PERFORMANCE COMMENT
In November 2024 the LO Funds-World Brands EUR P was up +7.71% while the MSCI World EUR was up +7.5%. The outperformance came mainly from sector allocation. Our overweight in consumer discretionary was good and our small underweight in the USA and our overweight in China was negative. Our stock selection in the USA was positive. The top 5 individual stock contributors were Goldman Sachs, Amazon.com, Royal Caribbean Cruises, Blackstone and Tesla. The bottom 5 detractors on a securities level were Ferrari, Meituan, Moncler, Eli Lilly and Bilibili.
We have did some changes on allocation and securities level into the US election and the fund was able to outperform since the 5th of November in a more meaningful way. After the changes, the fund’s allocation to North America was higher at 74.94% and the allocation to Europe was lower at 14.93%. The fund’s allocation to Japan was higher at 2.84%, while the allocation to Emerging Markets was lower with Greater China at 6.33%, India at 0.5% and South Korea at 0.47% as of 29th of November 2024.
MARKET REVIEW
US equity markets rallied in November after the US election. The Nasdaq Composite Index was up +6.21% and the S&P 500 Index was up +5.73%. The Russell 2000 was up +10.84%. The Euro Stoxx 50 Index shed -3.17% in USD. The Nikkei was down -0.55% in USD. The Chinese CSI 300 Index dropped -1.13% in USD while the Hong Kong Hang Seng Index (HSI) was similarly down -4.46% in USD.
In the month of November 2024, the MSCI World Communication Services Index was up +2.93% in USD and the MSCI World Information Technology Index was up +5.15% in USD. The MSCI World Consumer Discretionary Index was up +9.32%, meanwhile the MSCI World Consumer Staples Index was up only +2.29%% in USD. The MSCI World Financials Index was also up +7.76% in USD.
THEMATIC OVERVIEW
Nvidia delivered $35bn in rev in Q3, +94% yoy and + 17% sequentially, out of which data center rev reached $30.8bn, +112% from last year on the sustained strong demand for Nvidia’s Hopper computing platform for LLM training and inferencing. Non GAAP gross margin of 75.0% was slightly impacted by a mix shift from H100 systems to more complex and higher cost systems, and the company’s operating margin was maintained at 66.3%, 50 bps ahead of guidance. Looking ahead, Nvidia guides 4Q revenue to be $37.5bn at mid point, ~70% growth vs last year, with management reaffirming the expectation for the shipment of Blackwell, its next generation AI GPU platform, to begin in the quarter, and ramp up into FY26. While the ramp could be slightly dilutive to gross margin given the lower yield, we believe it will recover back to mid 70% in 2HCY25. As the demand for Blackwell and also Hopper is anticipated to continue to exceed supply, meanwhile the hyperscalers’ cloud capex in 2025 is on track to grow another 11% to $289bn, we remain bullish on Nvidia given its superior leadership position in the AI GPU space, with the strong software ecosystem protecting the company’s current mid 80%s market share in next few years.
Post a slightly disappointing Q3 results ($637m in group rev +36.4% yoy, and $268m in adj EBITDA ~ 42% margin, both missing consensus by 3% on the back of decelerating account and net asset growth), Robinhood published reassuring October monthly metrics, showing strong performance across most KPIs, as the brokerage platform benefited from increasing in volatility into the US election. Equities trading volumes in the month was $126.4bn +48% MoM, outperforming competitor IBKR (+22% MoM increase); meanwhile Crypto volume was $5.6bn +51% MoM in October vs Coinbase at +35%. Asset under custody (AUC) at end October totaled $159bn +5% from Sept, and net deposits was $5.2bn, up from $2.5bn in Sept. Moreover, the trend continues to look healthy into November, with the equity trading volumes and crypto trading volumes on track to grow 30% and 4x respectively. We expect this accelerating trend to continue on the back of strong retail participation in both equities and crypto trading, and hence are constructive on Robinhood, a fast growing brand in online brokerage platform especially among retail investors (AUC +76% yoy and transaction base revenue + 72% yoy to $319m in latest quarter), while still only < 1% penetrated against a large $600bn+ TAM opportunity.
Take Two, a leading US video game publisher with the best long term track record, delivered $1.48bn in net bookings in the Sept quarter, +2% yoy, supported by Grand Theft Auto (GTA) and Borderland franchises, beating guidance and consensus by 2%. Non GAAP EBIT was $162m, implying 11% margin, vs consensus at $115m. The management reiterated current year guidance (net booking and adj EBIT up mid single digit), but more importantly, has confirmed an epic game release slate for next fiscal year (March 2025 to March 2026), including the highly anticipated GTA 6, a sequel to GTA 5, one of the most popular game in history. Released back in 2013, GTA 5 was the fastest selling and financially successful entertainment product of all time, with over 205m units sold to date, generating over $8bn (incl. GTA Online) in lifetime revenue. Moreover, the first GTA 6 trailer, when unveiled in December 2023, broke YouTube’s records for non-music launch, and accumulated over 93m views in 24 hours, further validating the high anticipation from gaming audience for this upcoming title. Therefore, we expect the launch of GTA 6 , anticipated in fall 2025, to lead over 46% revenue growth to $8.2bn for the company, with operating margin expanding to 21% (vs ~11% this year), which results in an EPS growth of over 220% for next fiscal year; and hence are positive on the name heading into the game release.
FUND ACTIVITY
The fund has 3 overweight stances from a GICS sector perspective globally (1) brands in Consumer Discretionary, (2) brands in Information Technology; and (3) brands in Communication Services. From a regional perspective, in North America, we kept our large overweight to US Digital and AI Technology brands like Meta Platforms, Alphabet, Amazon, Microsoft and Oracle. The allocation to Digital brands globally in the strategy now totals 49% of the fund, mainly in the sectors of Information Technology and Communication Services. The fund keeps the overweight in brands in the Consumer Discretionary sector but more diversified from a regional perspective now across North America, Europe and Asia. We focus on quality growth within Consumer Discretionary and have a large part invested in internet names like Amazon. We have only selected positions in European luxury like Ferrari and Hermès in Europe but we are slowly increasing our positions on valuation after the large de-rating. In the US, we favor leisure-oriented names like Royal Caribbean Cruises and Hilton Hotels. We have increased allocations to small caps and mid caps across the fund.
QUARTERLY OUTLOOK
The LOF – World Brands fund owns a high conviction diversified portfolio of businesses around the world that are structural winners. We classify all our investments in 3 categories: Digital Brands, Upcoming Brands and Global Brands. Currently the fund holds 49% in Digital Brands, 12% in Upcoming brands and 39% in Global Brands. Looking forwards over the next 2 years (CAGR), the fund’s holdings have very strong financial metrics which significantly exceed the MSCI World benchmark. The expected revenue growth of the fund's holdings is 13.3%, almost 3x the growth of the MSCI World (4.7%). The expected EPS growth is 20.3% for the fund versus 11.7% for the MSCI World on a 2-year CAGR basis. The ROE of the holdings in the fund stands at 40.3% compared with the MSCI World at 14.3%. The portfolio is trading at a 21.6x forward 2-year Price to Earnings multiple vs MSCI World 17.4x (the fund forward PE is 25.3 vs. MSCI World 19.6x) which continues to represent a very attractive level since we started to manage the fund in 2009. The forward P/E of the fund reached a peak of 35x in February 2021. On a PEG ratio (P/E ratio to earnings growth) the fund is very attractively valued compared to the broader market’s PEG ratio (MSCI World).
We continue to evaluate the potential impact of the Trump 2.0 era on a brand-by-brand basis, making adjustments to the portfolio and maintaining an overall risk-on stance. Brands that stand to benefit from Trump 2.0 policies have been and will continue to be considered for inclusion in the portfolio. We are looking at a higher allocation to US brands given potential for deregulation, AI productivity gains and corporate tax cuts which should lead to an EPS growth for the S&P 500 at 13.25% in 2025 and 9.56% for the 2026. S&P 500 EPS growth estimates are moving up for 2025 and 2026.