Before we shed light on recent market events, we want to make clear that we maintain the same focus in our BMC Global Select fund as we have had since we started it just over ten years ago:
- A target of creating 15% average annual returns, after fees, over a business cycle
- Investing globally, with the whole world to choose from
- Investing in profitable, market-leading companies with good profit growth
- Selecting companies with leading products that customers are "dependent" on
- Investing in debt-free or low-debt companies
- Selecting companies with a healthy corporate culture that has proven successful over the long term
We call these companies our Champions, and in our experience, they are particularly strategic in their decisions, navigating well during challenging times. We supplement our portfolio with our Special Situations. These companies typically have a low valuation in which we see great upside in the shorter term. Champion or Special Situation aside, as global portfolio managers, we often discover exciting cases when the markets are turbulent and volatile.
The market's reaction in volatile times
We can see that investors have started selling off financial assets in the US and instead investing in Europe, as a consequence of the uncertain economy and the impact that tariffs will have. An interesting shift and an attitude not seen for a long time from investors. Statements about major planned investments make Europe appealing from an investment viewpoint. It is important to recognize, however, that considerable capital will be invested in roads, bridges, and other infrastructure in the US, which will benefit many domestic companies. We thus expect to see many great investment opportunities in both in the US and Europe.
Another effect of Trump's behavior is that the dollar is dropping in value, owing to market jitters about low future growth, partly in response his trade tariffs and that his fiscal policy will contribute to rising inflation in the US. Reallocation from US equities into Europe means selling the dollar and buying euros, which weakens the dollar further versus the euro. Since the end of January, we've also seen the US dollar declining versus the Swedish crown.
In the bond markets, yields are falling as a consequence of bonds rising in value as investors seek a "safe harbor" during this turmoil. Even though Trump and the US are contributing to this volatility, US treasuries have remained a "safe" option in the meantime.
Interesting opportunities ahead
As early as last year, we began to reduce our weightings in the red-hot tech and semiconductor industries where valuations were—for good reason—high for a long time thanks to the companies' expansive growth versus other sectors. We now see further uncertainty even for these companies, which ultimately depend on strong consumer demand and returns on AI investments.
The recent volatility and uncertainty have prompted us to act in both our global funds.
In BMC Global Select:
- We reallocate a portion of the capital from the US to Europe, somewhat lowering our exposure to the US dollar.
- This means we also increase our exposure to—and can benefit from—the new commitment towards a stronger Europe.
- We have also chosen to reallocate among existing holdings, favoring those companies we believe are the portfolio's absolute strongest.
In BMC Global Small Cap Select:
- We maintain our underweight in the US, meaning we continue with only a limited exposure to the US dollar.
- In Europe, we are seeking investments in reasonably valued companies driven by secular trends and the new possibilities created by the commitment to a stronger Europe.
- In our Small Cap Select fund, we also reallocate among existing holdings further into those we consider the strongest in the portfolio.
Finally, we emphasize that what determines the returns we create for our unitholders is the companies we choose to invest in. For us, that choice is simple. We select what we consider the world's finest companies and invest in the strongest profit trends.
If you have any questions or concerns, please feel free to contact us at info@bmcapital.se.
