Investment Commentary

Investment Commentary

“The basis of successful investing is the thoughtful analysis of the fundamentals “

Philip Fisher

Our World Stars Global Equity strategy has done well this year.  We are not surprised – we started the year optimistic and still are. 

We invest in global leaders, companies that have great quality and can generate high returns over the long term.  Last year investors took a lot of blows, on inflation, interest rates and valuations.  Good companies sold off hard, creating an opportunity for us to buy more of them at great prices. 

Philip Fisher’s book Common Stocks and Uncommon Profits, written in 1957, is the definitive book about long-term fundamental investing in quality companies.  It provides an important perspective in uncertain times.  To Fisher, successful investing is grounded in fundamental analysis and qualitative factors.  He believed in understanding the facts about a company’s business and in focusing on companies with unique and sustainable competitive advantages and strong long-term prospects for growth and value creation. 

The record shows that we did the work to make sure we understood what was going on in the companies we own and to reinforce our conviction.  Our best performers include technology companies like Nvidia, Salesforce and Adobe that are long-term beneficiaries of the growth of the digital economy, artificial intelligence and the internet of things.  Our consumer and industrial stocks have not done badly either.

We thought this year would be positive and that is how it has turned out so far. The second half of the year could bring a long-expected slowdown but we think that private and corporate demand will be resilient and interest rates in the US and Europe are close to a peak, which will support economies and markets.  There may well be volatility but many good companies are cheap and will do well.  That is why we think any pullback will be a buying opportunity like last year.

World Stars Global Equities

Our World Stars Global Equity strategy had strong performance, closing up 6.5% for month and up 23.1% for the six months year-to-date, both in US dollar terms. You can find our latest factsheet here.

Performance broadened out in June.  Across our top ten stocks which all rose by 8% or more, six were in industrials, three in technology and one in healthcare & life sciences.  Adobe rose by 17% after releasing good second quarter results with 13% revenue growth in constant currencies and higher operating margins of 45.3%. It raised full year guidance on revenues and EPS. The rapid development and deployment of Firefly, Adobe’s generative AI technology, is delivering significant new customer engagement and additional revenues, and should drive higher prices.

Our industrial companies were boosted by a resilient macroeconomic background in the US and elsewhere, and by increasing enthusiasm for the opportunities that AI could unleash.  Eaton, the US power management company, rose by 14%. The company is strongly placed to gain from the accelerated investment in data centres, linked to AI, which is one of several structural growth areas across the business. This pattern was reflected in the performance of other key providers in the sector, including connector and sensor producer Amphenol, which closed the month up 13%. Leading water technology provider Xylem rose 12% following the completion of its USD 7.5 billion acquisition of peer Evoqua. The acquisition is expected to deliver significant revenue synergies adding to the integration cost savings already disclosed.

On the downside, enterprise software provider Salesforce fell by 5% but is still up 60% year to date.  The company pointed to continued cautious spending by its corporate customers, with large contracts taking longer than normal to close.  Salesforce has a strong value proposition that allows enterprises to deepen their engagement with their customer base and our investment thesis remains unchanged.

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