February 2024 saw the global equity market continue its recent pattern with share price momentum and companies with higher growth rates providing better performance. Index returns continue to be driven by the narrow number of companies delivering great earnings growth.

Overall financial conditions in the United States have not changed much despite headline tightening. Volatility has remained surprisingly low. Investors appear to envision that pro-business policies will emerge from a Republican Government, despite the lack of tangible policy proposals. There have been announcements from large technology firms about layoffs, but they represent a small fraction of overall employment which in aggregate has continued to be buoyant.

The FTSE All World Index (USD) gained 4.3%, while the Global Equity Growth Fund (I class USD) delivered 7.1%. The best performing stocks held were Nvidia 28.6%, Yum China 27.3% and Sea Ltd 27.2%. Market expectations for Nvidia’s fourth quarter results were very high. Nvidia delivered a spectacular showing of 265% year-on-year revenue growth and 486% adjusted earnings growth (765% on GAAP earnings). This was well over 10% higher than consensus and extremely positive guidance was provided. Large technology powered companies are tooling themselves up to deliver the processing power required to support the huge increase in demand for Artificial Intelligence (AI), particularly generative AI.

On the release of their fourth quarter results showing revenue growth of 19% year-on-year, Yum China shares recovered much of their losses from January. The Sea Ltd share price rose as investors began to anticipate good earnings. Along with other fund holding Grab, Sea is one of the two Asian super-app giants set to benefit from positive demographics and we believe their mobile-enabled financial services offerings are noteworthy. Sea has considerable exposure to video games and having had a dearth of new releases, the current slate is more promising.

There were few negatives on the performance front, and these came from some of the smaller-sized fund positions. Argonaut Gold provided a disappointing update on the cost inflation they have experienced and difficulties in grade selection at the Magino mine. Typically, mine plans account for better yields due to selective mining of ore with higher gold content but those at the pit face evidently did not extract this higher-grade material. The shares declined 41.2%. While management outlined plans to increase production to compensate for grade selection, they were keen to stress that longer term plans and expected yields for the mine remain intact. But holders were evidently keen to sell what has been a troubled stock for the last few years. We continue to believe that with a large low-cost operational mine in country with low political risk the shares are attractive. Oxford Nanopore shares declined 17.6% with little news other than management change. To-date the firm has delivered on their IPO promises and their current anti-takeover provisions are due to expire in September. Following earnings at the beginning of the month, Coursera shares also declined 16% despite revenue and revenue guidance being 3% ahead of expectations.

With the current market so narrow active global equity managers seem to be in one of two camps; either they have AI exposed stocks and are outperforming or keeping up with the global index, or they have little of these and are experiencing underperformance. Amid the areas of the market that seem obvious to avoid, such as US regional banks, we are conscious that opportunities might arise. However, we are unconvinced that this is the right time to take risk in these areas.