2025 Outlook

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Hello, this is Rose Vangerven.

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I’m a partner at Findlay Park

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and from April will be the incoming CEO.

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We’d love to update you on our thinking at the

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start of 2025.

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Really it’s three things.

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We remain firmly confident in America as an amazing place

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to invest and do business.

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We are much less confident,

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however, in the index, we see real risks there given

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concentration, whereas our portfolio is very

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diversified and differentiated.

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We agree that there can be other risks

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and issues along the way in a, political world,

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in a rapidly changing world.

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And actually, the ability to navigate this risk

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and volatility has been key to our track record

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for the past 26 years.

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So why are we so confident in America?

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We see here the maths, that America has been a great place

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to invest, with companies with great growth

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and returns for the past several decades.

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Of course, that’s backward looking.

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But some of these factors here on the right we

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think are more enduring.

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Firstly, the culture, the entrepreneurialism,

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the growth orientated mindset

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and the shareholder friendliness of Americans.

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Increasingly, America is also energy independent,

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which gives it flexibility.

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The economy is diversified.

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Different states have their own different setups.

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So if you don’t like what’s happening in California

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as a company, you can move to Texas and vice versa.

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It creates healthy competition.

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We still believe in the political

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and regulatory structure in the US

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and the breadth of the capital markets.

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So why do we have less confidence in the index?

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As we know, the Magnificent seven account for about 30%

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of indices such as the S&P 500.

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So the index is concentrated, but why is this a problem?

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We see a few issues here.

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Firstly, competition, particularly when it comes

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to new vectors and technologies such as AI

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questions over future earnings growth

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and valuation for many of these companies.

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But the index is also narrow.

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When we look back over time, we’ve rarely seen two periods

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of consecutive years

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where such few companies have outperformed indices

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such as the S&P 500.

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And if we look back over the past few decades,

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there’s really only been one other period

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where this has occurred, which is the Dot-com Boom.

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And of course that did not end well.

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What do we like to invest in and how are we different?

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So where we’re really positioned is increasingly in mid-cap

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companies and we define that quite broadly as companies

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between three and 50 billion.

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Why do we like these types of companies?

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They’re generally less understood, they’re generally more

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domestically orientated

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and we think we can get great companies at decent valuations

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that others aren’t perhaps looking at so much.

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We are much less focused

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for now, on the Magnificent Seven companies

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where we just see less value compared to historical periods.

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In fact, we’re currently only invested

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in one of these companies, Microsoft.

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A little bit about our activity in 2024 we think

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is helpful in this context.

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So, we’ve seen a number

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of great opportunities in more industrial focused companies

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like CRH in building materials and aggregates

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and XBO in transportation.

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We still think healthcare is a really

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interesting place to invest.

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It’s not had a great couple of years post pandemic,

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but we see this company Medpace, which helps biotech

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companies, outsource clinical research,

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which we think is really interestingly positioned

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for their future growth.

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And what don’t we like so much of?

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What have we been selling? Well,

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we see here some big household names and technology

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and related sectors, partly

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for competition reasons like T-Mobile, um, and Alphabet.

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One company I’d really like to hone in on is NVIDIA.

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And this really goes back to how we invest.

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So we’ve seen, in late January a single day

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where this company’s share price fell about 17%.

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This really speaks to the fact that we see a lot

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of uncertainty in terms of really picking AI winners

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and losers at the moment.

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Um, and for now we are not sure of the future

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and certainty of this business, certainly at this valuation.

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So we don’t really like uncertainty.

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In fact, our whole aim is to create compelling returns

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by taking less risk

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and we see some potential risks on the horizon.

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You might be concerned with inflation,

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you might be concerned with the impact of tariffs,

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interest rates, the deficit, etc.

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The good news is that we feel confident in our

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ability to navigate risk.

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And if you look back over the history of the fund,

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we’ve actually outperformed in 30

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of the 32 down quarters over which our fund has been

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running, which as you see creates,

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this good long-term compounding record.

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In fact, our compound return record has been very

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consistent over time.

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You see here it’s just over 12%.

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This is the dark line at the top

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and some of the indices,

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which you see along the bottom can be much more variable.

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In fact, if you really care about not losing money,

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I’d really urge you to look at the shaded column here.

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So this is the minimum 10 year rolling return

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that you could have achieved in our fund versus some

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of the major indices.

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As you see here for our fund, it’s almost 9%,

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whereas in some of the big indices,

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you’d have actually lost money at some periods on a 10 year

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rolling return basis.

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And with that, thank you so much for listening

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and we look forward to seeing many of you in 2025.