During November Evenlode Global Equity significantly underperformed its benchmark, the MSCI World Index, which surged in the aftermath of the US election. The benchmark performance was particularly strong in cyclical sectors leveraged to interest rates. Banks and insurers contributed to a noticeable drag on relative performance during the period. Insurers benefitted from positive sentiment around expectations of higher-for-longer interest rates, while banks continued to capitalise on macro tailwinds. The auto sector was a notable detractor from relative performance, driven by Tesla's share price increase of c35% since the Nov 5th US election. Energy rallied as markets responded to President Trump’s commitment to policy shifts that favour fossil fuels. Semiconductors also benefitted from the general market euphoria. The Evenlode philosophy steers us away from these and other cyclical sectors in favour of businesses with consistently high returns on invested capital.
The fund’s overweight position to consumer staples accounted for most of the remaining underperformance. US consumer spending remains pressured by stagnant wages and high mortgage costs, with lower-income households under significant strain. We maintain confidence in the underlying economics of our consumer goods holdings which benefit from strong returns on invested capital and exposure to structurally growing categories; many of these consumer goods companies are now available at highly attractive valuation multiples.
While the last month has been a challenge, our focus remains on investing in high quality companies - those that can maintain high returns on invested capital and invest consistently for growth. The portfolio is now valued at a higher free cash flow yield[1] than its benchmark, with current analyst estimates indicating average double-digit cash flow growth for portfolio companies over the next two years. We therefore remain confident that strong fundamentals will drive share price performance over time.
[1] Free Cash Flow (FCF) of a company is a measure of how much cash it can generate over and above normal operating expenses and capital expenditure. The more FCF a company has, the more it can allocate to dividend payments and growth opportunities. FCF Yield is FCF per share divided by the current share price. The portfolio’s FCF Yield is calculated based on the FCF yields of the companies held in the portfolio.
During November Evenlode Global Equity significantly underperformed its benchmark, the MSCI World Index, which surged in the aftermath of the US election. The benchmark performance was particularly strong in cyclical sectors leveraged to interest rates. Banks and insurers contributed to a noticeable drag on relative performance during the period. Insurers benefitted from positive sentiment around expectations of higher-for-longer interest rates, while banks continued to capitalise on macro tailwinds. The auto sector was a notable detractor from relative performance, driven by Tesla's share price increase of c35% since the Nov 5th US election. Energy rallied as markets responded to President Trump’s commitment to policy shifts that favour fossil fuels. Semiconductors also benefitted from the general market euphoria. The Evenlode philosophy steers us away from these and other cyclical sectors in favour of businesses with consistently high returns on invested capital.
The fund’s overweight position to consumer staples accounted for most of the remaining underperformance. US consumer spending remains pressured by stagnant wages and high mortgage costs, with lower-income households under significant strain. We maintain confidence in the underlying economics of our consumer goods holdings which benefit from strong returns on invested capital and exposure to structurally growing categories; many of these consumer goods companies are now available at highly attractive valuation multiples.
While the last month has been a challenge, our focus remains on investing in high quality companies - those that can maintain high returns on invested capital and invest consistently for growth. The portfolio is now valued at a higher free cash flow yield[1] than its benchmark, with current analyst estimates indicating average double-digit cash flow growth for portfolio companies over the next two years. We therefore remain confident that strong fundamentals will drive share price performance over time.
[1] Free Cash Flow (FCF) of a company is a measure of how much cash it can generate over and above normal operating expenses and capital expenditure. The more FCF a company has, the more it can allocate to dividend payments and growth opportunities. FCF Yield is FCF per share divided by the current share price. The portfolio’s FCF Yield is calculated based on the FCF yields of the companies held in the portfolio.