Global Fund Update – June 2025
May was a strong month for global equities. The MSCI World moved up 5% while the S&P 500 increased 5.4%, both in Sterling terms, with the latter recouping all its losses from earlier in the year, while the Nasdaq gained an even more impressive 8.7%. The Goshawk Global Fund gained 2.9% in Sterling and is down 4.2% for the year, not helped by the strength in our base currency of Sterling, which has strengthened around 7.5% against the Dollar so far this year.
Although markets have strengthened, the global economic picture remains very uncertain, especially as President Trump’s ultimate tariff policies remain unclear. Towards the end of the month, the US Court of International Trade ruled that the President had exceeded the authority of the emergency powers he had used to impose tariffs as a matter of national security. However, within a matter of hours, the Trump administration had appealed the ruling and a federal court allowed the tariffs to stay in place for now. This is quite typical of the roller coaster that investors and companies have faced this year as news flow has repeatedly shifted. While this makes it difficult to invest on a long-term basis, our focus remains on quality companies and we have found a number of opportunities to add to our portfolio.
Stocks & Portfolio Moves
In May, we started a new position in Aena, the world’s largest airport operator, whose assets are mostly in Spain but also in Brazil and the expanding Luton Airport in the UK. Aena operates many of the key Spanish airports, including Barcelona and Madrid, and also in a large number of major tourist destinations, which are seeing solid traffic growth. Recent results showed decent performance as the company continues to execute well on its strategic plan that was put in place in 2022. Both Madrid and Barcelona are facing significant capacity constraints and the Spanish government is considering plans for expansion. In addition, the company faces a regulatory review known as DORA 3, for which the consultation process begins in late 2025 and Aena is expected to submit its final proposal in early 2026. We think Aena offers investors an interesting and stable growth story in an area that should be insulated from tariff developments, with many areas of potential growth and the share price is well supported by a yield of nearly 4%.
While we are proceeding with a degree of caution with respect to overall markets, we continue to see a very favourable opportunity in Japan. We strongly believe that the improving corporate governance story is driving an improvement in shareholder returns, highlighted by the level of buybacks seen in April alone. This is evident despite an uncertain global backdrop and the traditionally cautious nature of Japanese management teams. We have added three new positions to our Japanese portfolio over the last few months, partly to increase our exposure to the domestic economy and partly because we took profits in Sony after a very strong share price run that has taken the shares within touching distance of our fair value. We have added new positions in Mitsubishi Electric, TOPPAN Holdings and Yaskawa Electric, all stocks we have had on our watchlist for a considerable amount of time.
Mitsubishi Electric is a diversified industrial business, with operations in heating, ventilation and air conditioning, factory automation and a relatively small but fast growing defence and space business. Within the defence division, the company is the leading supplier of missiles and radar systems in Asia, areas we believe will benefit materially from the global increase in defence spending. The company is seeking to improve its return on equity, which in recent years has been as low as 6% and is now targeted to reach 10%, with improved balance sheet management and return on invested capital, while still investing heavily in growing the business.
TOPPAN was traditionally a printing company, but these days is well known for its photomask business, which is part of its high margin electronics division. We see TOPPAN as an emerging corporate governance story with a significant opportunity to return cash to shareholders, especially as it has a number of stakes in other quoted Japanese firms such as Recruit, which owns the world’s number one job site, Indeed, and has already been selling this holding down.
Yaskawa shares have struggled badly for a number of years as 80% of its revenue is tied to the capital investment cycle, which has struggled to gain sustainable traction. We believe that the factory automation cycle is finally beginning to turn and that Yaskawa, which is a leading supplier of servo motors and is trading at a very low valuation, reflecting the struggles it has been facing in recent years, should benefit as the market recovers. We believe management is taking a conservative approach to its forecasting, which is completely understandable given tariffs and other related uncertainties. Yaskawa also has significant exposure to the Chinese economy, which has continued to be difficult but we hope is beginning to turn a corner.
Within the existing portfolio, Disney, which has undoubtedly been one of our more difficult positions, produced a good set of quarterly results. The earnings report highlighted the improving returns of the previously loss making Disney+ and Hulu streaming services as it finally reaches an inflection point where subscribers and price increases drives materially higher margins. We have seen similar developments in Netflix and Spotify, two of our more successful investments, as they reached the point that losses turned to profits and most analysts underestimated the pace at which product margins would increase and cash flows would materially improve. Despite uncertain economic conditions, notably for the consumer driven Parks business, Disney management gave a very confident forecast which included upgrades to this year’s earnings guidance. Management also maintained guidance that they would be able to increase earnings by double digits for the next two years.
Outlook
We have maintained a relatively high level of cash in the portfolio and, while we have added a number of new holdings, we believe we are retaining a balanced portfolio of quality companies that are performing well, navigating the uncertain economic climate effectively and will withstand whatever challenges lie ahead.
Tim Gregory
Fund Manager
Goshawk Asset Management
Data source: Goshawk Asset Management, Bloomberg
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