Market Round-up
Volatility returned to the equity markets in June, as investors began to reassess stretched expectations in AI-related growth and duration-sensitive assets. Within technology, the cost of high bandwidth memory has continued to rise, aiding the chip manufacturers while creating cost headwinds for those that use memory. Costs are increasing for hyperscalers and electronics manufacturers, such as Apple, and share prices have fallen in response. The dichotomy of these two technology groups appears unsustainable, and indeed we have seen the market begin to rationalise in July with some early signs of recovery in many of the more traditional quality sectors. We believe the Evenlode portfolios are very well positioned for such a shift in market sentiment.
Market uncertainty is further ratcheted by the ongoing geopolitical developments. Even if peace is restored in the Middle East and the Strait of Hormuz stays open, it may take many months to reset the disruption. Supply chains would recover only gradually, with logistical bottlenecks and energy cost pressures persisting. Inflation is once again the enemy, keeping policymakers alert to second-round effects. In response, central banks have been signalling caution, and the prospect of further rate rises appears likely in the coming months.
For long-term investors, this reinforces the importance of high-quality businesses with durable pricing power, strong cash generation, and resilient balance sheets. In volatile macro conditions, compounding remains the key driver of outcomes. While it is too early to call a market rotation, there are some signs we are finally beginning to see traditional valuation metrics weigh on investor sentiment.
Investment Views
This month, Ben Peters, portfolio manager of the Evenlode Global Income fund, discusses why the health of the global consumer has been a particular point of interest post-Covid, and how data from financial services companies such as American Express and Mastercard is indicating a premium skew to spending. With the initial adoption phase of AI maturing, Ben also touches on companies directly plugged into the AI capital expenditure boom and the impact the power consumption of new datacentres is adding to the demands of electrification of transport, heating, and cooling; as well as what recent market movements mean in practice for key portfolio holdings.
On the Evenlode Income front, Hugh Yarrow and Chris Moore discuss recent share price volatility versus the fundamental performance of underlying holdings and explain how the free cash flow yield on the fund is more attractive than it was even in the depths of the Covid sell-off in 2020 and is back to a similar level to the fund’s launch in October 2009, when the world was emerging from the Great Financial Crisis. They also touch on the latest news from Howden Joinery and Experian and share their headline summary on generative AI adoption in the corporate sector, following a host of conversations with both UK and global companies.
Important information
Issued by Evenlode Investment Management Limited (Evenlode). Evenlode is authorised and regulated by the Financial Conduct Authority, No. 767844.
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Please note, any views represent the opinions of the Evenlode Team as at the time of writing and do not constitute investment advice. Where opinions are expressed they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This newsletter is not intended as a recommendation to invest in any particular asset class, security or strategy. The information provided is for illustrative purposes only and should not be relied upon as a recommendation to buy or sell securities. Current forecasts provided for transparency purposes, are subject to change and are not guaranteed. Every effort is taken to ensure the accuracy of the data used in this document but no warranties are given.
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The IFSL Evenlode Investment Funds are subject to normal stock market fluctuations and other risks inherent in such investments. The value of your investment and the income derived from it can go down as well as up, and you may not get back the money you invested, you should therefore regard your investment as long term. As focused portfolios of between 30 and 50 investments, the IFSL Evenlode Investment Funds carry more risk than funds spread over a larger number of stocks. The IFSL Evenlode Investment Funds have the ability to invest in derivatives for the purposes of EPM, which may restrict gains in a rising market. Investments in overseas equities may be affected by changes in exchange rates, which could cause the value of your investment to increase or diminish.