Global Fund Update – May 2025
April was an unbelievably volatile month for global equities. After a very tough start to the month, markets recovered to finish just 2.4% lower for the month in Sterling terms and are 7.1% lower year-to-date. The Goshawk Global Fund declined 3% in April and is down 6.8% for the year.
On 2nd April, President Trump announced a new global “reciprocal tariff” plan, which sent shockwaves through world markets and drove equities materially lower. At the same time, this led to a sharp rise in US bond yields and a sizeable depreciation of the US Dollar. While most countries decided against engaging in a “tit-for-tat” rise in tariffs, inevitably the announcement was met with an aggressive response by Chinese authorities, which led to an escalation in the size of tariffs to as high as 145%.
Global stocks then rallied strongly after the imposition of a 90-day suspension on tariffs on all counties except China, but were then hit harder following the pronouncement from President Trump that Fed Chair Jerome Powell’s termination from the role “cannot come fast enough”. Trump then added on Easter Monday that Mr Powell was “Mr Too Late, a major loser” and that he should “lower interest rates, NOW”. This created anxiety about the ongoing independence of the Federal Reserve.
During this period, despite fears of an impending US recession, US bond yields continued to rise, with ten-year yields moving above 4.4% and the thirty-year at a yield of over 4.9%. This is a major problem for the US as it is in a period where trillions of dollars of lower coupon debt are due to mature and be replaced by significantly more expensive paper. Treasury Secretary Scott Bessent had stated previously that he was targeting 3.75% for ten-year yields, and earlier this year it seemed like this could be achieved. However, the considerable uncertainty that has been introduced by tariffs, combined with the additional uncertainty around the continued independence of the Fed, has been unhelpful to the cost of funding debt and raises serious questions around the viability of President Trump’s planned tax cuts later this year.
By Easter Monday, the S&P 500 had declined from a peak of 6,144 in February to just over 5,000. This led to a major shift in tone from the President, who stated that he had no intention of firing Powell, while Secretary Bessent noted that the tariffs currently imposed on China were not sustainable. These comments led to a major improvement in the performance of the US bond market, taking yields back to below 4.2% by the end of the month, and helped US markets recover and rally strongly off the lows, which occurred when yields rose above 4.4%. This led to a powerful rally in US equities, which ultimately finished April down less than 1% for the month.
We view the outlook as very uncertain and there is a considerable lack for clarity with respect to the prospects for the global economy. As a result, we have maintained higher-than-usual cash levels and have been increasing the quality and defensive bias within the portfolio. We believe that it is at times like these when the quality of the companies you invest in and the management that runs them shines through and the strong inevitably get stronger. We have already witnessed a number of companies issuing cautious comments about future profitability, which we believe is prudent, but most of our portfolio companies are firmly in control of their own destinies.
Stocks & Portfolio Moves
One company whose shares have been under pressure this year is Thermo Fisher Scientific, the world-leading manufacturer of scientific tools. Recent results prompted a modest downgrade to its 2025 outlook due to a prudent decision to incorporate the entire impact of the 145% China tariffs and therefore an assumption that these exports, which could not be redirected through other global manufacturing facilities, would lead to sales from the US to China evaporating to zero. In addition, they assumed a negative impact from new US government policy on the academic spending environment on medical science equipment, with this creating an additional headwind to growth. Despite this, Thermo still believes it will grow this year and that it will outpace the industry growth rate of around 5% over the longer term. We have slightly increased our position following a significant fall in the share price over the last few months.
Consumer confidence has come under pressure in the first quarter of 2025, and we are being careful about investment in this area of our portfolio. However, one of our largest positions continues to be Netflix, which we believe offers excellent value for money for customers and is proving extremely resilient in a downturn. Recent results highlighted the strength of the franchise as revenues grew by 12.5% and operating income increased 27%. Cash flow has strengthened materially as its subscriber base and advertising revenue grows and content spend remains significant but well-contained. After an incredible run in the shares, we modestly reduced our holding to reflect what we now believe is a full valuation, but we still view it as a rock-solid franchise for an uncertain environment.
Spotify, whose shares have also performed very well this year, issued another strong set of results and, like Netflix, we continue to believe that they offer a very resilient financial model in a time of economic uncertainty. The company now has 689 million monthly active users, of which 268 million are premium subscribers, and the business has substantial scope to drive revenue growth from both advertising and subscription revenue. With a host of new product development opportunities still to be monetised, we continue to see a bright future for Spotify despite a very strong rise in the shares over the last twelve months.
We have been increasing our exposure to China where, despite considerable challenges, we see government policy as designed to stimulate consumer spending, which has remained under pressure in recent years. As a result, we have added a new position in e-commerce and cloud computing giant Alibaba.
We have also added further to our positions in L’Oréal and LVMH. L’Oréal posted a solid set of results, which showed the continued resilience of its skincare products, but LVMH shares traded materially lower after its results disappointed the market. Overall revenues declined 3% against expectations for flat growth with the company seeing continued weakness in Wines & Spirits, but the flagship Fashion & Leather Goods segment, which includes Louis Vuitton, Fendi and Dior, fell by 5%. While we were disappointed by the subsequent share price decline, with shares down 21% year-to-date as of the end of April, we see this as a clear winner from an improving Chinese consumer environment, which is essential to the economy given their ongoing tariff spat with the US.
In Japan, we added to our position in Keyence at the end of the month after the company posted another strong set of results. Keyence shares have been treading water for a number of years following very strong performance during the pandemic. The industrial automation investment cycle has faced multiple headwinds in recent years, but Keyence has continued to invest aggressively and we believe is set to be a winner from the structural growth drivers that should once again lead to a period of secular growth for the automation industry. We believe this growth will be driven by a continued shortage of skilled labour and the planned re-shoring of manufacturing to the US.
Outlook
There has been a welcome bounce in global equities in anticipation of some moderation on tariffs. Despite this, the tariff threat has already damaged growth and consumer confidence and the struggle to refinance US debt and afford the promised tax cuts will trouble US markets over the summer.
These conditions have, however, taken some of the world’s best non-US stocks down to attractive valuations for long-term investors like Goshawk. The Global Fund is weighted away from the US, while maintaining a balance which seems sensible, with the portfolio around half-weighted to the US rather than the near 70% in the index.
Furthermore, the best non-US companies seem to find themselves better positioned to compete with their US peers as America isolates itself in global trade. The shape of a portfolio for the next few years is starting to emerge.
Tim Gregory
Fund Manager
Goshawk Asset Management
Data source: Goshawk Asset Management, Bloomberg
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