The Global Growth 2 Fund returned -6.1% for the month, bringing it to a 12-month return of -16.5%, and 1.2% annualised since inception.
Recession fears dominated markets in June and every asset class was impacted. In equities even energy stocks, which had outperformed so far this year, fell about 20%. Commodities declined despite tight supply in many areas. Putin also ramped up pressure on Europe by restricting gas supplies in a form of economic war. We remain cautious, with cash levels of 13%, slightly down from May. We expect the upcoming second quarter reporting season to lead to estimate cuts for the market, although we expect many of our portfolio holdings to be robust. This is because they are either in defensive growth sectors like healthcare or strong themes like renewables.
However, our holdings will not be immune to the worsening earnings outlook, and indeed during the month several companies such as Schneider Electric, Sika, and Keyence underperformed as investors anticipated an industrial slowdown. This will provide an opportunity for us to increase weightings in high-quality holdings such as these, which are global leaders with good margins and return profiles. Travel stocks were not spared either, despite strong current trading, with Sixt and Airbnb declining sharply on fears of consumers retrenching.
We remain underweight in the consumer sector, having been concerned about spending levels for many months. In June we exited another small holding, Shimano, the bicycle gear manufacturer. Although the shares look cheap, we now think high-end bicycle demand will inevitably slow given pressures on household budgets. The sell-off in consumer stocks will yield opportunities though, and some shares now look very oversold. With this in mind, we started a position in Crocs. This is a very cheap footwear manufacturer, trading on just 4x earnings. Although we expect some downgrades, we believe this is more than priced in and current sales trends are encouraging.
Finally, we bought a position in Nutrien at the end of June, which is a global leader in potash and nitrogen fertiliser production. The shares had fallen 30% from April, yet we expect fertiliser prices to remain high due to Putin’s war restraining supply amid ongoing strong demand.