Letter from the PMs – November 2023

– Andrew Macken & Chris Demasi

 

Against a backdrop of a volatile world, we are growing increasingly optimistic about the future return prospects of Montaka’s core ‘compounder’ investments.

The immediate picture we face is continued volatility in global markets over the last month:

• Major equity markets declined for a second month in a row;
• US bond markets experienced significant price declines (and, therefore, yield increases) over the same period; and
• US Treasury markets are seeing daily volatility in yields to the tune of triple the daily average of the past decade as a result of tragic new conflict in the Middle East (in addition to Ukraine and other geopolitical tensions), significant bond issuance, and the farcical politics of the US House of Representatives.

The average rate of a new 30-year fixed-rate mortgage in the US is now over 8% per annum. We’ve not seen such a rate for more than two decades. Recent indicators show that US consumption is slowing as a result of monetary tightening – and we’re starting to see credit stresses build in lower-income cohorts.

And yet, against this challenging economic backdrop, there is a certain class of business that continues to reliably grow and build value for shareholders. These are businesses with distinct advantages (perhaps relating to scale, distribution, or both) and that are particularly well-positioned amidst structural transformations that are largely GDP-agnostic.

These include:

• The cloud hyperscalers (Amazon, Microsoft, and Alphabet) and select enterprise software leaders (for example ServiceNow and Salesforce) that are benefiting from the infusion of AI into existing mission-critical applications;
• The largest consumer platforms (such as Spotify and Meta) which are also layering on new AI-infused, value-adding products to their existing distribution platforms to grow value over time; and
• The world-leading financial services platforms (including Blackstone, KKR and S&P Global) that have highly reliable sources of what we call ‘embedded earnings power growth’.

This month, Chris shines a light on what we mean exactly when we talk about a ‘compounder’ investment, and why they are so important, in 5 Questions: Why are ‘compounder’ stocks the bedrock of Montaka’s portfolio?

Andy takes a step back and reminds us of four important ‘demographic’ truths of markets that investors should keep in mind when constructing portfolios in Mind the 4 demographic truths of equities.

Finally, in this month’s Spotlight Series podcast, Matt & Chris discuss astonishing learnings from the most recent Q3 earnings season.

 

Sincerely,

Andrew Macken & Chris Demasi

 

 

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Podcast: Join the Montaka Global Investments team on Spotify as they discuss the latest 2023 Q3 reporting season in Spotlight Series Podcast. Follow along as we share real-time examples and investing tips that govern our stockpicks. Click below to listen. Alternatively, click on this link: https://podcasters.spotify.com/pod/show/montaka

 

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