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September 2023 Monthly Update

Updated: Nov 10, 2023

Both funds outperformed the benchmark for the month and over the year ending September whilst still meeting the fund's 5-year primary objectives.

Trying to consistently deliver strong investment performance based on one’s predictions of economic cycles and changing conditions both elevates risk and mostly delivers disappointing results. It is becoming increasingly clear that with more frequent and less predictable economic fluctuations, timing markets is now far more difficult.

Investing in profitable companies that benefit from global megatrends driven by long-term structural changes, can reduce the negative impact of economically hard to predict macro-economics, thus reducing risk. They provide diversification by reducing cyclical exposures that are prevalent in many fund portfolios along with bolstering returns over time. Megatrends often mitigate the effects of structurally higher inflation as well. For example, investing in climate-change-related trends can counter the inflationary effects of climate change in portfolios and simultaneously help reach sustainability goals.

Today’s persistent market volatility is fuelled by concerns of an escalating Middle East conflict as media reporting switches from Ukraine. Recent central bank rhetoric and bond market pricing suggest prolonged higher interest rates that are also intensifying investor unease. In this environment, a disciplined valuation approach gains even greater significance. Pure growth stocks reliant on distant earnings face continued duration risk that hinders their performance. Low P/E cyclical firms often the darlings of Value managers are being confronted by challenges stemming from economic uncertainty, impacting their earnings potential as elevated interest rates hamper their ability to invest in new initiatives. Insync's focus on highly profitable companies with robust cash flows, sustainable earnings growth, and reasonable valuations, positions us favorably with today’s uncertainties. Valuations constitute one-third of our company assessment, with the remaining two-thirds determined by business quality and risk.

Meta's resurgence can be attributed to its focus on cost optimization and a robust rebound in advertising revenues. Profiting from the burgeoning wave of AI, Meta also ventured into the development of its ‘expansive language model’, bolstering its ability to drive innovative applications. Notably, its AI prowess paved the way for novel advertising solutions tailored to the needs of businesses which we believe will deliver sustainable earnings growth for many years.

The potential of an even more profound transformation from the deployment of AI-powered agents within WhatsApp, Messenger, and Instagram looms large. Their capacity to substantially enhance the search and shopping functionalities of these massive platforms promises a paradigm shift in both user experiences and business interactions. Meta’s journey from hardship to revival imparts valuable insights into dispelling the ‘crowded trade’ theory. Firstly, adaptability is paramount in our now dynamic world. Companies that can pivot and innovate fast, thrive. Secondly, an enduring long-term vision is a potent asset. Founder-led firms driven by unique insight often excel beyond their peers. Moreover, investors must remember that markets are not always efficient and so deliver exploitable opportunities.

A Deep Dive! Each edition we highlight one quantitative feature of our fund produced by leading research firm Foresight Analytics.

This month we show Insync’s focus on Quality placing us at the top of our peers. There are 3 measures that the industry uses when assessing a manager’s ACTUAL quality attributes. Return on Invested Capital (ROIC) is one, and the major one for Insync. This is at the center of our stock selection process. Two others are Return on Equity and Net profit Margins. Insync ranks at the top of all 3. Many managers talk about ‘quality’ but Insync IS the true-to-label stand out.

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