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Global Equity Growth Fund: November 2023

November was a more positive month for equity markets with the FTSE All World Index gaining +9.2%. With inflation slowing faster than expected, European equity markets were among the best performing asset class, with the technology-driven US not too far behind. The Chinese equity market continues to majorly underperform. The Chinese market has continued to suffer huge redemptions both from international institutional investors, as well as retrenchment from Chinese retail investors. Recent and current issues are the real estate crisis, haphazard regulation, slowing growth and geopolitical tensions. 

While there have been many false dawns, the Chinese authorities have put in place several measures that should shield the economy from the real estate problems and re-encourage economic growth. While the level of growth is structurally lower than that enjoyed historically the country continues to offer higher levels of growth than elsewhere. The price to earnings multiple of the Hang Seng Index has only been cheaper a handful of times: following the collapse of the Bretton-Woods gold standard in 1974 – 1975, during the tensions surrounding the hand-over of Hong Kong by the British in the early 1980s, and the levels experienced in the great financial crisis of 2008. It is currently lower than after the Tiananmen Square massacre in 1989, and during the Asian financial crisis from 1997 – 1998. As the late, great Charlie Munger said, “There is no better teacher than history in determining the future”. Historically, rebounds in Chinese equity market valuations have been rapid once sentiment changes.

The Ashburton Global Equity Growth Fund (I class USD) returned +7.8%. Autolus Therapeutics was the best performing holding gaining 51.8%. The company outlined forthcoming data for the American Society of Hematology (ASH) meeting, hosted a tour of their impressive new production facility in Stevenage, and filed their Biological Licences Application. A general warning by the US Food and Drug Administration on all CAR-T therapy products caused some worry towards the end of the month, however the safety and efficacy data of Autolus’s product remains compelling.

Expedia, the travel booking service, shares also performed strongly gaining +42.9% on the back of an encouraging earnings report, which included no forward-looking indication to support the widespread fear of a slowdown in travel spending. New holding Crowdstrike also reported better-than-anticipated results and saw their shares gain +34.1%.

At the other end of the table of returns from the fund holdings were Yum China (-19%), Sea (-13.1%), and Vermilion Energy (-12.3%). Yum China grew earnings per share of 18.4% but this was below lofty expectations of 40.8%, due to margin contraction. Management spelled out their belief that they can meet previously outlined guidance for this year and beyond. The share price reduction was likely exacerbated by the current level of consumer confidence in the country, which is the lowest it has been since records began in 1990.

Sea provided a very disappointing update in terms of the competitive environment for e-commerce and their return to marketing spend. This resulted in the company reporting a loss rather than modest expected profit for the quarter, despite the return of gaming revenue growth. The opposition is under review.

The oil sector declined generally with lower oil prices, though Vermilion Energy’s share price fall was worse than many peers. The company provided a solid operational update, though from an earnings perspective increased development spending meant lower-than-expected reported quarterly earnings. After the share price fall the company looks to be trading on a free cash flow yield of over 25% for next year, which we see as very attractive. Management outlined plans to increase shareholder returns once their net target is achieved in the first quarter of 2024.

Trading activity was substantial due to a large redemption, but there were minimal positional changes on a percentage basis.