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 new 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 Model Portfolio (USD) delivered 7.3%. 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’s 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, 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. Adobe shares declined 9.3% amid concern that OpenAI threatens the company’s dominant position within video creation.  Adobe was an early adopter of AI and the quality and speed of output are high and we anticipate continued product improvements. We do however share some of the concerns relating to the future level of competition. Expedia shares declined 7.8% over the month. The company unexpectedly announced a change in Chief Executive and bookings were a little (1.4%) below consensus estimates.

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.