matejmo/iStock via Getty Images
Last quarter we asked the rhetorical question: What will Trump do next?
As if the Ukrainian conflict, tariff uncertainty, and China's provocative actions did not create enough anxiety, we now have a belligerent US president joining Israeli forces in a hostile attack on Iran with devastating economic consequences.
The victor will not be asked, later on, whether he told the truth or not. In starting and making a war, not the Right is what matters, but Victory. ¹ - Adolf Hitler, August 22, 1939.
Equity markets are proving to be resilient. Share prices have contracted but have not crashed. The Nasdaq was down 7.1% for the quarter, the S&P down 4.6%, and in comparable USD terms, the MSCI World Index was down 3.6%. ²
This timid reaction should not come as a surprise. Markets may well be factoring in a Trump "TACO" moment. Or perhaps they are expecting - like the pandemic of 2020, the European debt wobbles of 2011 and the GFC in 2008, that governments will come to the rescue with a flood of cash. With obscene levels of debt, we are not so sure.
Irrespective, let's take a step back and look at the broader picture. Driven by AI euphoria, these indices are still up 24.8%, 16.3% and 18.9% over the last year, and have returned an incredible 21.5%, 17.8% and 16.8% each year over the last three years. These numbers are in the order of 2-3 times historic long term equity market returns.
The Fund was down 1.7% in EUR terms, 3.5% in USD and 6.1% in AUD terms - in line with the MSCI World Index. ³, ⁴
Table 1: Contribution Details
Stock March 2026 Quarter Last 12 Months End Weight Beg. Weight Return Contribution Beg. Weight Return Contribution Alphabet 3.5% 6.9% -8.3% -0.3% 4.0% 85.7% 3.5% HCA Healthcare (HCA) 6.0% 5.7% 1.5% 0.0% 7.9% 37.7% 2.1% Linamar 4.5% 4.5% 4.1% 0.2% 2.8% 74.9% 2.1% Ryanair 7.7% 9.4% -18.8% -1.7% 6.0% 29.7% 2.0% McKesson (MCK) 6.6% 6.1% 5.6% 0.3% 6.9% 28.9% 1.7% LyondellBasell 3.1% 4.4% 90.3% 2.7% 4.1% 26.6% 1.0% Samsung Electronics (SSNLF) 2.0% 46.0% 0.9% Charter Communications (CHTR) 2.3% 2.2% 3.4% 0.1% 1.5% -41.0% -0.9% H&R Block 3.8% 3.0% -26.2% -0.7% 4.2% -40.4% -1.4% Robert Half (RHI) 2.2% 2.2% -4.8% -0.1% 2.4% -50.9% -1.6% Liberty Broadband 4.8% 4.7% 4.0% 0.2% 4.3% -38.5% -1.9% Universal Music 6.9% 6.1% -24.5% -1.5% 7.1% -32.9% -2.2% Subtotal Equities 51.4% 55.1% -0.9% 53.2% 5.1% Other Equities 32.5% 29.3% -1.8% 28.0% 2.0% Cash, Currency & Fees 16.1% 15.7% 1.1% 18.9% -6.4% Total (EUR) 100.0% 100.0% -1.7% -1.7% 100.0% 0.7% 0.7%
Returns are time weighted, include dividends, withholding tax, trading costs and so may differ from the stock returns quoted in the text.Figures may not add up due to rounding.
Table 3: Quarterly Purchases
Quarterly Purchases Universal Music Increase Position Amazon Initial Position H&R Block Increase Position Mastercard Increase Position
Table 4: Quarterly Sales
Quarterly Sales Lyondellbasell Decrease Position Alphabet Decrease Position Liberty Broadband Decrease Position Linamar Decrease Position
The most significant news from our perspective is the Fund's latest investment - Amazon (down 9.8%).
We have long admired Amazon. Its "Day 1" philosophy is quite remarkable, with an obsession to satisfy its customers, an eagerness to embrace external trends, and a propensity to make quick decisions. The business has expanded aggressively: CDs, electronics, toys in late 90s; market place in 2000; free 2-day shipping in 2005; AWS cloud in 2006; the Kindle in 2007; physical retail (WholeFoods) in 2017; and media with the acquisition of MGM in 2022. Relentlessly focused on the long-term, Amazon's growth has been fueled by its "Flywheel" effect: lower prices lead to more customers, which attracts more third-party sellers, allowing for greater economies of scale. It stands today as a serious player in AI and a leader in both logistics and cloud computing. It has far evolved from that humble online bookstore of 30 years ago.
Since we tweaked our quality/value criteria a few years back we have seen it flutter in and out of our quantitative screen depending on its share price. For a few reasons, we think now is an appropriate time to buy. Let us explain.
Our core holding in the technology platform space is Alphabet . It had a poor quarter (down 8.1%), but it has had a stellar run over the last 12 months (it returned 86.6%). A year ago its shares traded at a 12% discount to our valuation. Our valuation has increased since then, but with that share price rise, it now trades at a premium of 43%. On the other hand, Amazon traded at 30% premium to our valuation one year ago. Our valuation has also increased, but with its more modest share price increase (9.5%), that premium is now 17%.
Some may question our buying at a price higher than our valuation. But our reasoning is that all valuations are subjective, and particularly so when it comes to technology businesses pursuing new endeavours with unknown payoffs. At the same time, despite the shares trading at a valuation premium, given their exciting prospects, we feel it makes sense for the Fund to maintain a reasonable (circa 10%) allocation to these types of businesses.
We maintain that Alphabet is very well placed across the AI sphere. But Amazon offers a different base earnings stream and a supporting business with a more direct retail link. Funding an Amazon purchase with the partial sale of a more expensive (on our numbers) position, being Alphabet, enables us to more cheaply capture a broader range of potential AI benefits. Also, by doing so, we reduce the number of "greater than 5%" holdings which providing greater flexibility in managing the portfolio.
Our total position in this bucket of businesses (which absent price movements would have been maintained at over 10%) is 8.7% of the Fund, and is now represented by Alphabet (3.5%), Alibaba (which after being down 16.7% now represents 3.3%) and our new investment in Amazon (1.9%).
Moving on. It is this time of the year we get swamped by full year earnings results and presentations, but they were the back stage to the main event - war. Despite the poor overall performance of the equity markets there were some glimmers.
LyondellBasell, the plastics producer which we have been calling out as cheap for some time, posted an extraordinary 88.3% return. The catalyst was the fortuitous (to the business) and entirely unexpected Strait of Hormuz issues. In a mid March presentation management explained its effects for the polyethylene and polypropylene markets (both in terms of material trapped in the Middle East and feedstock shortages), and outlined the business's operating leverage to the consequent rising prices. Were we lucky? Yes and no. Although the share price rallied to levels above our valuation, over the years we had misjudged the cyclicality of the business and incrementally lowered our valuation. In January, after its full year results, we reduced it by a further 5% - meaning the valuation is now a third lower than it was three years ago. This is poor judgement not bad luck. Irrespective, over the course of 2025 we were buying at prices which we viewed as depressed. During the early part of the March quarter we sold some in order to meet regulatory requirements, and during the later part we took advantage of the company's "good fortune", and sold more at a materially higher price than our recent purchases. As a result, the Fund's weighting has declined from 4.4% to 3.1%.
Lockheed Martin, the defence contractor was up 25.6%. Lockheed is understandably perceived to be a beneficiary of this war. That being said, it also released solid full year results. Management highlighted its USD 194b backlog, continued expectation of strong cash flow, and significantly upped its 2026 expectations. With revised numbers and assumptions feeding it, our valuation increased by 11.2%. It now trades at a 24% premium to that. But in our view, given its subjectiveness, this is not enough to warrant selling. It represents 2.8% of the Fund.
Anything that posted a positive quarterly return could be considered a half decent performer this quarter, and there were six other positions that did. Both our health care companies, being McKesson, the drug distributor (up 5.6%), and HCA Healthcare, the hospital operator (up 1.5%), posted impressive results. For McKesson, management raised and tightened its full year guidance, completed the divestment of its European business, announced plans to separate its Medical Surgical business, and reiterated its long term growth outlook in the mid teens. Its share price rose 15.7% on the day. For HCA, management announced an increase to its dividend and increased buybacks, and the share price spiked 7.1% on the day. We updated our valuations. In the case of HCA, it increased about 30%, with half being attributable to our revised maintainable earnings estimates and the other half being a result of revisiting our view of its business risks. For McKesson, these were not full year results and we only made a couple of tweaks which increased our valuation by around 5%. Both remain sizeable positions in the Fund, at 6.6% and 6.0% respectively.
Charter Communications and its tracking stock Liberty Broadband returned 3.4% and 4.0%. Charter's full year results demonstrated strong cash flow growth and management reiterated that, with declining capital expenditure requirements in coming years, this will continue. Despite plans to lower leverage, share repurchases are also expected to continue. The merger with Cox Communications is still pending with no real update. Although the market's response was favourable (with the share price up 7.6% on the day) as we fed the numbers through our systems the valuation barely changed and the share price continues to sit well below it. The combined positions of these companies accounts for 7.1% of the Fund.
Linamar, the industrial manufacturer, returned 4.2%. We considered its results admirable, but going by the market's reaction (the share price fell 6.8% on the day), it was less enthused. The highlight was the auto parts business, showing good margin improvement. The industrial side of the business remains weak and is expected to remain so. There was a minor increase in our valuation as we refined some margin assumptions. It now accounts for 4.4% of the Fund.
Dick's Sporting (DKS), (up 0.1%) posted strong results, with more growth from its core business expected to come. It also re-assessed the number of Foot Locker (FL) stores it intends to close after promising trials of its "Fast Breaker" concept. This is expected to increase long term growth, but comes at the cost of lower short term growth. With little debt, high returns on capital, and trading at acceptable pricing metrics, we remain positive and comfortable with the Fund's 5.3% position.
Twelve of our holdings posting negative performance. Again far too many on that side of the ledger.
H&R Block, the tax agents, was the worst, falling 26.2%. Over the first 9 trading days of the SAASpocalypse, H&R Block's share price fell 28.2%. It seems even the release of a pretty decent set of second quarter results on February 4 could not stem the tide. Those results were perfectly in line with our expectations, and management also reaffirmed its FY2026 guidance. We are by no means under the illusion that AI is not a threat to H&R Block's tax return businesses. But we also feel there is a place for tax specific software backed up by tax professionals. And in any case, H&R Block has a variety of product offerings many of which include AI powered platforms serving not only personal filers but also the professional tax agents. Put simply, it is not clear to us that its business model is impacted to the degree implied by the share price reaction. To the contrary, we sense it more likely not to be the case. Hence, we bought more over the quarter, and this investment now accounts for 3.7% of the Fund.
Universal Music, the owner, publisher, and to a smaller extent, merchandiser of music, was down 25.2%. Its full year results looked pretty good to us, with revenue and earnings higher than expected and a value adding acquisition which fed a small increase in our valuation. The share price fell 8.1% on the day. Market chatter suggests that the threat of AI generated content is to blame - but is this a threat or an opportunity? There may also be uncertainty surrounding the intentions of a major shareholder. Who knows? But it did not make sense to us, so we bought a sizeable amount of shares, in fact 50% more. By the end of the quarter it accounted for 6.9% of the Fund. Post quarter's end, a restructuring was proposed by a large shareholder.
Ryanair was down 18.7% - clearly on concerns about rising aviation fuel costs and a likely softening in demand for leisure travel. It seems these concerns took precedence to a very good set of third quarter results and management's positive full year outlook with marginally higher traffic numbers and fares than it previously guided. We are more focused on its long term prospects and its resiliency throughout a crisis - like the one we currently find ourselves in. On that note, Ryanair continues to widen its ex fuel cost advantages versus competitors. It also has the most fuel efficient fleet, and with more Boeing (BA) Max 8's to be delivered, and the pending delivery post certification of the Max 10's, that position will continue to strengthen. Meanwhile, it had hedged 84% of its fourth quarter and 80% of its FY27 expected fuel requirements (at USD 67/barrel). Ryanair management has a long standing track record of increasing its competitive positions in times like these. We would argue that the broader, but far more remote risk, is whether restrictions could be placed on non-essential services in order to preserve fuel supply. Irrespective, we do not see as destroying this business. Despite management's upped guidance, we did not change our valuation, and the share price now trades 13% below it. It remains the largest position in the Fund at 7.7%.
Group 1 Automotive (GPI), the car dealership, was down 15.8%. Management released full year results, and to be frank, we were disappointed. Its recently acquired UK business continues to be problematic. With a significant fall in sales, it is reducing headcount (again), consolidating operations and exiting the Jaguar Land Rover brand. It is now clear to us that management misjudged this one. Taking on substantial debt to fund a poor business concerns us. There was better, but not overly positive news for its US operations, with higher car prices being achieved, but there was a small decline in volumes. Our business valuation declined as a result of revised and less optimistic assumptions; and given its increased debt and pension liabilities, this was quite pronounced at the equity level. That fall was greater than the share price decline, and it now trades at a premium. So, we are closely considering the Fund's 2.8% position.
Our other car dealership, Autonation (AN), (down 5.4%) fared a little better. But like Group 1, its increased debt levels are concerning. In this case the new debt is largely being applied to its fast growing financing business. The OEMs have competitive finance terms available to purchasers of their new vehicles, so Autonation's financing book is largely comprised of second hand vehicles that it sells. Whilst not discrediting the investment merits of finance businesses, there is a reason they are excluded from our screening process. And so we are now assessing whether, with its growing exposure to this line of business, Autonation is still an appropriate investment for us. It accounts for 3.9% of the Fund.
Visa and Mastercard were both poor performers being down 13.6% and 12.3%. This is perplexing. Those returns are polar opposites of their business performance. Both of their recent results show mid-teens earnings growth, which is driven largely by 20-25% growth in their "Value Added Services". This is all expected to continue in the foreseeable future. We updated our valuations. For Mastercard, which released full year numbers, it increased by 16.3%. For Visa it was little changed, but we expect that after having the benefit of full year results (released later this month) it will similarly increase. None of this comes as a surprise - except of course the trading price of the shares. With falling share prices and increased (but still conservative) valuations, the premium that the shares trade has reduced from around 40% to negligible levels. Accordingly, we bought more of both, to now hold 4.9% and 4.7% respectively.
With our new Amazon investment, the Fund now holds 20 businesses and 16.1% cash.
As we finalise this report, equity markets have once again recovered. In fact, they have rebounded to new all time highs. The S&P500 is up 9.2%, the Nasdaq is up 13.3%, and MSCI World Index (in USD) is up 9.3%. Such is the nature of the markets.
We don't understand. Haven't the events over the quarter highlighted a few things? Like, for example:
Are we complacent in other areas? We wrote about our amazement with the enthusiastic and fast paced AI adoption last quarter. What are the hidden risks lurking below the surface? Studies already show how manipulative AI can be. We know it cheats. We are unsure about its ethics and values. We also know that to a large and growing extent it trains itself on content which is itself AI generated - thereby potentially compounding the risks at an exponential rate.
After years of widespread adoption, the negative societal effects from social media (fueled by confirmation biased algorithms) are only now truly coming to light. In the case of AI, it seems the world is enthusiastically embracing the benefits (which, no doubt are enormous) but perhaps without adequate caution. This is worrying for us.
And finally - we have spoken of the SaaSocalypse. Is there opportunity amongst the carnage? After all, these are extreme falls to share prices and in some cases they have persisted over a prolonged time. But when we look at some of our recent valuation updates, much of it makes perfect sense to us. For example:
So, despite huge price declines, the share prices do not necessarily represent value, at least in our view. Irrespective, given our new understanding of AI's capability and its wide availability (largely triggered by the Anthropic CoWork news), we see our revised valuations as largely irrelevant for those highlighted examples. Given the range of possible outcomes, there's just too much risk. Having said that, amongst the share price falls, we have not given up on identifying a promising opportunity.
As always, thank you for your interest.
Stuart Pearce, Principal
Alexis Delloye, Principal
Profile Table 5: Fund Overview Table 8: Regional Diversity Table 6: Sector Diversity Table 7: Top 10 Holdings Table 9: Portfolio Pricing, Risk and Quality Metrics (weighted average) ⁷,⁸ Performance Table 10: Fund Returns ²,⁹ (Past performance does not predict future returns) Inception is 1 January 2015 for AUD, 30 January 2019 for EUR, and 15 October 2019 for USD. Facts Inception 31 January 2019 Size (EUR, as at 31 March 2026) 64.7m Strategy Unhedged, long only, value oriented global listed equities invested. Objective Generate attractive returns over the long term via active management of a concentrated equity portfolio, without regard to a specific benchmark and with an emphasis on capital preservation. Holdings Typically around 20 positions Investment Manager Alluvium Management Company Banque de Luxembourg Investments, acting under the name Conventum Third Party Solutions Administrator UI efa S.A. Alluvium (Australian Fund) Custodian Banque de Luxembourg S.A. Alluvium (Australian Fund) Auditor PricewaterhouseCoopers Société Coopérative Unit Pricing & Liquidity Bi-Monthly Monthly (Australian Fund) Fees Management: 1.15% p.a. Estimated other expenses: 0.30% p.a. Bloomberg Identifiers CONALGI:LX AGF0911:AU (Australian Fund) Investment Team As Principals of Alluvium, our aim is to develop a leading funds management business that has a reputation for authenticity, fairness, honesty, transparency, and disciplined investing in accordance with our beliefs and values. Stuart Pearce, CFA Stuart has over 30 years experience across institutional asset management and corporate advisory. Prior to Alluvium, he was a Senior Portfolio Manager at Perennial Investments, where he was responsible for the analysis of European investment opportunities. Previously he was a Portfolio Manager at Colonial First State Investments and he spent four years with KPMG Corporate Finance. Stuart is a CFA Charterholder. He also has a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australia, a Master of Tourism from the James Cook University of North Queensland and a Bachelor of Business in Property (Valuation) from the University of South Australia. Alexis Delloye, CFA Alexis has 15 years experience in the wealth management industry. Prior to joining Alluvium, Alexis worked as an investment analyst at Eight Investment Partners. From 2006 to 2012 he was an executive director of Invelios International, a French family office. Alexis also founded Private Reporting, an online reporting platform to track assets and investment performance. He started his career in Sydney as a credit analyst at BNP Paribas (Corporate Finance) in 2004. Alexis is a CFA Charterholder. He also holds an MBA from Lubin School of Business in New York, USA (major in Capital Markets), and has a Graduate Diploma from Neoma Business School in Rouen, France (with a major in Corporate Finance). Definitions General Portfolio Metrics
Cash 16.2% Top 10 holdings 55.5% Number of holdings 20 Median mkt cap (USD m) 33,297
United States 58.3% Continental Europe 14.7% Canada 4.5% United Kingdom 3.1% Asia 3.3% Australia / NZ 0.0% Cash 16.1%
Consumer Services 30.2% Retail 12.1% Health 12.7% Technology - Platform 8.6% Airlines 7.8% Manufacturing 4.5% Process Industries 3.1% Other 2.1% Technology - Hardware 2.8% Cash 16.1%
Ryanair 7.7% Universal Music 6.9% McKesson 6.6% HCA Healthcare 6.0% Dick's Sporting 5.3% Visa 4.9% Liberty Broadband 4.8% Mastercard 4.7% Linamar 4.5% Autonation 3.9%
Dec-2019 Dec-2020 Dec-2021 Dec-2022 Dec-2023 Dec-2024 Dec-2025 Mar-2026 Enterprise level yield (EBIT/EV) 9.8% 6.0% 8.7% 8.8% 6.3% 6.4% 6.1% 6.5% Earnings yield (NPAT/mkt cap) 8.6% 3.4% 6.7% 8.0% 6.5% 6.5% 6.0% 5.6% Free cash flow yield (FCF/mkt cap) 6.1% 7.4% 5.6% 4.6% 4.0% 1.9% 3.3% 3.8% Fixed charge coverage (median) 8.6x 12.7x 8.7x 8.5x 10.0x 9.8x 7.5x 6.0x Sales growth (3 year average) 4.9% 7.4% 5.9% 10.2% 10.6% 10.2% 10.7% 10.7% ROIC (8 year average) 29.7% 26.9% 26.0% 21.9% 20.6% 23.0% 21.1% 22.5%
Quarter Year to date Last 12 Months 3 Year (p.a) 4 Year (p.a) 5 Year (p.a) Inception EUR -1.7% -1.7% 0.7% 6.7% 5.2% 5.3% 6.1% USD -3.5% -3.5% 7.4% 8.8% 6.2% 4.9% 7.5% AUD -6.1% -6.1% -2.4% 8.0% 8.6% 7.1% 6.1%
Alluvium Alluvium Asset Management Pty Ltd, ABN 69 143 914 390, AFSL 476067 Australian Fund Alluvium Global Fund Factset Factset Research Systems, Inc. Fund Conventum - Alluvium Global Fund
Enterprise Value (EV) The market value of equity plus the book value of debt EBIT Earnings before interest and tax Earnings Yield The most conservative result from four different calculations at the equity level Free Cash Flow (FCF) Cash flow from operations less capital expenditure Mkt Cap Market capitalisation NPAT Net profit after tax Operating Assets Total assets less total liabilities plus total debt (Alluvium adjusted) Owner's Earnings Operating cash flow, plus cash interest paid less assumed maintenance capital expenditure Return on Invested Capital Owner's Earnings as a percentage of Operating Assets
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
此内容由惯性聚合(RSS阅读器)自动聚合整理，仅供阅读参考。 原文来自 — 版权归原作者所有。