David Ross, CFA, Nina Lagron, CFA et Louis Bersin, CFA La Financière de l’Echiquier - October 2023.

Since the start of 2023, the idea that the tightening of monetary policy would inevitably lead to a sharp slowdown in activity has given way to renewed optimism. Economic activity, marked by very high divergence between sectors, with weakness in manufacturing but robustness in services, has boosted investor optimism about the resilience of global growth... This resulted in a strong rally in the financial markets in the first half. However, the gains – concentrated on roughly ten stocks – did not spill over to the rest of the market. Since the mid-September Fed meeting, the market seems to have woken up to the risk of persistent inflation, synonymous with persistently high interest rates in 2024.

OPERATIONS

Economic outlook

Within the portfolio, Microsoft , Amazon and Alphabet rallied after announcing plans to improve profitability, and thanks to their ability to quickly monetise their Artificial Intelligence activities. Mexican equities, among the main contributors to Echiquier World Equity Growth, benefited from good macroeconomic conditions, partly due to relocation activities.

At the start of the year, we initiated a position in Oracle , which is benefiting from the cloud boom and the consolidation of telemedicine company Cerner. Despitethe stock’s stellar run, its valuation remains attractive. By contrast, Thermo Fisher, BioNTech and Moderna have suffered from being perceived – wrongly in our view – as the main beneficiaries of the Covid epidemic. We are keeping them in the portfolio, convinced of the quality of their fundamentals.

Lastly, we have sold our position in UnitedHealth Group , which is likely to be disproportionately affected by America’s Inflation Reduction Act, which is aimed notably at reducing healthcare costs.

Fundamentals

Over the past twelve months, the management team has significantly reduced the fund’s exposure to consumer stocks. For example, we sold positions in three stocks dependent on US consumer sentiment, as signs of a slowdown in household spending became increasingly visible. For the same reason, we halved our positions in Visa and Mastercard , which have been among the biggest contributors to performance since the start of the year. We are retaining them in view of the continuing trend towards the digitalisation of payments.

INVESTMENT STRATEGY

Consisting of strong convictions, your fund remains concentrated on about twenty stocks. We are still convinced that our best ideas amount to our best long-term investment opportunities. That is why the fund is 55% composed of its top 10 weights. We remain focused on growth, leadership and innovation, in search of securities that we believe will be tomorrow’s structural winners. In the current economic environment, we prefer companies that combine resilience with pricing power.