The Information Technology sector’s dominance of equity market returns continued in May. The fund was up modestly, some way behind the 4.6% return of the MSCI World index (USD terms), almost all of which came from IT-related firms. Whilst a rebound in the price of some software businesses such as portfolio company SAP contributed, the vast majority of market return was from semiconductor companies. Much as in April there have been some astonishing moves in the market. Hardware provider Dell Technologies doubled in the month, and peer HP Enterprise was up 51%, both in sterling terms. In the portfolio, chipmaker Qualcomm jumped by 42% on the promise of orders of its low-power chips from a hyperscale datacentre customer. The fervour around current demand centred on datacentre construction is being seen in other areas of the market such as materials, but semiconductor and hardware companies are stealing the show.

Trading in the equity market has become more or less binary day to day between ‘AI Winners’ and everything else. We continue to see a market stretched to extremes of valuation in either direction. The free cash flow yield of the MSCI World index stands at just 3.1%, and its price/earnings ratio at 24.9x. Both of these measures are near the expensive end of multi-decade extremes. Conversely, the Evenlode Global Dividend portfolio has a free cash flow yield of 6.2%, and a price/earnings ratio of 16.0x, both measures at extremes of cheapness.

We prefer to own stocks when they’re cheaper, but not if the fundamentals of the businesses are questionable. Fortunately, fundamentals are sound in the portfolio, where mid-single digit revenue growth is driving improving margins and thus profit growth ahead of this. In a market that is becoming increasingly detached from considerations of risk overall, the opportunities present in buying great businesses at knockdown prices are becoming ever more extreme.