Performance review
We have written for months about the headwind caused by not owning the Magnificent 7. That changed when Trump was elected in November last year, with the market broadening out of these seven market darlings, a trend that continued as the market rebounded in April. Volatility during the month remained extremely high on the individual stock level, with any signs of macro weakness or weakening guidance severely punished. On the back of rising uncertainty, risk premiums have been increasing globally, and there has been a continued shift out of the US into European and Asian markets, with Europe being a notable outperformer in April. In terms of sectors, Energy was the clear underperformer last month, with defensive sectors like Consumer Staples and Utilities, as well as cyclical sectors like Industrials, the outperformers. Our Golden Age portfolio reversed some of its strong absolute and relative performance from the first quarter but remains firmly ahead of the MSCI World Index for the year. Swings on an individual stock level remain high, with relatively nervous sentiment around Healthcare stocks in April. Tariff fears, as well as a disappointing earnings print from UnitedHealth (-21%), hurt performance during the month. On the other hand, recently added L’Oreal (+19%), as well as Asian exposure like Chow Tai Fook (+18%), benefitted from the broadening of the market. Last month, both sector allocation and stock selection detracted equally from performance. Our large overweight in Healthcare (-1.9%) at the expense of owning Information Technology (+2.1%) detracted from an allocation point of view. While positive in Consumer Staples, stock selection in Consumer Discretionary and Healthcare also detracted from relative performance. The Fund was down in both absolute and relative terms in April. The three stocks that contributed most to the Fund’s performance were L’Oreal (+19%), NN Group (+11%) and Chow Tai Fook (+18%). The three laggards were UnitedHealth (-21%), Skechers (-15%) and Thermo Fisher (-14%). At the end of the month, the portfolio’s positioning comprised Baby Boomer Brands 23%, eHealth 14%, Healthy Ageing 32%, and Pension Providers 27%.
Market review
The UST 10-year yield declined slightly in April to 4.15% but remains high given the increased sovereign risk for the US. The Bloomberg Commodity Index fell 5.1% in April, which was broad-based, as Energy as well as Metals dropped on fears of a macro slowdown. The VIX ended up at around 25 versus 22 in the previous month. That is very surprising given the risk-on environment and is a sign of ongoing market stress.
Portfolio Activity
In April, our trading activity was limited. We took some profit in Eli Lilly and added to Novo Nordisk after the huge performance gap. We also took profit in Halozyme, Option Care, NN Group and Amundi while adding L’Oreal to a normal 2% position.
Outlook
After two years of highly disappointing investment results, lagging both the general index and the underlying earnings growth of the companies we invested in, it may feel challenging to remain optimistic about the ageing theme. Despite the 10% steady earnings growth our ageing strategy offers above what is achieved and expected for the general market, the valuation multiples of our ageing stocks fell considerably while the multiples of the general index rose. What could happen in 2025 to turn this around and bring the ageing theme back into investor favour? Most analysts, strategists and experts expect the momentum of the last two years to continue, with a double-digit equity market performance driven by a handful of US technology conglomerates. Therefore, it seems you need some contrarian courage to invest in the ageing theme. This is odd, given that the ageing of our societies is actually speeding up. The number of 65+ year-olds, and especially the number of 80+ year-olds, is steadily increasing in all major economies – North America, Europe, Japan and China – while the number of young people is declining. Combined, these countries should see a yearly increase of 2.6% in 65+ year-olds and 3.7% in 80+ year-olds over the next decade. More and more governments have started to adjust their financing models as the outlook for lower tax income and higher pension and healthcare expenses is becoming a cause for concern. The first pension reforms and changes to the healthcare system have been announced in countries like France, the Netherlands, South Korea, China and the US, and we expect more to follow. Ageing societies should provide a strong growth driver for companies focused on wealthy retired customers and elderly patients, or companies able to benefit from pension reforms. Our portfolio of ageing-focused companies should provide secular growth of 5-10% in sales and 10% in earnings per year for decades to come. While 10% growth is perhaps less than Technology and AI-driven companies are promising, it is available at a substantial discount. Our ageing strategy is currently on valuation multiples more than 25% lower than the general market indices, let alone compared to the major technology stocks.
On a more short-term horizon, we see two drivers that could unlock the value offered by ageing companies in 2025. For the first time this decade, we should see normal growth rates return to healthcare companies, as the pandemic no longer plays a role in the comparable base. However, it will probably be some months before we know what the Trump headwind for healthcare will be, including the full effect of tariffs. Additionally, structurally higher interest rates, away from the 0-1% of the past decade, are providing pension companies with a solid opportunity to speed up growth, and on much better terms.
Yours sincerely,
The Golden Age Investment Team
Jeroen van Oerle & Christian Vondenbusch
