Market Round-up
Equity and fixed income markets continued to give conflicting signals through August, reflecting the contrast between improved corporate profitability and macroeconomic uncertainty. Equity market records were broken again on both sides of the Atlantic in the first half of the month, with US and European indices hitting fresh highs. The FTSE 100 approached a record of its own, supported by resilient earnings and improved overseas appetite for undervalued UK businesses. Meanwhile, renewed friction between the US and Iran has pushed oil prices back up, fuelled further inflation fears, and sent long-dated Treasury yields to levels not seen in nearly two decades.
More significant, though, is the rotation underneath the surface in equity markets. The market has broadened, with a shift away from the narrow group of mega-cap technology names that have driven markets over the past twelve months. With mounting evidence of AI model commoditisation and rising memory costs, it has become increasingly unclear how these companies will achieve a return on their substantial investments. At the same time, we have seen a substantial re-rating of many software and data businesses. These companies continue to manage the technology transition quietly and adeptly, and we are pleased to see the market reward their attractive fundamentals.
With the US midterms now hurtling into view, we are braced for another round of market volatility in the coming months. Those companies with proven free cash flows and low leverage are best positioned to navigate any macro uncertainty, and we envision a continued shift in market leadership from momentum to fundamentals.
Investment Views
This month, Chris Elliott and Cristina Dyer, portfolio managers of the Evenlode Global Equity fund, discuss what has been a highly encouraging reporting season both in terms of the company fundamentals and the improving narrative from the portfolio businesses with 25/29 holdings beating consensus on reported operating profit. They touch on key highlights such as GTT’s increased 10-year forecast, Hasbro’s upcoming content across the Marvel, The Hobbit, and Star Trek franchises and the new Diageo CEO’s vision, as well as sharing their quote of the quarter!
Meanwhile, Ben Peters, portfolio manager of the Evenlode Global Income fund, touches on the structural, speculative factors that are in the driving seat right now, following last month’s media hysteria on the structure of the equity market. He discusses the special attention paid to leveraged financial instruments, the merits of focusing on fundamentals over speculation, as well as the AI debate and the investment outlook for Diageo.
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Issued by Evenlode Investment Management Limited (Evenlode). Evenlode is authorised and regulated by the Financial Conduct Authority, No. 767844.
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