Global Equity Growth Fund: May 2024

Global equity markets rose in May. Overall, the FTSE All World Index gained 4.1% while the Ashburton Global Equity Growth Fund (I class USD) returned 4.8% Outperforming stocks held during the month included Nvidia (26.9%), Ambarella (26.7%) and Rexel (20.7%).

Delving into the Nvidia results, which were again ahead of consensus expectations, management’s positive outlook for AI spending helped explain such a big share price increase. Better-than-expected earnings were also reported by Ambarella though the positive share price reaction was more likely attributable to a major design win announced with a Chinese Partner. Yearly contributions from each new design win we forecast at $200m which is almost the current annual sales of the company. Earnings forecasts at Rexel climbed during the month in advance of the firm’s capital markets day on 7 June. Laggards included Tripadvisor (30.3%), Expedia (16.2%) and Duolingo (15.2%), who all posted declines. Our view on the travel sector remains positive. However, both Expedia and Tripadvisor disappointed the market with their results and additionally, the potential takeover of the latter by a related party fell through. Very impressive growth was reported by Duolingo who saw a 44.9% increase in revenue, however shares declined over the month. Expectations for the future growth rate of the firm have fallen modestly.

Fund activity was somewhat elevated with new purchases made by Chinese e-commerce firm PDD, Spanish cosmetics giant Puig Group, and total sales made of Argonaut Gold and Match Group. Rapid ecommerce growth from PDD has seen the firm take significant market share and the firm looks set to continue to experience growth levels which do not seem to be factored into the current share price. Olfactory giant Puig launched their initial public offering, and we considered the shares simply too cheap given the positive market share gains and their perfume brand ownership. Match Group had continued to disappoint both market and our own expectations with a declining userbase of Tinder and ever more expensive subscriptions; while Argonaut, as previously noted, is being taken over.

Justification of short-term market movements, as discussed last month, is a fool’s errand. Indicators in the long term remain generally positive for equites with companies generating aggregate earnings growth, liquidity remaining buoyant, and valuations not being overly stretched. Many elections will occur globally this year and while technically they are independent, central banks historically appear to have supported liquidity in election years. More cautiously, thinking longer term, equity market corrections have often historically been foreshadowed by high bond yields and low equity risk premia. Yields of bonds continue to be somewhat at odds with the earnings yields of equities, though this is not currently at levels to cause great concern.

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