July 19, 2024
Mar Vista Q1 2024 International Portfolio Technique Commentary

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International markets had their greatest first-quarter efficiency in 5 years. Resilient company earnings, enthusiasm round AI and expectations for rate of interest cuts drove inventory costs larger. The worldwide economic system continues to defy expectations and recession worries have weakened.

In a broad market rally, every thing from shares to bitcoin to gold marched larger. The AI increase has fueled the market’s positive factors, with chip designer Nvidia (NVDA) including greater than $1 trillion in market worth after rising 82% through the first three months of the 12 months. Nvidia’s appreciation is equal to about one-fifth of the whole acquire for world inventory markets over that interval.

A Goldilocks economic system underpins fairness markets. Customers are spending on providers and unemployment stays favorable. Investor sentiment stays optimistic and financial coverage is popping extra constructive. Stable company fundamentals are anticipated to translate into one other quarter of earnings progress, suggesting that the worldwide fairness rally has room to run.

Efficiency Evaluation

Mar Vista’s International technique returned +6.52% net-of-fees within the first quarter of 2024. The MSCI World Web Index and the MSCI All Nation World Web Index returned +8.85% and +8.14%, respectively. Inventory choice inside info expertise, client staples and actual property negatively impacted efficiency through the quarter. Walt Disney (DIS), TransDigm (TDG) and Amazon (AMZN) had been among the many portfolio’s high contributors for the quarter, appreciating +35.52%, +21.75%, and +18.72%, respectively. Alternatively, our investments in Adobe (ADBE, -15.4%), GXO Logistics (GXO, – 12.1%), and Apple (AAPL, 10.82%) had been among the many portfolio’s largest detractors.

Walt Disney’s newest monetary outcomes showcased vital progress, resulting in a rise in inventory worth. Essentially the most noteworthy issue was the improved efficiency of its streaming enterprise. With media profitability recovering, administration is optimistically guiding for 20% earnings progress in 2024. This constructive outlook can be supported by decrease prices and robust efficiency from its parks division.

Walt Disney’s streaming service is on monitor to grow to be worthwhile by its fiscal fourth quarter. This aligns with our authentic funding thesis, which anticipated the direct-to-consumer (‘DTC’) enterprise to maneuver from a lack of $2 billion to a revenue of $1 billion. Even after the current inventory worth enhance, Walt Disney stays undervalued relative to Netflix (NFLX). We anticipate this hole to shrink as its streaming enterprise matures and turns into more and more worthwhile over the following few years.

TransDigm delivered one other spectacular quarter, exceeding analyst expectations on each earnings and profitability. Its gross and EBITDA margins widened considerably, pushed by robust performances in industrial aerospace and protection. Income progress in industrial aerospace aftermarket elements (+27%) and new protection orders had been key contributors to this outperformance. Administration responded by elevating full-year 2024 forecasts for income and profitability.

Continued progress in each protection and industrial aftermarket ought to be fueled by recovering passenger site visitors, larger plane utilization, and a powerful bookings backlog. With home journey exceeding pre-pandemic ranges and worldwide journey nearing full restoration, TransDigm seems well-positioned for steady progress. This, mixed with its environment friendly operations, ought to drive long-term inventory worth appreciation.

Amazon is experiencing a surge in profitability, mirrored in considerably larger retail revenue margins. Strategic price reductions in headcount and success have materialized into monetary positive factors. Whereas the surprising pandemic- pushed demand surge necessitated a speedy growth of success infrastructure, this initially impacted working earnings. Nonetheless, present unit gross sales progress has successfully reached equilibrium with success capability. This stability is resulting in constructive changes to each earnings and intrinsic worth estimates. Ought to the financial local weather proceed to enhance, we imagine Amazon’s funding potential aligns with its projected 15-20% intrinsic worth progress trajectory.

Regardless of underperforming through the quarter, Adobe stays a strong participant within the inventive skilled market. We imagine the corporate is well-positioned to capitalize on two key tendencies: the continuing shift in direction of digital commerce and the rise of generative AI.

Adobe stands out as an early chief in generative AI, providing each standalone options like Firefly and built-in options inside established merchandise like Photoshop. This places them forward of the curve, attracting each inventive professionals and advertising and marketing groups inside firms. In consequence, Adobe is experiencing robust bookings progress within the mid-teens, which in the end interprets to wholesome income, earnings, and money circulate. Primarily based on these elements, we undertaking continued intrinsic worth progress for Adobe within the low-to-mid-teens vary over our funding horizon.

GXO Logistics skilled a setback this quarter. Buyer volumes dropped 9%, stalling any natural progress. This droop was primarily pushed by weak point within the omnichannel retail and client packaging sectors. In consequence, the corporate’s 2024 forecasts fell wanting analyst expectations, resulting in a drop in share worth after the announcement.

Regardless of cyclical headwinds, there are indicators of a turnaround for GXO. Administration indicated that buyer volumes in January have already begun to enhance. Moreover, they anticipate simpler comparisons within the latter half of 2024 to additional help restoration. To us, this means that the primary half of 2024 stands out as the cyclical low level, with a rebound on the horizon. Over the following few quarters, GXO ought to get again on monitor in direction of attaining its long-term monetary objectives.

Apple’s inventory was pressured within the quarter as buyers fretted over softening demand for smartphones, regulatory motion from the US Division of Justice, and the Chinese language authorities mandates proscribing iPhone use by authorities officers. Regardless of these near-term headwinds, we proceed to imagine the corporate stays competitively advantaged and advantages from the Apple ecosystem, which has an put in base of over 2 billion gadgets and over 1 billion paying subscribers. We imagine the Apple ecosystem will help a extra predictable money circulate stream, which ought to develop intrinsic worth high-single-digits over our funding horizon.

Portfolio Exercise

Throughout the quarter, we initiated an funding in Novonesis (OTCPK:NVZMY) and added capital to Adobe, Alphabet (GOOG,GOOGL), Nestle (OTCPK:NSRGY) and Unilever (UL). Decrease conviction in Honeywell (HON) and Reckitt Benckiser (OTCPK:RBGPF) prompted funding liquidations.

Novonesis is the brand new title for the not too long ago merged Novozymes (OTCPK:NVZMF) and Chr. Hansen (OTCPK:CHYHY). The mixed firm is a dominant chief in biosolutions, notably enzymes and cultures, for greater than thirty totally different industries and wields a broad organic toolbox to develop revolutionary options throughout numerous domains. Half of Novonesis’ portfolio focuses on enabling higher lives and meals whereas the opposite half is devoted to a greater surroundings resembling decreasing chemical use and selling climate-neutral practices. The corporate enjoys sturdy aggressive benefits as a result of switching prices, mental property, and scale benefits. We undertaking revenues will develop mid-to-high single digits on the energy of innovation, secular demand for safer, cleaner options and improved pricing energy. Returns on invested capital ought to march larger as stronger income progress and working leverage drive double-digit revenue progress.

After almost 14 years of proudly owning shares in Honeywell, we determined to promote our funding through the quarter. This determination was based mostly on a mixture of points that threatened our funding thesis for the corporate. The principle challenges had been associated to natural progress and capital deployment. Particularly, we’ve issues about Honeywell’s future natural progress and its indecisive strategy to capital deployment. Even with a powerful stability sheet, money surplus, and low leverage, its capital deployment course of lacks path. Moreover, Honeywell is closely invested in cyclical and short-cycle companies which could be risky. For these causes, we bought our funding in Honeywell.

Reckitt Benckiser (‘RB’) boasts a powerful model portfolio, however current efficiency has been underwhelming. The corporate’s strategic shift in direction of high-margin well being and hygiene merchandise has streamlined operations. Nonetheless, execution points are hindering progress, and the corporate’s monetary steering is overly optimistic in comparison with precise outcomes. We predict RB could be underestimating operational challenges.

Whereas RB claims to have maintained pandemic positive factors, true product volumes haven’t improved as soon as inflation is taken into account. With RB dealing with a interval of decrease structural progress, we reallocated capital to sooner compounding companies. Thankfully, we exited earlier than authorized points materialized in RB’s toddler vitamin phase.


Many buyers entered 2024 with excessive hopes, buoyed by the earlier 12 months’s positive factors in expertise shares. But, the inventory market’s early surge surpassed even optimistic predictions. The tech-driven rally step by step broadened out throughout the quarter, with equities in Europe and Japan starting to outpace the US. Traditionally, robust first quarters for world equites usually translate to constructive years, making the present scenario promising.

Whereas valuations are at present above historic averages, a powerful underlying world economic system continues to gasoline market momentum. Nonetheless, remaining vigilant towards potential dangers like persistent inflation or disappointing earnings is essential.

As long-term buyers, we favor companies uncovered to secular tendencies that may form the following decade. Our portfolio prioritizes moated corporations with robust financials, positioning them to excel within the present surroundings. Although the market anticipates a controllable financial slowdown, we imagine our holdings maintain vital potential for outperformance.

By affected person funding in high-conviction corporations and disciplined capital allocation, we goal to ship favorable risk-adjusted returns over time. We imagine this technique will enable our portfolio to learn from each the intrinsic worth progress of our holdings and the enticing entry factors we secured.

International Fairness Annualized Returns as of March 31, 2024


MSCI World Web


MSCI All Nation World

Web Index

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10 Years




Since Inception




Buyers in Mar Vista’s International technique acknowledge and agree that (I) any info supplied by the Agency is just not a advice to put money into the technique and that the Agency is just not endeavor to supply any funding recommendation to the investor (neutral or in any other case), or to present recommendation to the investor in a fiduciary capability in reference to an funding within the technique and, accordingly, no a part of any compensation acquired by the Agency is for the supply of funding recommendation to the investor and (II) Mar Vista has a monetary curiosity within the investor’s funding within the technique on account of the charges and different compensation the Agency expects to obtain from the consumer.

Mar Vista Funding Companions, LLC, a Delaware restricted legal responsibility firm, is a registered funding adviser underneath the Funding Advisers Act of 1940. The Agency presents funding advisory providers to people, pension and profit-sharing plans, trusts, estates, firms, in addition to different institutional purchasers. For functions of compliance with GIPS®, Mar Vista has outlined itself to incorporate bundled/wrap payment accounts within the Agency’s property. Previous to January 1, 2018, Mar Vista outlined itself to not embody bundled/wrap payment accounts within the Agency’s property. Mar Vista maintains an entire record and outline of Agency composites, which is obtainable upon request.

On 7/12/07, Silas Myers and Brian Massey fashioned Mar Vista. On 12/1/07, the entire property underneath their administration at Roxbury Capital Administration, LLC transitioned to Mar Vista by means of a sub-advisory association. On 1/20/15, Mar Vista finalized an settlement whereby the popular share class that was owned by Roxbury was extinguished. All property underneath administration are managed by Mar Vista. Mar Vista claims compliance with the International Funding Efficiency Requirements (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute doesn’t endorse or promote this group, nor does it warrant the accuracy or high quality of the content material contained herein. Benchmark returns usually are not coated by the report of unbiased verifiers. For the complete interval offered, Mr. Myers and Mr. Massey have been considerably liable for all of the funding selections of the International Fairness technique.

The International Fairness composite was created in 2012, with an inception date of 12/31/11. All returns are based mostly in U.S. {dollars} and are computed utilizing a time- weighted whole fee of return. The composite is outlined to incorporate all absolutely discretionary, taxable and tax-exempt portfolios with no minimal or most account worth, managed for no less than one month in accordance with Mar Vista’s International Fairness technique, which is a portfolio invested in 20-30 equities, and that paid for execution on a transaction foundation. The leads to the column marked internet of charges for the intervals 1/01/12 by means of the current, embody an ordinary administration payment utilized to any non-fee-paying portfolio for efficiency calculation functions.

The first benchmark is the MSCI World (internet) Index, outlined as a free float-adjusted market capitalization weighted index that’s designed to measure the fairness market efficiency of developed markets. The MSCI World Index consists of the next 23 developed market nation indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Eire, Israel, Italy Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK, and the USA. As well as, not like the composite, which periodically maintains a money place, the MSCI World Index is absolutely invested. Buyers can not straight put money into an index.

The secondary benchmark is the MSCI ACWI (internet) Index, outlined as a free float-adjusted market capitalization weighted index that’s designed to measure the fairness market efficiency of developed and rising markets. The MSCI ACWI consists of 46 nation indices comprising 23 developed and 23 rising market nation indices. As well as, not like the composite, which periodically maintains a money place, the MSCI ACWI Index is absolutely invested. Buyers can not straight put money into an index. The dispersion in gross-of-fee composite returns proven herein was measured utilizing an asset-weighted normal deviation components.

Efficiency outcomes offered mirror the reinvestment of dividends and different earnings. Gross efficiency is internet of all transaction prices, and internet efficiency is internet of any transaction prices, relevant performance-based charges and precise administration charges, however earlier than any custodial charges. All returns are calculated internet of withholding taxes on dividends and curiosity. Precise outcomes could differ from composite outcomes relying upon the dimensions of the portfolio, funding goals and restrictions, the quantity of transaction and associated prices, the inception date of the portfolio and different elements. Insurance policies for valuing portfolios, calculating efficiency, and making ready GIPS® Composite Reviews can be found upon request.

The Agency’s International Fairness payment schedule is as follows: First $25 million – 0.75%; Subsequent $25 million – 0.60%; Subsequent $50 million – 0.50%; Over $100 million – Negotiable. Particular circumstances could trigger charges to range from this schedule and Mar Vista reserves the proper to barter charges with purchasers. Charges are payable quarterly in arrears or advance based mostly on 1/4th of the annual fee.

A whole record of portfolio holdings and particular securities transactions for the funding technique through the previous 12 months, the highest contributors and underperformers calculation methodology and a listing of each holding’s contribution to the general efficiency through the interval is obtainable upon request. The securities talked about on this letter had been held within the account of a International Fairness consumer that Mar Vista believes to be consultant of the accounts that Mar Vista manages for this funding technique through the interval from December 31, 2023-March 31, 2024. Different Mar Vista purchasers managed with totally different funding goals could maintain totally different securities than these listed. The securities listed on this letter shouldn’t be thought of a advice to buy or promote any specific safety. The reader mustn’t assume that investments within the particular securities recognized herein had been or will likely be worthwhile. A International Fairness GIPS® Composite Report is obtainable upon request by contacting Mar Vista straight at (800) 993-1070 or by way of e mail at [email protected]. Previous efficiency is not any assure of future outcomes. Not FDIC insured, no financial institution assure, could lose worth.

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Editor’s Word: The abstract bullets for this text had been chosen by Searching for Alpha editors.

Editor’s Word: This text discusses a number of securities that don’t commerce on a serious U.S. change. Please concentrate on the dangers related to these shares.