Momentum continued to be the dominant equity market factor in the month of June, although there was a shift in tone on some days when semiconductor stocks found their momentum to be in a downward direction. Those brief moments were not enough to dent overall market returns though, with the benchmark MSCI World index showing a slight gain in the month in sterling terms, and a slight loss when cast in US dollars. Coming on the back of strong gains in the previous two months, the quarter was undeniably strong with the benchmark up +13.8% in US dollars, helped in no small part by the semiconductor index reportedly having its best quarter ever. Thanks to this long-running bull market the headline index looks expensive, but there is significant value to be had under the surface.

The strength in semiconductor and related stocks can be understood due to the very high levels of demand being seen at the current time thanks to the AI datacentre boom. Given the vast market capitalisation of the IT sector, forming 29% of the MSCI World index and not even including the likes of Alphabet and Amazon that are classified in other sectors, there is understandably much debate on the sustainability or otherwise of that demand. We see that in a small way in the portfolio through semiconductor designer Qualcomm, which is building a presence in processing for AI from a small base. The promise is large, and additional to its traditional business in mobile telephones, cars and other connected devices. This is one small holding though; the real interest for the portfolio is outside of this narrow sector boom where the prices of companies have been pushed down further to extremes of cheapness. That said, the ‘defensive’ sectors of Consumer Staples and Health Care, which make up just over a third of the portfolio, had a positive month in the portfolio. We don’t know if that signals a shift in the sands under the market, but at a 6.2% portfolio free cash flow yield and 3.2% dividend yield, both of which are growing, there is considerable value to be had that is uncorrelated with the AI boom.

We would like to take this opportunity to thank our investors for their patience and continued support through a difficult first half of the year. We remain confident in the quality of the businesses held in the fund and believe the strategy is very well placed to reward patient capital over time.