July was a positive month for global equities with IFSL Evenlode Global Equity returning 2.5%. While this was a strong absolute return, the fund underperformed its comparator benchmark, the MSCI World Index (GBP terms).

The performance differential was largely driven by US technology stocks, (AI). The fund’s focus on diversified cash-generative businesses with balanced and resilient fundamentals naturally steers us away from making higher-risk thematic bets.

The amount of capital being committed to artificial intelligence is unprecedented. Consensus expectations for capital expenditure in this industry continue to climb, putting increasing pressure on cash flows. Whether AI adoption and monetisation will ultimately justify this level of investment, and what the trajectory of that payoff might look like, remain open questions. We have chosen to focus the portfolio on companies which we believe have high visibility on future growth with or without AI. This includes businesses exposed to cloud enterprise computing and those which control proprietary data sets with high commercial value in evergreen areas like insurance, law, accounting, and credit origination.

We are now most of the way through the half-year earnings season, with nearly 80% of portfolio companies having reported second-quarter results. The updates have been encouraging. The portfolio delivered average organic revenue growth of approximately 8.5%, with most companies expanding operating margins. Revenues and EPS continue to grow faster than they do for the MSCI World index. The fund is currently trading at a meaningful discount to the MSCI World Index on a free cash flow yield basis, despite offering stronger margins, higher returns on invested capital. and lower leverage. We believe this presents a clear opportunity for investors with a longer time horizon and we remain confident in the portfolio’s ability to deliver attractive, sustainable returns over the long term.