Richard Scrope has more than 12 years of industry experience and currently runs the VT Tyndall Global Select fund, having brought the FP CRUX Global fund to Tyndall Investment Management in August 2018. Prior to Tyndall, Richard managed the CFIC CRUX Global and European funds. He joined CRUX at the start of 2017, bringing both funds with him from Oriel Asset Management. Prior to entering the City, he served as a British Army officer and then worked at JP Morgan Chase Private Bank. He holds a Bsc in mathematics from the University of Edinburgh and is a Chartered Financial Analyst.
With the S&P 500 Information Technology sector close to the level it reached in May before the momentum trade spectacularly crashed, taking many leveraged investors with it, perhaps it is a good time to look again at the wider market. The S&P 500 ex Information Technology index has lagged the Information Technology index by 22% so far this year, with significantly less volatility.
While we believe that the AI theme can create value and savings across many industries, we do not hold the view that all those companies that are not involved in the AI value chain cannot grow at respectable rates and that they deserve to be trading at such a discount to their AI peers.
Much has been written about the levels of debt in the US market and how even the hyperscalers no longer have cash flows to cover their capex plans. This is not the case outside of the AI trade and elsewhere there has been a significant number of companies using the excess free cash flow generated from growing operating profits to invest in growth as well as rebuilding of balance sheets; this is also true more globally. The net debt/ebitda of the VT Tyndall Global Select Fund stands at 1.0x compared to the wider market that sits at 1.9x.
For Quality investors, such as ourselves, the first half of the year was painful to watch as many companies with solid earnings growth, strong cash flows, and high returns on investment, were used as a source of funds to invest in the AI trade. This theme has led the P/E valuation premium of quality companies over the wider index to fall significantly. For the Fund, this fall has been from a peak of 1.5x in 2022 to 1.0x today, well below the long-term average of 1.2x with no deterioration in earnings growth.
While we are not advocating a wholesale switch from the AI winners that have served investors well so far this year, we do suggest that moderating enthusiasm towards them and adopting a more balanced approach may be more beneficial for long-term returns. This approach is reinforced by the number of names that can diversify investors portfolio at valuations that are at more attractive levels, for the characteristics that they display, than they have been for many years.
While the first part of this note concentrated on the USA, the situation in Europe is not dissimilar, even if the deemed AI winners by UBS in the US, have outperformed their EU counterparts in the last couple of months. Despite the chance of geopolitical unrest in France and Germany, it does not mean that there are not world-class companies whose revenues are geographically diversified and have little threat from AI dis-intermediation to be found in European stock markets as well.
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not on the basis of any information provided herein.
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Investment Manager: 5-8 The Sanctuary, London, SW1P 3JP
Tyndall Investment Management is a trading name of Odd Asset Management. Authorised and regulated by the Financial Conduct Authority (UK), registration number 660915. This status can be checked with the FCA on 0845 730 0104 or on the FCA website (UK). All rights reserved. No part of this Report may be reproduced or distributed in any manner without the written permission of Tyndall Investment Management.
Investment Manager: 5-8 The Sanctuary, London, SW1P 3JP
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