BMC Global Select July 2024

 We believe that if Trump wins the election, we will likely see harsher sanctions than today, but if Harris wins, no larger changes to the current situation are likely. This uncertainty, however, has brought considerable confusion and unease. In recent months, we have successfully taken profit, and during July, we further decreased our exposure to the sector. The semiconductor sector is known for being volatile but also for its tremendous growth potential, and so we maintain a decent weight in the sector at around 10% of the fund, although we have narrowed this recently.

On the other side of the scale, there are so many appealingly valued shares to invest the money in, and so we have taken the opportunity to increase our exposure to the insurance sector and to Mastercard, a stock that we believe is at a particularly attractive valuation right now. During the month, the US's HCA performed magnificently, and we remain impressed by how this hospitals operator can grow its profits year in and year out.

Key market events and trends (what has influenced performance most?)

The market events that had the greatest stock market impact during the month were a general tech frenzy, particular concern about semiconductors, and general uncertainty about a deteriorating US economy. Beyond that, there has also been the further negative developments in the conflict between Israel and Hamas/Hezbollah/Iran, which have cast a wet blanket over the market. After the turn of the month, we have also seen a sharp downturn in the Japanese equity market, affecting global exchanges, with large drops as a result. When the Japanese central bank somewhat unexpectedly decided to raise interest rates, the enormous Yen carry trade forced many hedge funds to unwind their positions, leading to large market movements. These movements will probably diminish quite quickly once the positions are sold. We do not own any Japanese companies in the fund.

The market also reacted to the failure of investments by larger tech firms (software and semiconductors) in Artificial Intelligence (AI) to deliver sufficiently rapid increases in turnover and profit to match market expectations. And when it comes to the US economy, labor market data was worse than expected. The equity market wants "worse" unemployment figures so that there is no doubt that the Fed will cut interest rates in September, but the figures shouldn't be so bad as to suggest the US is heading for a recession and negative growth. Right now, the fixed income market is pricing in that the policy rate can be as much as 1.5 percentage points lower at year-end than it is today.

Portfolio changes

During July, we sold Stellantis after its half-year report suggested it is unlikely to repeat the profit levels seen in 2023. In fact, its retailers have too high vehicle inventories and Stellantis will need to take its prices down. We are at plus minus zero in this Special Situations position since we invested, largely thanks to the large dividend from Stellantis, but we now take a break from the stock. Instead, we have invested in a US insurance firm by the name of Kinsale. We have met the CEO twice—in both Stockholm and the US—and the company has the potential in the long term to grow 3–5x larger than it currently is. We have also taken a position in France's Hermés, which holds a particularly robust standing in high-end consumer products, primarily handbags.   

The fund's positioning—our market expectations

It has been a somewhat messy summer for the equity markets, but the icing on the cake is that interest rate cuts will probably be delivered on a conveyor belt during the fall. Many of the stocks that performed poorly in the summer—such as semiconductors and industrials—will benefit from lower interest rates and so, as usual, it's important not to worry too much about the short term and instead look further ahead. We see our portfolio as representing the World's Finest Companies, which will only strengthen during the fall.

We thank you for your continued faith in us in investing your capital.

*MSCI All Country World NTR $ in EUR