Opportunities ahead

Opportunities ahead

Our World Stars Global Equity strategy performed strongly last year despite the geo-political and macro-economic issues, up 30.7% in US dollar terms.  As we summarize below, our positions in digital and technology companies contributed most of the returns but performance broadened at the end of the year. 

In October last year our view of the fundamentals and valuations of the companies we invest in led us to issue a warning: caveat venditor – seller beware.  This year, we feel the same.  Our outlook for our companies and their prospects is positive.  Companies across the board have increased their revenues, profits and cash flows, so despite the strong performance valuations are compelling and offer a great opportunity for long-term investors.

Of course, there is much to be concerned about.  Conflicts are ongoing and could escalate. Political uncertainty is high in an election year in the US, the UK and many other countries.  The impact of higher interest rates continues to be felt throughout the economy.  Consumers have been resilient but are under pressure from higher interest rates and inflation.  Valuations for illiquid assets have to adjust, from real estate to private equity and venture capital, leading to increased loan losses and lower returns for investors.  However, inflation is moderating and the US Fed has made it clear that it stands ready to cut rates if necessary. 

We invest in global leaders that have high quality and great prospects for compounding growth of their results and share prices.  In an environment of higher interest rates and persistent inflation, investors will have to look to companies to generate significant real returns.  There will be winners and losers.  The winners will be companies that have strong competitive positions, innovation and growth in their products or services, pricing power to increase prices, scale and efficiency to offset input cost increases, and cash generation and balance sheet strength to take advantage of opportunities. 

The greatest risk for long-term investors is disruption.  We want to own the companies that are doing the disruption, driving innovation and creating solutions for the issues we face.  Portfolios have to change over time.  Even with our long-term investment and low turnover approach our portfolio looks different today as we have been able to take advantage of market downturns at different times over the past five years to buy great companies at compelling prices.

One of the greatest opportunities we see is artificial intelligence.  AI is transforming and disrupting how we do business and how we live our lives. This change is on the same scale as prior industrial revolutions like the steam engine and electricity. It will markedly improve productivity and have a transformational effect on the global economy.  

Today, AI is most associated with the technology sector. The huge surge in interest and the excitement around AI is one of the reasons Nvidia was the first semiconductor company to break the trillion-dollar valuation in May 2023. Nvidia’s strength comes not just from its GPUs but from the comprehensive AI ecosystem it has built.

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