J. Stern & Co. August update

J. Stern & Co. August update

This time last year we were in the midst of the storm caused by US Feds raising interest rates from close to nothing to normal levels.  We wrote then that:

“Micro is what we do, macro is what we put up with, and this year has been all about macro.  Macro can be as much a source of opportunity for long-term investors as volatility and market rotation.  We believe that there are reasons for optimism and that there is much more to come.”

Our World Stars Global Equity strategy has performed strongly since then as we outline below.  The market sell-off was an opportunity and we took advantage by buying stocks like Nvidia, Walt Disney, Xylem and ASML.  They are high quality global companies that we believe have the ability to generate strong compound returns over time.

Underlying economies have remained resilient, inflation has moderated and interest rates in the US and Europe have reached the sustainable levels they should have been at all along.  Results reported for the second quarter of this year have shown that most of our companies have strong demand for their products and services, they are investing in capacity and innovation, raising prices and working through bottlenecks and cost pressures. 

Our allocation/ selection attribution analysis for 2023 year-to-date shows that while the best performers this year have been Nvidia, Meta and Salesforce, and therefore it would appear that the World Star’s strong performance is due to its industry factor exposure, analysis shows that we are in fact only slightly overweight communications services and actually underweight information technology.  Our overweights are in consumer staples, industrials and healthcare.  

Our bottom-up approach has allowed us to focus on companies that benefit from long-term structural growth. These include growth in consumer demand due to increased incomes and expectations; innovation through research and development; digitalization of the global economy; electrification and automation of industry; increased computing capacity to satisfy demand from AI, metaverse and other drivers; and investment in public and private infrastructure. The industrial companies we own that are benefitting from this investment will boost productivity and increase capacity, driving global growth and enabling the transition to a lower carbon economy. We believe these companies are the right ones to deliver strong returns over the next 10-25 years.

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