Martin Currie Global Portfolio managed to beat the return on the MSCI All Country World Index over the 12 months ended 31 January 2024, returning 11.2% to the index’s 10.9%. A stable discount (the result of its zero dividend discount mechanism) meant that the return to shareholders was 11.1%.
The company declared dividends totaling 4.2p (the same as the previous year) and, like the previous year, around half of that came from capital as the revenue return for the period was 2.37p.
During the year under review, the company bought back 5,551,747 shares which were placed in treasury and issued 675,000 shares from treasury.
The trust’s performance was much helped by making Nvidia its largest holding. [All credit to Zehrid Osmani for calling Nvidia correctly, as we have said before, 2023 was tough for active portfolio managers.]
Extracts from the manager’s report
The strongest performing sectors during the financial year were Technology (+36.4%), Telecommunications (+21.2%), Industrials (+10.8%) – all three performing ahead or in line with the MSCI ACWI index. All other sectors underperformed the market, notably Real Estate (-8.3%), Materials (-6.7%), Consumer Staples (-2.2%).
Stock Contributors during the year
Nvidia (6.6% contribution to relative performance for the year ended 31 January 2024)- Nvidia outperformed as ChatGPT radically increased the projected level of demand for its products, bringing ‘the iPhone moment in the AI industry’. Revenue/EPS for FY24 ended 108/199% higher respectively than expected by analysts’ consensus at the start of 2023. We believe that we are at the start of a multi-year migration of datacentre infrastructure to accelerated computing. We think that Nvidia has the potential to claim a high share of overall IT infrastructure spending. Nvidia is the Company’s top holding, see largest 10 holdings in the annual report and accounts for more information.
Adobe (1.2% contribution to relative performance for the year ended 31 January 2024) – Adobe’s share price benefited from a continued rollout of generative AI products as well as a positive read across from the pricing of these products from other parts of the industry. In the period Adobe’s attempted defensive acquisition of Figma was cancelled, which raises question marks over Adobe’s competitive offering. In addition we are seeing competitors develop more advanced solutions that may encroach on Adobe’s designer space going forward (e.g. Sora – Open AI’s text-to-video generative AI solution). The opportunity and threats from AI technologies therefore remain uncertain. Adobe enjoyed a strong rally through 2023 so we concluded to sell the position and lock in profits after the end of the reporting period.
Microsoft (1.0% contribution to relative performance for the year ended 31 January 2024) – The share price was strong in the period, as wider adoption of AI has brought to the fore the company’s advantages as a platform with a large installed customer base. The company released CoPilot, an AI-powered virtual assistant and this is in the early stages of adoption. Second quarter 2023 results were strong with revenue and EPS ahead of market expectations. The crucial performance indicator of growth of the Azure cloud platform was also ahead of expectations at +28%, vs 25-26% guidance. Within that AI contributed 6%, above the previous quarter’s level of 3%, driven by Open-AI and CoPilot. We continue to believe in Microsoft’s potential to become the platform of choice for AI, with a first mover advantage especially in the enterprise setting. Microsoft is the Company’s second largest holding, see largest 10 holdings in the annual report and accounts for more information.
Stock Detractors during the year
Masimo (-2.0% contribution to relative performance for the year ended 31 January 2024) – Masimo’s share price started the period strongly, rebounding by 15% between February and April 2023. However, it was negatively impacted by the activist investor Politan Capital gaining board seats at the AGM in late June. On the operational side, the company’s healthcare division was challenged by delays to orders, weak hospital demand and budget constraints. We engaged with the company and were reassured that the management understands the need to return to a level of performance akin to their historical track record, especially after a large acquisition in 2022. However, given the low visibility into the improvement of consumer sentiment, we decided to exit the position in October 2023.
Wuxi Biologics (-1.9% contribution to relative performance for the year ended 31 January 2024) – A confluence of several factors contributed to the weakness in Wuxi shares. In the period from February to June the share price declined by 46% in line with weakness in the Chinese equity market. This was despite a solid set of pre-released results, albeit with some compression in the overall profit margin due to investments to expand capacity. While we believe that execution has been strong relative to the market, reflected by continuous market share gains, we think that Wuxi now needs to rebuild credibility with investors. Whilst we still favour the underlying exposures and thematics of Wuxi, namely innovation, drug complexity, outsourcing, we saw a clearer pathway to realise the upside elsewhere and exited our position in Wuxi in December 2023.
ResMed (-1.4% contribution to relative performance for the year ended 31 January 2024) – Having broadly traded flat in the first 6 months of the year, ResMed shares were under pressure in August amid concerns surrounding the second order impacts of GLP-1 drugs which stimulate insulin production in the body. Specifically, with obesity as a comorbidity of many diseases including sleep apnea, ResMed’s key market, investors were concerned that any impact on obese patients could lower volumes and addressable markets for businesses serving these comorbidities. This remains to be proven as access, adherence and drug stay time have historically proven material barriers to gathering evidence to demonstrate this point. In late October, ResMed reported a positive quarterly result, while reiterating the point that higher diagnoses of obesity could in fact result in simultaneous sleep apnea diagnoses, increasing patient flow. This drove 2-4% earnings upgrades and alleviated the concerns around the stock with the share price rebounding c.41% in the last 3 months of the period. This was accompanied by a positive competitive backdrop as Philips, the main competitor, agreed on the broad terms of a consent decree under which it will not sell new sleep therapy devices in the US. We see Eli Lilly’s trial of GLP-1’s in sleep apnea, due to be reported in in the second quarter of 2024, as an important next step.
MNP : Nvidia bet pays off for Martin Currie Global Portfolio