The arrival of the US Vice President on holiday in our locale brought geopolitics uncommonly close to home this month. Digesting the media coverage and its descriptions of this area of the Cotswolds and its inhabitants amused and astounded in equal measure. It served as a reminder that whenever we try to understand something that is outside of our immediate sphere we inevitably get someone else’s take that needs to be analysed. Yes, the countryside is pretty round here. No, not everyone drives a Land Rover (although there are plenty about). We do have mobile phone reception, contrary to one report that I was watching on my mobile phone. The fact that reporters have to provide a view on their first-hand observations is not to knock journalism as an endeavour, but an asymmetry of information is unavoidable, and an editorial stance that needs to be understood.
In investing we have to examine detailed information all the time, on companies, their markets and the economies in which they operate, and on the equity market itself. Despite also having high speed internet as well as mobile phones, the information asymmetry that presents the challenge and opportunity of active equity portfolio management is readily apparent to us at Evenlode Investment. It is one of the reasons we talk to a range of information sources, from the companies we are analysing to experts in industries to other analysts, to get a range of views from people with different perspectives and motivations. Alongside our own financial analysis and research, it gives us as balanced as possible a view on what a business’s prospects look like.
The distinction between the underlying economics of a business and the value that the market ascribes to it is an important part of the equation. There is no ‘right answer’ to the value of a business unless one has perfect information about the future, which is of course impossible, and a theoretically correct rate at which one should discount the cash flows that an enterprise generates. Information asymmetry means that it’s not possible to have perfect information about the past and present - let alone the future - meaning judgment and opinion matter. This all means that the market is continually appraising what companies should be worth, with a range of opinions, sentiment and differing motivations driving price moves. Despite the challenge we do think that a reasonable estimation of corporate valuation is possible, broadly weighing whether a company looks cheap, around fair value, or expensive. This is one output of our analytical efforts.
Whilst we look to invest where we think there is long-term value, the short-term ‘voting machine’ mode of the market seems to be to the fore at the moment. It has created a valuation environment that looks to us to be simultaneously expensive at the market level but turning an increasingly interesting subset of businesses into bargains. Within the Evenlode Global Dividend portfolio there are 12 businesses who’s share prices have fallen by over -10% in the year to datei in local currency terms. Two of the holdings we initiated this year after their prices had fallen - Novo Nordisk and LSE Group. Others we held relatively small positions in, that we have been able to increase at better valuations, for example Wolters Kluwer. But if the market is ascribing less value to these businesses by pushing the share price lower, this is indeed a piece of information and it is important to try and understand why, and why we might think differently. On the other side of the ledger there are nine businesses whose share prices have risen in the double digits in percentage terms this year. It is equally important to understand why the prices are rising, and if we continue to hold, why we are happy with the increased valuations. There are, we think, some key themes at play.
Consumer slowdown
This is an important topic for the portfolio given that 23% is invested in Consumer Staples, with a further 5% combined at the more discretionary end of consumer purchases in the form of LVMH and Shimano. The details differ depending on an individual company’s sub-sector and geography, but there is broadly subdued consumer demand in the important markets of the US and China. European consumer spending seems to be holding up for the Consumer Staples companies in the portfolio, with it being the strongest region in the first half of the year for Nestlé for example. Demand for the spirits sold by Diageo, Pernod Ricard and LVMH has slowed to a stop and even turned slightly negative, although this was partly driven by destocking of pandemic-era purchases and Diageo reported that they are seeing restocking of some brands in the US. LVMH’s important fashion and leather goods division saw sales fall. More positively Unilever’s Beauty & Wellbeing and Personal Care divisions saw solid growth.
Despite the generally subdued tone, the average organic revenueii growth of the consumer franchises in the portfolio was +3% for the first half of 2025. Not a terribly exciting growth number but given that this is in the context of a pretty stiff consumer slowdown it’s not a terrible nadir either. Could things deteriorate further? Yes of course, although most companies are expecting something of an improvement in the second half of the year, with L’Oréal noting improving trends in the beauty market as something of a bellwether.
Whilst consumer goods companies grapple with the slowdown, the businesses in the portfolio continue to exhibit enviable economics. The portfolio companies’ average gross margin in the sector is 59%, compared to 38% for the European Staples sector and 33% for the global marketiii. The return on assets is above the broader sector and over three times that of the market. That’s important as these businesses can continue to invest whilst paying their dividends to shareholders. Diageo and Nestlé have debt levels that are at the top end of what they consider acceptable and are looking to bring them down, and these financial characteristics will help them to do that.
The valuations of these businesses is what makes the sector really interesting at the moment. We’re getting attractive economics with dividend yields in the 3% to 4% region, and price to earnings ratios averaging 18x. The sales slowdown has caused share prices to fall, pushing the yields up and the multiples down, but we don’t think that the solid fundamentals of these businesses is compromised in the medium term.
Information services and AI
We still can’t move for talk of artificial intelligence (AI) in the media, and we see its effects at both ends of the performance spectrum in the portfolio. At the top of the charts is Microsoft, a company worth nearly $4 trillion and which is as ubiquitous as talk of AI. We think that the valuation is ok, but clearly not as attractive as it was before the share price increased by nearly a quarter since the start of the year. The weakness of the US dollar has helped with some of that dollar increase, but solid growth driven by cloud adoption, some of it related to AI, hasn’t hurt. The company is spending a lot of capital on the data centre and AI rollout, marking a significant development in the economics of the business. This spending likely improves its competitive position and ability to capture what is a significant growth opportunity, but combined with the valuation has meant we’ve reduced the position size back to around 4% of the portfolio, and we continue to monitor their level of investment closely. Also at the top of the performance list is network hardware and software provider Cisco. This marks a turnaround for the company, which seems to have shaken a perception of being a dull provider of equipment that does the donkey work of connected computing. Its fortunes have indeed improved following a slump in corporate spending on IT infrastructure last year, but the valuation has move into the expensive zone and we have been reducing the position as a result. Our research on Cisco is a good case study of cutting through informational noise, using research that covered a number of companies and sectors.
At the other end, companies that had perhaps been riding high as perceived beneficiaries of the AI revolution have seen sentiment turn. Consultancies Accenture and Publicis, which have evolved significantly from being pure play advertising businesses, have seen spending on their services stall, but the longer-term narrative is that in the future we’ll get an AI rather than human consultant to tell us how to transform our businesses. As impressive as AI is, our view is that these risks are given undue weight but do exist as potentially disruptive threats. This, combined with some cyclicality in the business models, limits our position sizes in this subsector. However, the cash generative nature of the companies means that free cash flow yieldsiv are on the higher end of those we see in the portfolio, indicating valuation appeal that offsets the risks.
Elsewhere, data and analytics companies like Wolters Kluwer, LSEG and RELX had been caught up in the narrative that owners of data would be automatic beneficiaries of being able to deploy AI-driven tools to clients. Indeed, they have done so, and these are businesses that exhibit very steady and solid revenue growth, but we had reduced positions as valuations moved toward the more expensive end of the portfolio. Now that the opposite is happening, as noted above, we added financial data company LSE Group, and have started gradually increasing the position in Wolters Kluwer from its relatively low level, now standing at about 2.4% of the portfolio.
In contrast to Consumer Goods companies, which have been out of favour for a while, the data and analytics firms have seen both sides of market sentiment in recent times. They perhaps exemplify the information challenge, being in a technological and economic sector that is subject to one of the big news stories of the day, AI. But their businesses are generally steady and that’s one of the real reasons to like them. We tried not to get caught up in the hype on the way up, hence reducing positions, and now need to exhibit an equal degree of objectivity on the way down.
US health care uncertainties
We’ve got this far without mentioning tariffs, and there is a reason for that. The tariff exposure of the portfolio is relatively low. That’s not to say zero but compared to some capital goods firms that suffer via having cross-border supply chains and low gross marginsv, the profile of the Evenlode portfolios means there is significantly less exposure. The companies also exhibit the power to raise prices through time, and whilst this has limits it is being used to offset a broad range of input cost increases. Within the health care sector, pharmaceuticals may be singled out for special tariff treatment (although with all things Trump, maybe they won’t be). This has likely not helped sentiment toward the subsector, Sanofi having fallen in value for example, although generally speaking the share price reactions of pharmaceutical companies have been relatively unexciting.
Medical devices makers tend to export their wares, Siemens Healthineers’ imaging equipment is shipped from Germany for example. However, again its share price has been negative but not unduly so. The shares of Medtronic, the world’s largest medical devices company, have risen by +16% this year. So there’s obviously something going on in the market’s view that is beyond tariffs.
Our guess is that valuations, economically insensitive demand, and robust financial performance have all played a part in limiting the volatility seen in the sector as a whole. The health care sector is one where valuations had not progressed for some years, and given the portfolio’s holdings at a weighting of about 20% it is clearly one where we were taking a different view to the market. Valuations are attractive, and this is being backed by some high levels of revenue growth. Organic growth for portfolio companies averaged +10% in the first half of the year, and was strong across pharmaceuticals, medical devices and services companies. We like this diversity of business models as it mitigates the various risks posed by the US administration, in what is the world’s largest health care market. Tariffs are one risk, but the Make America Healthy Again agenda is broad and as unpredictable as other areas of policy. Drug pricing is a perennial question in the country, but the portfolio provides some of the most novel treatments, plus devices and services that can make the health care system more efficient, mitigating some of the most severe downside scenarios that policy might conjure up.
Idiosyncratic cases
The three sector-related themes outlined above cover the majority of the Evenlode Global Dividend portfolio. There are a few portfolio positions that have had idiosyncratic drivers. The derivatives exchange operators CME Group and Deutsche Börse have found favour thanks to the market volatility this year, through the post-tariff downside period and the subsequent rebound (although market volatility indicators are currently very low). Valuations have drifted toward the more expensive end, and we have started nudging those positions down.
The most high-profile case though is Novo Nordisk, the maker of weight loss drugs that has fallen thoroughly out of favour with the market. We initiated a small position in April after the stock had fallen by about -60%, and after a period of appreciation it fell further. The small position size reflects the fact that we think that there is a long-term opportunity in the growth market of weight loss drugs and a recently attractive share price after a significant fall, but a focused portfolio with some near-term risks. We used it to diversify the portfolio’s pharmaceutical exposure, reducing other pharma companies to make way.
Since then the company has rarely been out of the news for long, which is understandable for a company that was for a time the most valuable listed business in Europe, that makes an extraordinarily efficacious (and popular) therapy. Whatever the company, a share price fall from grace often captures the financial media’s attention. We identified a number of near- and long-term risks that come along with the huge market opportunity in weight loss drugs. One near-term factor is the production of Novo’s semaglutide molecule by ‘compounding’ pharmacies, which is now not legally permitted but is persisting with such producers pushing the limits of the definition of the law. Despite legal challenge, the persistence of the alternative supply has led Novo to downgrade profit forecasts. The situation has not worsened but has not improved as the company expected. A legal expert we consulted was of the opinion that enforcement by the Federal Drug Administration (FDA) is only a matter of time, but all the same it hasn’t happened yet. Nonetheless, as we had identified this as part of the story, and a risk with likelihood of materialising, it has not fundamentally changed our view on the company.
There are some other factors at play, particularly the market guesswork as to whether it is Novo or arch-rival Ely Lilly that will ultimately lead in the weight loss category. Cutting through the volatility, our basic thesis is that the category and addressable population are huge, and Novo and Lilly as the market leaders are well placed to capture the growth on offer. The market’s attempts to decipher the winner has led to a significant valuation gap opening up between the two businesses, but the opportunity is big even for whoever is the number two player.
Contrarian positions
Our work on Novo Nordisk is an example of the multi-faceted research we undertake, and the same is applied to all of the companies and sectors in the portfolio. The consideration of valuations in our position sizing has leant against the market and has led to something of a contrarian positioning as market momentum has taken ‘Magnificent Seven’ technology companies, European banks and some others upward, but pushed others downward. Looking to the future, these unloved companies that exhibit high quality financial characteristics are representing an ever more interesting opportunity, in absolute terms and, particularly, relative to the market.
I wouldn’t say that the Evenlode approach is a deliberately contrarian one, but it is deliberately different to the market and looks to capture companies with good financials at attractive valuations. It is perhaps in market conditions like these, which are quite unusual but do happen from time to time, when the positioning and performance differences become more pronounced. We’re perfectly happy to go with the flow if companies are trading at acceptable valuations and it is those that are driving the market. Equally, as now, we’re happy to go to those companies that are looking good value but going in the opposite direction to the market. There are no certainties, but by constructing as objective a view on each company as we can we deal with the worst of the information asymmetry challenge and set the portfolio up with the best future in mind.
As we pass through the summer holiday season I hope you’ve been able to find some time for a restful, or action packed, break as appropriate for you. I’m looking forward to my own summer holiday (not in the Cotswolds, unlike the US Vice President), with the Evenlode team remaining at the helm and at your disposal. Thank you for your continued interest and support of all the Evenlode Investment strategies, and I’m also looking forward to seeing you when we return for what will no doubt be a fascinating remainder of the year in market and news terms.
Ben Peters
15 August 2025
Evenlode has developed a Glossary to assist investors to better understand commonly used terms.
Please note, these views represent the opinions of the Evenlode Team as of 14 August 2025 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 document 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. For full information on fund risks and costs and charges, please refer to the Key Investor Information Documents, Annual & Interim Reports and the Prospectus, which are available on the Evenlode investment Management website (https://evenlodeinvestment.com).
Recent performance information is also shown on factsheets, also available on the website. Past performance is not a guide to future returns. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Fund performance figures are shown inclusive of reinvested income and net of the ongoing charges and portfolio transaction costs unless otherwise stated. The figures do not reflect any entry charge paid by individual investors. Current forecasts provided for transparency purposes, are subject to change and are not guaranteed. Source: Evenlode Investment Management Limited, authorised and regulated by the Financial Conduct Authority, No. 767844.
Market data is from S&P CapIQ, Bloomberg and FE Analytics unless otherwise stated.
i31 December 2024 to 14 August 2025. Source: CapIQ.
iiOrganic revenue excludes impact of foreign exchange and mergers/acquisitions.
iiiGross margin for the European Staples sector as measured by the MSCI Europe Index. Gross margin for the global market as measured by the MSCI World Index.
ivFree Cash Flow (FCF) - A measure of how much cash a company 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. A higher FCF yield implies a company is generating more cash that could be paid out as dividends and to reinvest into growth of the business.
vTariffs are charged on production cost not retail price, so high gross margins limit the impact of tariffs on the company’s profit if they are absorbing the cost, or on the customer if it the cost is being passed on.