first half of the year, we also added to our direct Chinese exposure via Hong Kong listed e-commerce and cloud giant Alibaba to go with our existing holding in China Life Insurance.
In Japan, equity markets were slightly higher over the first half, and we retained our overweight position in the market, despite taking profits in Sony following a strong run, where the stock had moved up to our valuation of the sum of its parts.
Stocks & Portfolio Moves
Improving corporate governance remains one of our key themes in Japan and we introduced a new position in printing and photomask company Toppan. We believe that it has the potential to enhance its return on equity and boost shareholder value significantly via the disposal of lower margin subsidiaries and a number of equity stakes that have no logical reason to be held by the company, which could better use the capital released to buy back shares and increase dividends.
We also added to our position in Keyence, which finally acknowledged towards the end of the quarter that it could enhance value by splitting its shares, which are among the most highly priced in the Nikkei and are totally out of reach of most retail investors. A share split is the bare minimum that the company should do, as it has the scope to buy back a huge amount of equity and increase its risible dividend. We are also anticipating an improvement in the industrial automation cycle, which should help boost Keyence’s profits. For this reason, we have also added a position in the very out of favour Yaskawa Electric, a company we have followed for a long time as a world-class producer of servo motors for motion control and robotics. We believe that, although profits might be held back in the short term by tariff-related hesitancy, there will be a strong tailwind from automation in the years ahead.
In Europe, equity performance was mixed but Germany produced excellent returns once again, helped by expectations of a more pro-growth administration. Siemens, which we added to earlier this year, performed well during the period, rising by 18%. Schneider Electric shares finished lower, despite once again issuing a rock-solid trading update, highlighting that the company continues to benefit from the strong impact of increased investment in electrification, helped by strong growth in AI data centres, but also from the upgrading of grids nearly everywhere in the world. Other shares in our portfolio benefitting from these trends include Trane Technology and Mitsubishi Electric along with Siemens.
Elsewhere in Europe and the UK, during the first half we added positions in defence contractors Leonardo and QinetiQ. We see both companies as clear beneficiaries of the need to invest more money into defence by European members of NATO. Our position in Rolls-Royce continues to perform exceptionally well, as the company continues to execute strongly and is benefitting from positive trends in civil aerospace, power and defence.
Our other new position in the UK is Diageo, which we added to the portfolio following a prolonged period of underperformance. Diageo announced what we thought was a more optimistic trading update and improved free cash flow forecast that we hope will see the commencement of a prolonged uptick in performance. Part of the proprietary valuation work we do enables us to analyse what we view is the asset value of a business by estimating the cost of re-creating the company and we believe that Diageo has strong asset value support at current levels. We also believe that rumours of the structural decline in the spirits industry caused by the impact of GLP-1 drugs and younger consumers drinking less alcohol are exaggerated. Although the worst of the impact from the pandemic seems a very long time ago, the impact of the inventory overhang on the spirits industry has been very profound and we expect this finally to ease over 2025.
One area of the portfolio that has continued to perform exceptionally well has been the stocks exposed to streaming trends. Both Netflix and Spotify have performed strongly in the first half of the year as investors have latched onto the defensive qualities of both companies and the highly cash-generative nature of their subscription-based business models, with both firms being global leaders in their respective industries. Disney shares have also finally started to perform a little better after a prolonged period in the doldrums. We believe the company has finally reached the critical inflection point in which its direct-to-consumer franchises of Disney+, Hulu and ESPN+ really start to monetise after a period of reporting huge losses, which finally ended in 2024 when a small profit was declared. We expect this to accelerate strongly from here, offsetting the continued declines in traditional linear TV and better balancing the company’s overall profitability, which has been so reliant on the robust performance of the Experiences division. Management has expressed confidence in delivering at least double-digit earnings growth for the next three years, and we hope this will continue to aid a re-rating of the business in the longer term.
Inevitably, AI continues to be a particularly important theme for global equity investors. A number of our stocks had a significant tailwind from this theme in the first half of the year, notably IBM and Oracle, the latter of which reported strong results in June.
Conversely, our long-held structurally positive view of health care has had a difficult start to the year. Despite consolidating our positions via selling Danaher and Philips, most of our stocks generated a negative contribution to performance over the last six months. Without question the picture for health care investing remains cloudy in the short term. Notably, companies like Thermo Fisher Scientific are struggling with the pressure being applied to academic health care budgets and the weakness of funding in the biotech sector. We regard Thermo one of the best companies that we own and are prepared to take a long-term view that it will become a successful investment.
Outlook
The new additions to our portfolio have modestly reduced our cash position during the second quarter and we are confident that our new holdings will create considerable value. However, we are continuing to tread carefully in the current environment, where we see US equities as behaving in a very complacent manner. A number of risks that include trade deadlines put in place by President Trump to either have successful signed trade deals, or theoretically impose the very high tariffs that were announced on ‘Liberation Day’ which led to a rout of US equities that inevitably led global markets lower in early April.
We are also watching developments in the bond market very carefully, as a steep rise in longer-dated yields would threaten what we already believe to be stretched valuations. Despite these concerns, it is worth noting that we still have around 50% of our portfolio in US shares, as we still see an opportunity to invest in many great US-based franchises.
Tim Gregory
Fund Manager
Goshawk Asset Management
Data source: Goshawk Asset Management, Bloomberg
Disclaimer: This is a marketing document. Further information about Vermeer UCITS ICAV, including the current Prospectus and Key Investment Information Documents (“KIIDs”), are available in English and can be found at https://www.goshawkam.co.uk. Past performance may not be a reliable guide to future performance. Investments can go down as well as up and therefore the return on investment will necessarily be variable. Income may fluctuate in accordance with market conditions and taxation arrangements. Changes in exchange rates may have an adverse effect on the value, price, or income of the product. Goshawk Asset Management is a trading name of North Atlantic Investment Services Limited (FCA no. 969870) with company no. 13800256. North Atlantic Investment Services Limited is authorised and regulated by the FCA (FRN 969870) and is incorporated in the United Kingdom (Company no. 13800256). Registered Office Address: 6 Stratton Street, Mayfair, London, W1J 8LD. Vermeer UCITS ICAV (“the Fund”) is registered with the Central Bank of Ireland as an open-ended umbrella-type Irish collective asset management vehicle with variable capital (Register Number C154687). Opinions expressed, whether specifically or in general or both, on the performance of individual securities and in a wider economic context represent our view at the time of preparation. They are subject to change and should not be interpreted as investment advice. This document is intended for use by shareholders of the Fund, persons who are authorised to carry out investment business, professional investors, and those who are permitted to receive such information. Nothing in this document should be construed as giving investment advice or any offer, invitation, or recommendation to subscribe to the Fund. Any decision to subscribe should be based on the Fund’s current Prospectus and KIIDs. Waystone Management Company (IE) Limited, as UCITS Man Co, has the right to terminate the arrangements made for the marketing of funds in accordance with the UCITS Directive. A summary of investor rights policies can be found at https://www.waystone.com/waystone/policies.