Global Fund Update – October 2024

September was a turbulent month for global equities. The Vermeer Global Fund was broadly unchanged during the month and is now up 14% year to date in Sterling terms. Both the S&P 500 and Dow Jones Industrial Average closed the month at record highs.

In the US, the Federal Reserve finally began the process of ending a prolonged period of restrictive monetary policy by moving interest rates down by 50 basis points. The US economy has been showing signs of increasing weakness with inflation now under control, albeit remaining above the Fed’s 2% target. After much debate, Fed Chair Jerome Powell felt able to make a bolder start to the rate cutting cycle than the more conventional 25 basis point cut.

Although the market spent an inordinate amount of time obsessing over whether the Fed would move by a quarter or half point, the most important factor is the degree to which rates will be cut between now and the end of 2025. The current expectation is that there could be a further eight cuts by the end of next year, but this will depend on whether the US economy achieves a soft landing and avoids a recession but also what path inflation takes after the US election. This path will largely depend on the policies implemented by the eventual winner of an election that is currently too close to call.

The Chinese economy has been struggling badly to regain momentum in the post-COVID environment. The property market remains notably weak and towards the end of the month, the Chinese authorities introduced a number of aggressive measures in an attempt to turn around the struggling economy and achieve the government set GDP growth target of 5%. A number of initial easing policies were announced to try and kick start the economy, including a cut to the Reserve Ratio Requirement for banks to encourage lending, a cut in the mortgage rate and a lower deposit threshold for second home buyers. It is expected that these measures will be followed by a number of additional policies at the October Politburo meeting. Although it is too soon to determine whether these measures will be sufficient to reinvigorate the economy, it has led to a major equity market rally in the region. We are carefully monitoring the situation but believe it is too early to be certain that these policies will lead to a meaningful acceleration in Chinese growth and therefore to a shift in our portfolio position.

In Japan, the ruling LDP party held its leadership election at the end of the month, ahead of a general election that is expected to take place at the end of October. The election of Shigeru Ishiba as the new LDP leader led to a sharp negative market reaction on the last day of the month, sending the Nikkei down around 5%. The expectation is that Ishiba-san will follow a prudent fiscal approach and support the Bank of Japan in adopting a higher interest rate policy, which initially led to a sharp strengthening of the yen and negatively affected the performance of export led stocks such as Toyota Motor and Keyence. We had already been re-shaping our Japanese portfolio to a degree to reflect the end of ultra-loose monetary policy, which had led to a material multi-year weakening of the yen until the BoJ raised interest rates and ended yield curve control.

The European economy continues to be weak and the region should also see a series of interest rate cuts over the coming quarters. The Global Fund remains overweight European equities but this reflects our strategy of investing in what we believe are the main themes driving global growth. We added to our positions in both Siemens and Schneider Electric during the month to reflect our continued confidence in the energy transition theme, which we see as absolutely pivotal to future economic success.

In the UK, Sterling continued to strengthen as the MPC left interest rates on hold, negatively impacting the absolute performance of the portfolio. We added to our position in Rolls Royce, which has continued its impressive turnaround and is a beneficiary of the post-COVID rebound in civil aerospace but also the robust franchises it has in both the defence and power industries. CEO Tufan Erginbilgic has affected a remarkable turnaround in the company’s fortunes but we still think the long term opportunities for the group are robust, despite the strong share price performance this year.

Another of our UK investments Cranswick issued a positive unscheduled trading update at the end of the month, sending the shares to new highs. Cranswick’s management team have implemented a successful strategy of investing in the UK food production industry and is really seeing the benefits of those investments and we expect the company will continue to build the business to capture greater market share in the UK. After a period of very strong share price performance, we are reviewing the position as the company has now undergone a material re-rating.

Oracle remains one of the largest positions in the portfolio and delivered strong quarterly results and impressive long term financial guidance as the benefit of its Oracle Cloud Infrastructure strategy is really starting to come through. The enormous increase in investment related to artificial intelligence is benefiting the company and Oracle is continuing to invest very heavily to capture this growth opportunity. This increased industry spending enabled Oracle to give revenue guidance out to fiscal 2029 indicating it expected double digit annualised sales growth, which once the company passes the peak of its capex plans, should lead to substantial cash flow and earnings growth. Shares in Oracle have performed well so far in 2024 and rose by another 21% in September.

The global stock market has enjoyed a strong run so far in 2024. The shift in US interest rate policy and hopes of an economic recovery in China continued to drive positive sentiment in September. The market has so far been very sanguine about the increasing tensions in the Middle East and also the upcoming US elections. We will continue to run with a balanced strategy and adopt a prudent approach that reflects both risks and opportunities that lie ahead. We currently have a full complement of sixty names in the portfolio and therefore will need to make disposals in order to accommodate any number of new ideas that we are currently assessing.

 

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 www.vermeer.london. 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/