Portfolio Manager comment Coeli Global Select July 2022

July was probably one of the best months in our global fund’s history, with Coeli Global Select’s NAV rising XXXX%, beating our benchmark index by XXXX percentage points. There are many explanations for the solid development, but chief among them is the combination of robust reports from our companies, the market having found its trough, and the decline in the US 10-year interest rate.

The best-performing stocks during the month were HCA Healthcare, Truecaller, and Martin Marietta. Only one stock performed poorly, bringing negative returns, namely adidas. The two companies with the lowest positive returns were Traton and Pagseguro. Generally speaking, Big Tech had a good month, with Apple, Amazon, and Nvidia on the top ten list of best performers in our fund during July.

Key market events and trends (what has influenced performance most?)

At the end of July, the Federal Reserve struck with its second 0.75 percentage point increase in the policy rate of the summer, and now the fed fund rate sits at 2.5%. Fed Chairman Jerome Powell is determined to combat the US’s high rate of inflation and is trying to repress price increases via interest rate hikes. We have also seen prices for key industrial metals copper, zinc, and lead declining, meaning decreasing raw material prices for industrial companies, a positive for their profit margins.  When comparing the short-term interest rate (fed fund rate) at 2.5% with the long-term rate (US 10-year Treasury yield) at around 2.8%, the difference is minor. What we can infer from the rate difference is that the market does not expect many more increases in the policy rate. In other words, the market believes inflation will come down (declining price increases) over time and that we will see moderate policy rates that do not ”kill” the economy. A further positive sign is that the US job market is robust, with unemployment low at 3.6%.

The last week in July brought a hectic reporting session. Microsoft, Alphabet (Google), Apple, and Amazon reported. We can conclude that they came in better than the market had expected, which gave rise to a relief rally in Big Tech. Looking at the reports in isolation, there was little to cheer about. Revenue and profit increases were mediocre on account of tough comparables as they had performed robustly during the coronavirus year of 2021. The market cottoned on that revenues had not fallen in absolute terms, which was correct. In a sign of strength, Amazon’s revenues, for example, were up more than 10% y/y.

We also highlight that HCA Healthcare, one of our holdings, reported solid results. The company’s report showed it has now taken control of the skyrocketing payroll of the previous quarter. We also conclude from this report that the formidable US wage growth is likely to moderate from its peak in the spring.

Portfolio changes

We made one change to our portfolio in July, selling our Special Situations holding adidas, which reported poor quarterly figures. We bought no new companies.

The fund’s positioning—our market expectations

During this reporting season, our Champions have proven that they have weathered the rough first half of the year. When investing in equities, you cannot sacrifice quality, otherwise you risk facing unpleasant surprises in tough times. During June, we increased our holdings in the 15 of our companies with the best business model momentum and that can make money. This strategy persists, and we will continue to ride this allocation for a while longer. We still believe there is significant upside in the portfolio given the low price levels at present.

News

We have started a new global small cap fund, called Coeli Global Small Cap Select. We apply the same investment process to this as we use for Coeli Global Select. Our aim with the small cap fund is to create positive returns for unitholders and to contribute to the sustainable development of our world. You can find more information about our new fund here.