View all posts

Global Equity Growth Portfolio: June 2023

Stock markets responded positively to the political agreement research to raise the US debt ceiling. The FTSE All World index gained 5.7%. There was some broadening of the market rally and it was not just those stocks exposed to the current in vogue theme of artificial intelligence that performed well. Factor analysis indicates that lower quality and more volatile stocks performed were amongst the best performing area of the market.

The Global Equity Growth model portfolio (USD) gained 5.8%. Align Technology’s share price recovered 25.1% to close to April highs, probably due to optimism over Chinese case numbers. Patterson (+22.9%) saw an increase in share price following an announcement by OPEC to reduce production which raised oil prices. While the empirical relationship of these share prices of oil services companies to the crude oil price is well understood, fundamentally little has changed for the firms who remain at close to full fleet utilisation in an industry that has had structural underinvestment.  The Match Group share price responded positively to the launch of Archer, a dating application for aimed at gay, bisexual and queer men, providing a 21.3% gain for the month.

Unusually from recent experience, the portfolio’s smaller capitalisation stocks performed poorly in June. Argonaut Gold shares declined 6.1%. During the month the company poured their first gold at the Magino mine. The mine is set to be amongst the lowest cost operations in developed markets and once fully operational later this year we anticipate a substantial rerating of the shares. Lancashire shares declined 4.3%, though there was little news during the month to change our view that both the rate and claims environment for the company appear attractive.

L’Occitane International share price declined 10.4% with the firm announcing surprisingly weak headlines earnings. Looking in depth at these, underlying results were good but some non cash impairments came as a surprise, as did guidance regarding margins for the forthcoming year. Management has decided to invest heavily in building their brands and hence has lowered margin expectations, while raising revenue growth targets. We continue to believe the firm is substantially undervalued.

Trading activity was modest.

We have received several inquiries questioning our exposures to artificial intelligence. We have been well aware of the emergence of many aspects of the technology and the portfolio continues to have exposure both to direct users of the technology, as well as suppliers of some of the building blocks. There have been many examples of new technology catching the interest of investors historically. While there is now general awareness of the benefits that AI can offer, we no not believe we are yet at fever pitch “bubble” levels of valuation in the space.

Central banks are once again in liquidity reduction mode in order to be shown to be taking action to contain inflation.