Spotlight on… Echiquier World Equity Growth | May 2024
David Ross, CFA, and Louis Bersin, CFA, Managers of the Echiquier World Equity Growth Fund, La Financière de l’Échiquier
In the first months of 2024, the market anticipated a moderate recession in the United States and expected the US Federal Reserve (Fed) to lower its rates around 7 times over the course of the year. Since, various data have demonstrated the strength of the US economy, ruling out the risk of a recession. The market now anticipates only one or two rate cuts, in September at the earliest. With the publication of higher-than-expected inflation readings in April, options markets now even suggest a one in five chance of a US rate increase within the next 12 months. Since the market rebound at the end of October 2023, the rally has been led by a dozen stocks, notably the Magnificent Seven, with the exception of Tesla affected by declining orders for several of its flagship models. Echiquier World Equity Growth, LFDE’s quintessential conviction-driven strategy, with assets under management over 1 billion euros, continues to demonstrate its resilience in today’s challenging market environment.
Operations
Economic outlook
After rallying at the end of 2023, equity markets continued to rise in Q1 2024. Equiquier World Equity Growth is positioned on Large Cap Growth stocks, a segment that largely benefited from hopes that the Fed would lower its key rates before correcting in April following the release of higher-than-expected inflation readings.
Since the beginning of the year, semi-conductor companies such as Nvidia and Taiwan Semiconductor, as well as tech stocks including Amazon, Oracle and Microsoft, were the fund’s top performers after reporting excellent quarterly earnings supported by the growing adoption of artificial intelligence. After a strong run in 2023, emerging country stocks corrected year-to-date. Examples include Brazilian bank Itau Unibanco and Mexican consumer companies, such as Walmart de Mexico, a key player within the Mexican and Central American retail industry. These emerging equities were kept in the portfolio as the investment team continues to believe in the quality of their fundamentals. Finally, the team sold Astrazeneca after the company reported earnings perceived to be disappointing, with several flagship products posting weaker than expected performances and operating expenses that were above expectations.
Fundamentals
Over the past six months, the investment team has strengthened its exposure to semiconductors, and notably Nvidia: the scenario of a recession in the US has now been ruled out, lowering cyclical risk for the sector. In a similar vein, the traditionally defensive healthcare sector was also trimmed.
One of the rules applied by the investment team is to take advantage of a correction while fundamentals remain strong: as a result, the fund’s exposure to emerging countries was increased, as these stocks have pulled back since the beginning of the year due to the strength of the dollar. Mexican and Brazilian stocks currently weigh 25% of the fund’s net assets[1].
Investment strategy
The Echiquier World Equity Growth fund, which includes our strongest convictions, remains focused on around twenty international large caps. The team firmly believes that its best ideas also offer the best long-term investment opportunities. Consequently, the fund’s top 10 holdings weigh over 60% of its net assets. Companies are selected for their quality fundamentals and resilient growth and are exposed to robust long-term mega-trends. The fund has maintained its cautious view on the economic cycle and relies principally on secular growth or defensive stocks.