In December, Evenlode Global Opportunities outperformed its benchmark, the MSCI World Index, which declined in the absence of the market’s usual 'Santa Rally'. This was an encouraging end to a disappointing year for fund performance. After performing in line with the market over the prior two-year period (2022-2023[1]), the last twelve months have been challenging. Benchmark returns over the year were driven by sectors that Evenlode typically avoids, while the portfolio’s consumer goods companies have been hit by a consumer economy that is notably weaker than the broader economy.

Recent macroeconomic and political events continue to send mixed signals to investors. In December, the Federal Reserve cut interest rates to 4.25%, marking the third consecutive reduction, but signalled a more gradual path for future cuts. The crucial swing factor remains the fiscal and trade policies of the incoming Trump administration. In Europe, political instability persists, with the collapse of both the French and German government coalitions.

Despite these headwinds, we remain confident in the long-term potential of the companies in our portfolio. Over the last year, these companies grew revenues by 8% on average and expanded margins, comfortably ahead of the growth rate of the MSCI World Index. The strength of the portfolio companies’ competitive advantages reassures us that they will weather any turbulence. This was exemplified by Accenture’s recent results, in which revenue growth recovered ahead of market expectations.

We continue to monitor and reassess the portfolio. During December, this led us to exit the fund’s small position in Pernod Ricard, the spirits manufacturer. We expect the category to recover from its current malaise which is driven by a stressed consumer and an overhang of inventories built up in Covid. We have chosen to concentrate our exposure to the sector through a slightly expanded position in Diageo, the market leader, which has a more diversified portfolio of premium brands and a history of better execution.

While the macroeconomic outlook remains unpredictable, the fund’s current valuation is encouraging. The fund’s forward free cash flow yield of 4.2% is meaningfully cheaper than the benchmark for the first time in our history, and analysts estimate continued double-digit growth in portfolio free cash flow. We remain confident that, over a long enough period, superior fundamentals will ultimately drive share price performance.

Chris Elliot & James Knoedler31 Dec 2024
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