Global Equity: Shareholder Update

EPIC Global Equity Fund
23 June 2023

Shareholder Update

In response to the significant re-ratings observed in some of the Fund’s holdings since last year's market lows, we have taken steps to adjust our exposure levels in the portfolio. These adjustments reflect our commitment to maintaining a prudent approach to our tactical overweight positions.

Although Nvidia remains one of our top ten holdings, we have decided to reduce our position. Nvidia's positioning in areas with a vast total addressable market presents an exciting opportunity for substantial revenue growth acceleration. Even at current levels, we see the potential for significant upside. The company is well-positioned to benefit from operating leverage, resulting in high-value revenue. However, we acknowledge the importance of managing this potential outcome carefully, considering the threat of competition. Despite Nvidia's exceptional track record in innovation, we cannot ignore the possibility of competitors catching up in the future.

Similarly, we have taken profits from the Fund’s investment in Novo Nordisk, another top ten holding in the portfolio. This leading Danish healthcare company has a fantastic long-term outlook. However, we have tempered our conviction due to valuation levels and remain mindful of potential competition in the obesity space.

We have also made slight adjustments to our positions in Microsoft, Meta Platforms (formerly Facebook), and Amazon by trimming them. While we still view these companies as attractively priced, they are not available at the bargain prices witnessed last year.

Conversely, we have identified Pool and JD Sports as significantly undervalued, offering compelling value. As a result, we have increased our positions in these companies, recognising the potential for substantial returns from these opportunities.

We have initiated a new holding in Danaher, a company that has long captured our interest and admiration. Danaher's family of world-class brands hold leadership positions in the demanding and attractive healthcare and environmental fields with multiple related end-market applications. Although the market has been disappointed by the faster-than-anticipated decline in revenue related to the Covid-19 pandemic, Danaher's core business remains robust. The temporary headwinds have resulted in shares trading at over 25% below their 2021 all-time highs, and a double-digit decline year-to-date. We believe the market's short-sighted assessment presents an attractive entry point for this truly world-class business.

Danaher's exceptional long-term track record of delivering value to shareholders can be attributed to the company's highly regarded operating system, the Danaher Business System (DBS). This operating system serves as a model of excellence and is deeply ingrained within the company's culture. The DBS has played a pivotal role in driving operational efficiency, continuous improvement, and sustainable growth throughout Danaher's various business divisions.

Given Danaher's strong foundations and the enduring nature of the DBS, we see no reason as to why the company cannot continue its impressive track record of creating shareholder value in the future. We will be providing a comprehensive analysis of Danaher soon.

While the Fund’s year-to-date returns have been strong, it is crucial to acknowledge that they are from a low base. It is worth noting that a few outliers have been instrumental in driving the overall performance. The portfolio does not look stretched by any means and we maintain an optimistic outlook.

According to the June Bank of America Global Fund Management survey, equities remain materially under-owned among fund managers. Historical patterns indicate that this is a powerful contra indicator.

Malcolm Schembri
Fund Manager, EPIC Global Equity Fund