Global Fund Update – December 2024
November was a strong month for global equities led almost entirely by considerable strength in US equity markets following the election of former President Donald Trump for a second term. US equities provided all the gains for markets, rising by 5.9% in November alone, its best month this year as investors piled into Dollar assets in expectation of growth friendly policies and reductions in taxation. The Vermeer Global Fund was up just under 4% during the month and is now up just over 18% year to date.
At the same time, European equities struggled to make headway, as weak economic data and a very challenging political backdrop emerged in both France and Germany. While we continue to have significant exposure to European equities, this represents companies who are domiciled in Europe but whose business models are largely global. For example, many of our pharmaceutical companies are based in Europe but their franchises are truly global in nature. In addition, our global themes of automation and the energy transition are partly represented by investments in Schneider Electric and Siemens.
Schneider has performed very well this year, rising by 36%. Siemens has performed less well but in November produced a very encouraging set of results. These results showed continued revenue growth at around 8% in core “smart infrastructure” markets and mobility while digital industries, where growth was negative 8%, is showing signs of bottoming out in the critical Chinese market, which has really been struggling with a material inventory correction. We view Siemens as a very attractively valued investment with good exposure to strong secular tailwinds and although it does have significant exposure to Europe, over 50% of sales are to the Americas and Asia Pacific.
In Japan, despite a high level of volatility, the Yen was modestly stronger versus the Dollar in November, as expectations of higher interest rates to combat inflation continued to rise. Ten year Japanese bond yields rose above 1% while the Nikkei has fallen back in recent months but remains 16% higher year to date in local currency.
In China expectations that further economic stability measures will be introduced at the upcoming Economic Works Council Forum failed to maintain any momentum that had been generated in October. This initial momentum came from a clear shift in policy aimed at clearing the inventory overhang in the property market and renew confidence in consumer spending in order to achieve the Government’s target of 5% annualized GDP growth. As we have previously commented, we have added back some modest exposure to Asian equities via a new position in China Life, which we modestly added to in November following renewed weakness in both the Chinese and Hong Kong equity markets. We also added to our recently acquired position in L’Oréal at the end of November.
In company news, Spotify produced a stellar set of results propelling the shares to new highs, even after a great run this year, with the stock now up over 150% year to date. This has occurred as management have focused on monetisation of their hugely successful music subscription model that continues to grow and is now expected to generate net income of over $1billion this year, compared a loss in 2023.
As we noted earlier, the election of Donald Trump for a second term has led to considerable strength in US equities and the Dollar. The economic expansion policies planned by the President-elect has meant that a number of the expected interest rate cuts that were being priced into markets for 2025 have now been removed from the predictive forward interest rate curve. The US already has a higher level of government debt, currently standing at around $36trillion and rising, leading to a fiscal deficit of some 6% of GDP. With interest rates stubbornly high, the cost of servicing this debt continues to increase. This raises the question of the viability of planned tax cuts, but the market is solely focused on the optically better economic growth prospects the US offers relative to other countries.
We have been adding to our positions in Dollar assets in recent months and did so again in November. In order to maintain balance in the portfolio, we have added exposure in banking via a new position in Morgan Stanley, which recently released outstanding results. We also added a new position in “dividend aristocrat” Johnson & Johnson, which offers attractively valued exposure to both the pharmaceutical and medical devices industries and has successfully spun off its consumer health division into a new entity now known as Kenvue. We believe that J&J may be close to resolving long standing negative issues related to lawsuits surrounding its talc products. A dividend aristocrat is considered to be a company that has raised its dividend for at least 25 years and in April this year, J&J declared a 4.2% increase in its quarterly dividend, marking the 62nd consecutive year of dividend increases for the company.
We have also added a new position in Avery Dennison, a high quality compounder in the material science and digital identification solutions sector. Avery Dennison manufactures RFID tracking tags for various industries such as the retail sector that improves supply chain management and has been depressed by the post COVID inventory issues that have impacted many companies. Despite producing consistently solid results, Avery’s share price has considerably underperformed the S&P 500 in recent years and we believe the company is a high quality business that will add value to our portfolio in the long term.
We also modestly added to our position in Disney, which is a stock that has not performed well in recent years. In November, Disney issued, what we considered to be, its best quarterly financial performance in many years and gave very robust guidance for future earnings growth. This reflects both the streaming business reaching its profitability inflection point and greater confidence in its film programming schedule than has been the case for a very long time. Disney is on course to have the three most successful box office hits of the beleaguered cinema industry in 2024. Inside Out 2 and Deadpool & Wolverine both exceeded $1billion in box office receipts and early indications are that Moana 2 could challenge Inside Out as the most successful animated film of all time.
Overall we have increased our exposure to US equities to around 62% of the portfolio, the highest level we have ever had and have reduced exposure to Europe and the UK, with Europe now representing 16% and the UK 5%. As noted earlier, a lot of this European exposure is to global franchises. We have maintained our overall cash position at around 8% to reflect a conservative view of markets after such a strong run in US equities and weakness in other major global economies.
Tim Gregory
Fund Manager
Goshawk Asset Management
Data source: Goshawk Asset Management, Bloomberg
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