Summary

• The Global Equity Growth Portfolio returned 5.4% with strong performances from Alphabet, LVMH and Amazon.
• With global money supply remaining very accommodative, global equities enjoyed another very positive month.
• Looking forwards, after such a strong start to the year, the “sell in May and go away” adage might well result in initial weakness during the month, with central bank policy coming under increasing scrutiny.

Market update

The condition of easy monetary supply remains in place. During April central bank balance sheets continued to expand while corporate earnings growth was largely positive, with quarterly updates generally ahead of market expectations. All in all, this was a positive environment for equity prices and the FTSE All-World Index climbed 4.4% during the month.

The Ashburton Global Equity Growth Portfolio returned 5.4%. April was a busy month for corporate earnings and the portfolio’s return for the month was a little ahead of the index, largely due to good stock selection in the Communication Services and Consumer Discretionary sectors. Unsurprisingly the best performing stocks held in the month were those that reported results considerably ahead of excess of market expectation: Alphabet (+16.5%), LVMH (+13.6%) and Amazon (+12.1%).

Alphabet grew revenues by 34%, and continues to see a broad-based return of advertising on the Google search engine, from retail and travel companies. The company also disclosed more detail on their cloud services which, though still loss making, saw 46% growth. LVMH is also seeing strong trading with organic sales growth of 30% and Louis Vuitton and Dior brands showing good momentum within fashion and leather goods. Amazon’s results surprised positively, with increased profitability coming from the International (non-USA) based business.

The worst performers held during the month were Ping An (-6.3%), NXP (-4.4%) and Eli Lilly (-3.4%). All three companies also reported quarterly results during the period.  While Ping An has returned to growth, as previously guided the company took a large impairment on its investment in a Chinese property developer. Such impairments tend to be regarded as one offs by equity investors however in this case investors appear to be questioning whether the company is actually being used as an instrument of the state and are wondering if these sorts of investments might become a recurring theme. Indeed, the company took a large stake in Peking University Founder Group near the month end. We will endeavour to determine the merits of this move.

NXP produced a record set of results, a little ahead of consensus estimates, however their share price fell on the announcement by Intel that they would begin to manufacture automotive chips to help with the global shortage. Our understanding is that these Intel chips would not compete directly with those made by NXP. Interestingly, NXP management also spelled out that the firm is not price gouging customers during this period of insufficient global chip supply. Rather the company has been taking long term noncancelable orders from customers and the CEO commented that “NXP is at the early stages of a longer term, company specific, growth cycle”. We remain excited by the outlook for the company based on design wins and by the increasing chip content per vehicle”.

During the month, the position in Akamai Technologies was sold and a new holding taken in Morgan Stanley. Over the last few years, Akamai Technologies has enjoyed significant tailwinds within the content delivery network with a huge global uplift in streaming services. The pricing demands from the concentrated product base became evident earlier in the year when the firm reduced guidance. The share price had subsequently recovered somewhat. While Akamai is keen to refocus investors on the impressive growth of their security business, the team believes that the relatively high multiple has become difficult to justify. Morgan Stanley has been successfully transitioning from an investment bank to a wealth manager. While the share price has made a meteoric rise since the pandemic sell-off, we believe that there remains a gap to fair value based on the growth of the wealth management business and heightened investment banking activities.

The price of equities has risen quickly from their pandemic induced lows. Many indices are back at all-time highs. The health of the consumer looks good and data generally points to economic recoveries. Naturally then, investors start to wonder when central banks will scale back and withdraw their stimulative policies. The message from the central banks continues to be “not yet”. Some share price reactions to positive results indicates to us though that parts of the market are, arguably, fully priced. This suggests that investors should increasingly seek a somewhat more selective approach to assessing the attractiveness of potential investments.