Global Portfolio Update - Efficient Private Clients
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Global Portfolio Update

Global Portfolio Update - By Dr. Francois Stofberg, Managing Director: Efficient Private Clients

It feels so long ago, but markets started the year believing that the Fed was more bark than bite, interest rates were to rise slowly, inflation was (mostly) transitory, and the world would continue to reopen in an orderly fashion. Four months later and Jerome Powell seems determined to do whatever it takes to crush inflation, the war in Ukraine looks like it might drag on for some time, and global economic growth appears to be even more precarious, as looming lockdowns in China and high food and energy prices in the west torment GDP growth estimates.

So far this reporting season, the earnings of our portfolio companies have defied this quagmire, delivering a relatively strong operational performance, as many of the stocks we own in our global portfolios beat Wall Street expectations.

In our core tech exposure, Visa maintained solid momentum in its travel retail market. Microsoft also showed why it’s imperative that long-term investors continue to own software companies, as tech giants’ clients accelerate their IT transformations. As expected, disappointed markets after weakness in its ecommerce business. was always going to be a second-half-of-the-year story, with the ecommerce division currently lapping a tough prior period, which should start to dissipate by mid-year. Amazon Web Services continue to perform satisfactorily.

Our sentiment sensitive counters proved that companies can respond to their operating environment. Facebook parent company Meta cut expenditure to preserve profitability, while growing active users and engagement; something Netflix, which dragged the overall sector lower, was unable to do. PayPal rallied after the results, as the company still expects revenue growth in the low teens.

Outside of tech, our core holdings in Johnson & Johnson, United Health, Nestle, and Lockheed Martin, performed satisfactorily in a turbulent market, acting as stabilisers for the overall portfolio. Our exposure to energy, through refiner Valero and oil major Shell PLC, was supported by higher oil prices. Exposure to financials, including Blackrock, the largest asset manager in the world, remained under pressure from falling markets and GDP growth estimates, even though results were robust.

Geographically, Europe underperformed this year with portfolio companies such as Deutsche Post, which owns DHL, taking a beating from the ongoing war and uncertainty regarding the GDP growth of the continent. Results out this morning however beat analyst estimates. For most of our European holdings, we are of the view that the share prices factor in these risks, but volatility may persist in the near term. In Switzerland, recently introduced Richemont ended its first full month in the portfolios above our acquisition price, as sentiment towards luxury goods names start to turn positive, even as lockdowns in China persist.

Going forward you can rest assured that we continue to monitor current macro and company developments. We have an adequate cash position in the global share portfolios and will continue to invest in global franchises and large growth counters that can grow, irrespective of current economic realities. This does not mean that we are oblivious to current portfolio risks, such as higher energy prices or rising interest rates, and we will allocate a percentage of the portfolio to names that benefit from those and other trends, justified by valuations.