Global Fund Update – January 2025

2024 was another strong year for global equities with the Global Fund returning 15.3% in Sterling. Despite 2024 being the biggest election year in history and concerns over an economic slowdown, markets climbed a wall of worry. However, for the second year in a row, the US market dominated performance, with the S&P rising 25% in Dollar terms and now represents just under 75% of the global equity market.

The performance of the so-called Magnificent 7 stocks in the US commanded the investment landscape in 2024, providing over half of the S&P’s overall rise. Nvidia finished the year 171% higher and grabbed the headlines but it is worth noting that Apple rose 31%, Amazon 44%, Alphabet 36%, Meta Platforms increased 66% while Tesla ended 63% higher and only Microsoft, which still rose a healthy 13%, underperformed the overall index.

While the re-election of President Trump gave a material lift to equities in the fourth quarter, this was not maintained in December. Markets declined during the month and many of the sectors that initially did well gave back a significant proportion of gains made since early November. Indeed the Dow Jones Industrial Average suffered nine consecutive down days and market breadth was consistently poor. In December, the S&P 500 declined 2.4% while the Dow fell 5.1% in Dollar terms.

One of the main reasons that stocks did not do so well at the end of the year was due to increasing uncertainty over the path of US interest rates as we head into 2025. At the beginning of 2024 it was expected that rates would come down quickly as inflation receded. However, although the Federal Reserve was able to ease rates by 1%, including by 25 basis points in December, this was less than first thought and the outlook for this year is far less clear. At the December FOMC meeting, the Summary of Economic Projections suggested only two further rate cuts in 2025, down from four cuts expected as recently as September. Fed Chair Jerome Powell’s commentary was interpreted by the market as hawkish, leading to a sharp selloff in US equities.

Reduced expectations for the number of rate cuts and anxiety over already elevated levels of US government debt meant that bond yields rose towards the end of the year with US ten year Treasury yields ending the year at 4.56%. The path of the bond market is likely to be a key driver of the performance of equites in 2025 and it is extremely hard to imagine that stocks can repeat the power packed performance of the last two years if US bond yields continue to climb from current levels.

In Europe, while the Stoxx 600 did rise in 2024 with a total return of 9.6%, the index was broadly flat in the second half of the year. Europe is now battling considerable political turmoil in both France and Germany, where elections are due to take place in February. This comes at a time when European growth remains very weak compared to the US and interest rate cuts are having a negligible effect on growth. While we remain overweight European equities, we have reduced our overall position and our weightings do not reflect a positive view on the macro-economic outlook for the region, but simply that a number of companies we invest in and represent our thematic ideas happen to be domiciled in Europe. Some of the main positions in our European portfolio include global healthcare franchise Roche and Dutch based global provider of information services Wolters Kluwer, which was a new position in the Fund during 2024 and performed well rising over 25%.

In China, economic conditions continued to be challenging and materially impacted the performance of a number of our companies in 2024. However, we see considerable evidence that Chinese authorities are taking the necessary steps to stabilise the property market, which has been a major overhang to consumer confidence and is currently showing little sign of recovery but we believe could improve modesty in 2025. We did begin to reinvest in what we regard as high quality franchises that we believe will be long term beneficiaries of better economic conditions in China. In the fourth quarter we added new positions in L’Oréal and Hong Kong listed China Life, which was the first investment we have made in a Chinese business for several years.

Japanese equities had a strong year in local currency, with the Nikkei rising 21.3%, but the continued weakness of the Yen dampened performance for global investors. We are maintaining our positive stance to Japanese equities and have a balanced portfolio that reflects our expectations that interest rates will continue to normalise and that improving corporate governance will continue to be a major theme that will drive improving returns to shareholders. We added new Japanese financial positions in the second half of the year in Sumitomo Mitsui Financial Group and Sumitomo Mitsui Trust. We believe both firms are attractively valued and are major beneficiaries of a rise in Japanese interest rates, which is needed to combat inflation and stem the weakening of the Yen.

India has been a key investment area for the Fund since launch. However, towards the end of the year we made the decision to exit our positions in the country. While we maintain a positive long term structural view of the country, we became concerned in the short term over stretched valuations and, following a visit to the country, worries around the degree of retail involvement in the market.

There are several major themes that are currently driving our portfolio, none more so than artificial intelligence which became an increasingly dominant investment debate in 2024 and will undoubtedly be again in 2025. The incredible performance of Nvidia shares in 2024 continued to be a major driver of overall US market performance. As noted earlier, Nvidia shares rose a staggering 171% in 2024, on top of a 239% rise in 2023, giving the company a market capitalisation of over $3trillion and now represents just under 5% of the global benchmark. However, it is worth noting that this performance came mostly in the first part of 2024 with shares rising from $48 to $130 before closing the year at $134. We continue to be great admirers of the achievements the company has made but have been reducing our position throughout 2024 and did so again in late December with the position size in the Global Fund now around 3.5% and we anticipate continuing to reduce the position in 2025. We did start a position in Broadcom in December, which we also see as a major winner in the artificial intelligence theme and reported strong results and a positive outlook for the portfolio of assets it has acquired in recent years. The arrival of Broadcom as the latest US company to top a trillion dollar valuation has led the Magnificent Seven to be renamed BATMMAAN!*

We added to our position in Accenture in December after it reported a very solid set of results and modestly increased its revenue guidance. We see Accenture as a major winner from the next leg of artificial intelligence as companies seek to implement AI strategies and use Accenture’s considerable skills in digital consulting to transition their business and benefit from the opportunities AI is going to present. Accenture ended the year at around 2.2% of the portfolio.

Oracle was another one of our best performing shares in 2024, rising by 60%. Oracle produced another strong set of results in December with revenue rising 9% to over $14billion and cloud related revenue was up 24% to $5.9billion, driven by record AI demand which the company believe will lead them to top $25billion in Oracle Cloud revenue in 2025 with founder Larry Ellison describing this as only the “beginning of the beginning.” Oracle shares saw a material re-rating in 2024 and we have reduced our position to reflect the market now fully appreciating the strong position Oracle has built in AI infrastructure.

Investing in the healthcare sector has been a consistent theme for the Global Fund since launch back in 2016. 2024 was a challenging year for many companies in this space, especially those like Carl Zeiss Meditec, Danaher, and Thermo Fisher, and along with Philips , all have large exposure to the Chinese economy and we believe will show a recovery in 2025. Our exposure to the GLP-1 franchises Eli Lilly and Novo Nordisk has been very profitable in recent years but, having already meaningfully reduced our position in Novo over the last two years, we sold the remainder of our position following the disappointing readout for the company’s crucial Cagrisema weight loss trial, which came in below very high market expectations.

Over the course of 2024, we increased our exposure to US equities at the expense of Europe and the UK. In the UK, towards the end of the year we took considerable profits in our positions Compass and Cranswick while also cutting our holding in BP. The outlook for the US economy is clouded by uncertainty surrounding the policies of incoming President Trump, who is clearly aiming on adopting a pro-growth, low tax agenda while at the same time wanting to pursue aggressive policies on tariffs, which are likely to impact global growth. We are cautiously optimistic that substantial domestic policy initiatives in China will see a stabilisation of the economy in 2025, despite the threat of increased US tariffs. In Japan, we remain optimistic about the benefits of improving corporate governance and returns to shareholders. Overall this leads us to maintain a balanced approach to our portfolio, while continuing to emphasise the themes that we see as driving the global macro environment which include:

• Technology Solutions – AI and automation transforming the business environment
• Environmental Productivity – decarbonisation, energy transition and electrification
• Social Demographics – ageing population, healthcare and sustainable consumer trends

As we head into 2025, we have a cash position of around 8%, which we see as a balanced approach to reflect an uncertain global economic and geopolitical environment.

 

Tim Gregory
Fund Manager
Goshawk Asset Management

 

*BATMMAN – Broadcom, Alphabet, Tesla, Meta Platforms, Microsoft, Amazon, Apple, Nvidia

 

Data source: Goshawk Asset Management, Bloomberg

 

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