Performance review
June marked the end of the first half of 2025, which was quite volatile and treacherous to navigate. We went from a broadening of the market out of the Mag7 to a sharp 20% drawdown after geopolitical events, followed by a wave of risk-on sentiment that pushed markets to new highs. Usually, all this uncertainty would translate into more cautious markets, but the opposite happened. It is not as if all the issues have been resolved: debts are piling up, (financial) institutions are hollowed out, the ‘everything bubble’ continues, geopolitics drives commodity prices up, tariffs and trade-wars have the potential to push inflation back up, private markets have to exit investments (wall of maturities), household finances in the bottom-20% are stretched, private stable-coins challenge central bank authority and, to top it off, climate risks in the form of extreme heat, floodings and wildfires are threatening lives, finances and insurance models. We believe the market is complacent. This can be partly explained by the low participation of active management in daily trading. CBOE data showed that only 10% of NYSE trading is active management, versus 80% in 1995. That is an important number to keep in the back of your mind.
In H1, the Fund was up by a high single digit in absolute terms but lagged the reference index. This was mainly due to a negative sector allocation effect, with our natural overweight in Healthcare (+0.7%) being the largest detractor, followed by our overweight in Consumer Discretionary (-0.3%). Our large overweight in Financials (+16.6%) helped from a sector allocation point of view. Stock selection was positive in the first half, especially in Consumer Discretionary, but was unable to offset the negative sector allocation effect.
Zooming in on June, equities continued to rally, with the S&P 500 and Nasdaq Composite hitting fresh records towards the end of the month. This despite a large amount of headline volatility around trade and geopolitical risk around the Middle East, with Israel launching a series of attacks against Iran and the US later stepping in to bomb key Iranian nuclear sites. High-beta sectors Information Technology (+9.2%), Communication Services (+7.1%) and Energy (+5.0%) led markets higher during the month, while defensives Consumer Staples (-1.9%), Real Estate (+0.9%) and Consumer Discretionary (+1.3%) lagged. Big tech was leading markets higher, notably NVIDIA (+17%) and Meta Platforms (14%). Treasuries were also firmer across the curve, with the USD index down 2.5% for a sixth-straight month. WTI crude was up 7.1% on the back of geopolitical risk.
The Fund was up in absolute terms in June but lagged the reference index. This was again mainly due to a negative sector allocation effect. As the Fund transitioned to a broader investment objective, centred around social system changes, our key overweight sectors are Healthcare (+1.4%), Financials (+3.3%) and Consumer Discretionary (+1.3%), which all lagged during the month, while Information Technology (+9.2%) was the leader – a sector in which we are underweight because of purity constraints to the system changes theme. In terms of social system changes, Accessibility (+3.3%) performed best, followed by Affordability (+2.9%), Digitally Enabled (+1.4%) and Wellbeing (+0.5%). The three most important contributors in June were Royal Caribbean Cruises (+22%), Allfunds (+22%) and Xiaomi (+18%). Not owning NVIDIA (+17%) detracted most from relative performance, followed by our positions in Paycom (-11%) and Trip.com (-8%).
Market review
The UST 10-year yield fell to 4.2% in June, given the Fed’s easing expectations later in the year. The Bloomberg Commodity Index rose 2.0% in June, with Energy higher and Agriculture lower. The VIX ended down at around 17 versus 18 in the previous month.
Portfolio Activity
In June, we increased beta by adding to existing positions in Amazon, Xiaomi, EPAM, MSCI and Rakuten Bank, took profit in Chow Tai Fook and LSE, and also trimmed Adobe and Sanofi on weak momentum. The Fund has 70 holdings and comprises 37% Affordability, 26% Accessibility, 14% Wellbeing and 22% Digitally Enabled, with the remaining 1% in cash, which we maintain just for cashflow reasons, as we aim to be fully invested. In terms of sectors, our biggest allocation is to Financials (36%), followed by Healthcare (23%), Consumer Discretionary (17%), Information Technology (8%) and Communication Services (7%).
Outlook
There are many ongoing crises around us, such as the pension crisis, healthcare crisis, affordable living crisis, mental health crisis and, on top of that, a public funding crisis, given the indebtedness of many countries. This implies that solutions to these crises will often need to come from private markets, and that creates investment opportunities. These crises lead to pain points in our society – situations we can no longer resolve using the solutions of the past. For example, many countries spend 10% or more (the US is at 17%) of GDP on healthcare. That system is unsustainable and cracks are appearing. As a consequence, it is no longer feasible to continue the pay-for-treatment workflow that caused these pain points to emerge. Pay-for-cure and value-based care are the new go-to solutions in order to keep healthcare costs manageable. Companies that actively help to reduce those costs (because of cheaper treatment, or alternative treatment locations/methodologies) are beneficiaries of this system change.
Another example revolves around access to financial services – in other words, financial inclusion. Two billion people across the globe still don’t have access to basic financial services. That is not only a problem in developing countries, as one-fifth of Americans are either unbanked or underbanked. FinTech companies offer solutions by going down the value chain and offering products and services at a price point that makes them available to many more people. They can do this because their business models have been set up differently from incumbents, which allows for more flexibility and lower operating costs. These are, again, good examples of long-term beneficiaries.
We categorise our investible universe into four themes. Affordability includes companies that work towards providing more affordable products and services. We classify many healthcare companies in this group, as well as life-insurance companies and wealth managers, which offer private pension solutions in a world where public pensions are no longer guaranteed.
The second category is Accessibility and is mostly applicable to FinTech solutions around financial inclusion, as described above.
The third category is Wellbeing, split into healthy living (preventative care, sporting goods, healthy food) and leisure. Leisure is important to maintain a healthy work/life balance. As this balance and healthy living become more important drivers of economic profit, we look for those companies that benefit from these system changes.
Our final theme is Digitally-enabled. Digital is everywhere, including within the social sphere. In this setting, platform companies (like Tencent, Alibaba and MercadoLibre) play an important role in empowering small merchants to participate in e-commerce activities. Unfortunately, digital also has a dark side in the form of cyber risks, and thus we include cybersecurity providers in this category.
Our Fund is diversified across (1) the globe, as system changes are not restricted by borders; (2) market caps, to represent mid- to mega-cap companies; and (3) industries, with a natural tilt towards healthcare, financials, consumers and IT. This provides us with good opportunities to build a well-diversified, high-conviction portfolio that benefits from all system changes related to social activities.
Yours sincerely,
The Golden Age Investment Team
Jeroen van Oerle & Christian Vondenbusch
