April was a positive month for global equities, as upbeat corporate earnings and resilient economic data helped financial markets look past the lack of progress on reopening the Strait of Hormuz.

IFSL Evenlode Global Equity returned 1.9% for the month. While this was a positive return, the fund underperformed its comparator benchmark, the MSCI World Index, which returned 6.4%. The relative performance gap in April was largely driven by two factors. First, the fund has no exposure to the Information Technology sector, which drove the majority of market returns. The Philadelphia Semiconductor Index (SOX) 34.3% had its strongest monthly performance since February 2000, the month before the dot com bubble burst. We prefer vertically integrated technology companies, like Alphabet and Amazon, which are not listed as technology but benefit from the same technology trends. Second, banks experienced a sharp re-rating upwards during the month, on the expectation of higher for longer interest rates. This is a sector the fund does not invest in as they are asset-intensive and have limited control over pricing. Periods where market leadership is concentrated in cyclical companies outside our investable universe can weigh on relative performance and we recognise that this has been a challenging period for the strategy.

The broad-brushed sell-off of high return, asset light businesses has created a significant dislocation between share prices and underlying company fundamentals. We have now started the first-quarter earnings season, with nearly 50% of portfolio companies having reported results. The updates have been encouraging, and we see little evidence of the much vaunted AI disruption risk. In fact, many financial and information service companies posted accelerating growth, as new technologies increased demand for data. On average so far, the portfolio delivered organic revenue growth of approximately 10%, with most companies expanding operating margins. The fund is currently trading at a meaningful discount to the index on a free cash flow yield basis, despite offering stronger margins, higher returns on invested capital and lower leverage. Over time, we would expect these characteristics to be reflected in shareholder returns, and we remain confident in the portfolio’s ability to deliver attractive, sustainable outcomes for long-term investors.