VAM Funds (Lux) and VAM Managed Funds (Lux) Commentaries
October 2024
VAM Funds (Lux) Commentaries
VAM US Micro Cap Growth Fund*
Holdings in the information technology and financials sectors were the largest source of positive relative returns. At month end, the Fund was underweight the information technology and health care sectors, and overweight the industrials and consumer discretionary sectors.
The holding that detracted the most from the Fund’s relative returns during the month was TransMedics Group, Inc. (Ticker: TMDX-US). TransMedics Group, Inc. is a commercial stage medical device company selling extracorporeal devices for the preservation and transport of human organs for transplant. In October, TMDX reported third quarter earnings that missed consensus estimates for revenue, EBITDA, and EPS. The company claimed that the miss was due to an overall market slowdown in transplants, and headwinds from planned maintenance of their fleet of aircraft that support procedures. Given this uncertainty in the business environment plus our perception of management’s slightly less optimistic tone, the Manager concluded that the risk to estimates is higher now than it was before the report, and thus trimmed our position.
The holding that contributed the most to the Fund’s relative returns during the month was GeneDx Holdings Corp. (Ticker: WGS-US). GeneDx Holdings Corp. is a commercial diagnostics company selling diagnostic tests (panels, whole exome, and whole genome) for rare diseases. In October, WGS reported third quarter earnings in which they beat consensus on revenue and net income and increased full year 2024 guidance by more than the beat. Both were driven by continued market adoption of WGS’s whole exome/whole genome panels as well as improved collections/ASPs driven by a better reimbursement backdrop. As a result, estimates were revised higher and the stock price appreciated.
VAM US Small Cap Growth Fund
The Fund’s holdings assigned to the industrials and information technology sectors were the largest source of positive relative returns. Holdings in the financials and health care sectors detracted from relative returns. At month end, the Fund was overweight the industrials and consumer discretionary sectors, and underweight the health care and financials sectors.
The holding that contributed the most to the Fund’s relative returns during the month was Carvana Co. (Ticker: CVNA-US). Carvana Co. is a holding company and an eCommerce platform, which engages in the buying and selling of used cars. The company was a top contributor as they reported better-than-expected September quarter results and raised guidance. The company reported a record adjusted EBITDA margin that was an all-time best for automotive retailers, and is poised for continued market share gains.
The holding that detracted the most from the Fund’s relative returns during the month was TransMedics Group, Inc. (Ticker: TMDX-US). TransMedics Group, Inc. is a commercial stage medical device company selling extracorporeal devices for the preservation and transport of human organs for transplant. In October, TMDX reported third quarter earnings that missed consensus estimates for revenue, EBITDA, and EPS. The company claimed that the miss was due to an overall market slowdown in transplants, and headwinds from planned maintenance of their fleet of aircraft that support procedures. Given this uncertainty in the business environment plus our perception of management’s slightly less optimistic tone, the Manager concluded that the risk to estimates is higher now than it was before the report, and thus trimmed our position.
VAM US Mid Cap Growth Fund
The Fund’s holdings assigned to the information technology and communication services sectors were the largest source of positive relative returns. Holdings in the energy and health care sectors detracted from relative returns. At month end, the Fund was overweight the industrials and consumer staples sectors and underweight the information technology and real estate sectors.
The holding that contributed the most to the Fund’s relative returns during the month was Carvana Co. (Ticker: CVNA-US). Carvana Co. is a holding company and an eCommerce platform, which engages in the buying and selling of used cars. The company was a top contributor as they reported better-than-expected September quarter results and raised guidance. The company reported a record adjusted EBITDA margin that was an all-time best for automotive retailers and is poised for continued market share gains.
The holding that detracted the most from the Fund’s relative returns during the month was TransMedics Group, Inc. (Ticker: TMDX-US). TransMedics Group, Inc. is a commercial stage medical device company selling extracorporeal devices for the preservation and transport of human organs for transplant. In October, TMDX reported third quarter earnings that missed consensus estimates for revenue, EBITDA, and EPS. The company claimed that the miss was due to an overall market slowdown in transplants, and headwinds from planned maintenance of their fleet of aircraft that support procedures. Given this uncertainty in the business environment plus our perception of management’s slightly less optimistic tone, the Manager concluded that the risk to estimates is higher now than it was before the report, and thus trimmed our position.
VAM World Growth Fund
Performance was aided by holdings assigned to the industrials and information technology services sectors, as well as in the United Kingdom and the Netherlands. Exposures to the energy and financials sectors, as well as Japan and the United States detracted from relative returns. At month end, the Fund was overweight the United Kingdom and Germany and underweight the United States and Australia.
The holding that contributed the most to the Fund’s relative returns during the month was Rolls-Royce Holdings plc (Ticker: RR-GB). Rolls-Royce Holdings plc focuses on power and propulsion systems for a variety of end markets including aerospace, defense, and utilities. The company outperformed after posting a strong result in the beginning of the month that was ahead of expectations with strength across most segments. Additionally, the company raised its FY guidance for both EBITA and FCF and announced the resumption of its dividend. The company appears on track to reach its mid-term targets ahead of schedule.
The holding that detracted the most from the Fund’s relative returns during the month was Tencent Music Entertainment Group (Ticker: 1698-HK). Tencent Music Entertainment Group engages in the business of operating online music entertainment platforms to provide music streaming, online karaoke, and live streaming services. The company underperformed in August due to a weak second quarter print, of which management guided for a strategy shift from focusing on subscription growth to ARPPU, hinting for a slower expansion in paying user base. The Fund has exited the company following the weak results.
VAM Global Infrastructure Fund
The US economy delivered 2.8% annualised GDP growth in the third quarter of 2024 supported by resilient consumer spending. Inflation continues to show signs of moderation in the US, with CPI falling to 2.4% in September from 2.5% in August, but remains buoyed by lingering services pressures. In Europe, GDP surprised to the upside at 0.4% for the quarter, and inflation fell to 1.7% in September, supporting the ECB’s decision to cut interest rates by 25bps during the month.
Political developments added to market volatility this month, with key events in both the UK and US. In the UK, budget discussions prompted renewed focus on fiscal policy, while the US election cycle brought additional market fluctuations as investors assessed potential policy changes. These factors, alongside economic indicators, continue to shape market sentiment as we progress through the quarter.
Cordiant Digital Infrastructure (“CORD”), a UK-based investor in digital infrastructure, has announced agreements to acquire a 47.5% stake in the combined entity of Belgian data centre provider DCU Invest NV and the data centre business of Proximus Group. The total equity consideration for this stake is €92.3m, and the acquisition involves CORD partnering with TINC NV and another Cordiant-managed fund. TINC will retain a 47.5% stake and Friso Haringsma (CEO of DCU) will hold the remaining 5%. The combined group will consist of 13 data centres, with pro forma revenues of €40.3m and EBITDA of €15.1m in 2023, with potential for further capacity expansion with the existing asset base. This acquisition provides Cordiant with a strong position in Belgium’s data centre market, further enhancing its portfolio diversification. By leveraging its expertise in data centres, CORD aims to capitalise on synergies and economies of scale with TINC, ultimately driving improved performance and reinforcing its leadership in the digital infrastructure space across Europe.
Assura (“AGR”), owner of primary healthcare real estate in the UK, has successfully completed the sale of 12 assets, generating £25m in cash proceeds. This sale will allow for a partial repayment of the Group’s revolving credit facility. The company is actively negotiating additional asset disposals worth approximately £110m and has identified a further pipeline of 27 assets, valued at around £90m, with preliminary work on their potential disposal already underway. The disposal strategy plays a critical role in achieving the company’s financial goals following the £500m private hospital portfolio acquisition, particularly in reducing its leverage ratio. This disciplined approach to deleveraging strengthens the company’s balance sheet and positions it for greater financial flexibility and long-term growth.
Equinix (“EQIX”), a global owner and operator of data centres, has recently announced a JV partnership with GIC and CPP Investments that will raise over $15bn in debt and equity capital to deploy in hyperscale data centres. Under the terms of the agreement, Equinix will own a 25% equity interest, with the balance evenly split between the remaining two partners. This JV is expected to add more than 1.5GW of new capacity for hyperscale customers, and provide attractive returns in the range of 8-12% (~17% levered returns). This JV highlights the growing demand for critical infrastructure, such as data centers, driven by the increasing consumption from individuals and hyperscalers. While the project’s returns exceed Equinix’s cost of capital, a rapid rise in capital expenditure could lead to dilution during the build phase, making JV structures the most effective approach to meet market demand while managing costs.
Cellnex (“CLNX”), a Spanish-listed operator of mobile phone towers, recently announced that management is considering advancing its dividend distribution plan by one year, with the first payout expected in 2025. In March, CLNX outlined its commitment to distributing a minimum of €3bn between 2026 and 2030, with an initial payout of at least €500m in 2026. Following several years of aggressive M&A activity, the company has undertaken a strategic divestment process aimed at reducing debt such as with its Austrian and Irish assets. The decision to accelerate its dividend policy by one year is a clear signal that CLNX is now in a much stronger financial position. This move reinforces the company’s confidence in its ability to generate sustainable cash flow and its commitment to long-term growth.
VAM Managed Funds (Lux) Commentaries
VAM Managed Funds (Lux) – VAM Fund
October was marked by significant political events, an earnings season, and ongoing geopolitical tensions. Key developments included meetings by the Bank of Japan and the European Central Bank (ECB) on interest rates, while the UK and the US prepared for major budget announcements and the presidential election.
In the UK, the Consumer Prices Index (CPI) dropped to 1.7% in September, below the Bank of England’s target, which suggests controlled inflation but presents a challenge in balancing economic growth with monetary policy. The UK government revealed a £20 billion shortfall in public finances, prompting cautious budgetary adjustments rather than major reforms. Despite this, the UK equity market declined, driven by concerns over inflationary policies tied to the Labour government’s budget.
In the US, the CPI stood at 2.4%, with the Federal Reserve likely to consider tightening monetary policy further. The presidential election race is close, reflecting high voter engagement. The earnings season revealed positive surprises among many S&P 500 companies, but a late month sell-off affected technology stocks, contributing to an overall decline in US markets.
In Europe, inflation remains below the ECB’s target at 1.7%, with the ECB cutting borrowing costs to 3.25% in response to slowing wage growth. European markets also faced declines in October amid subdued economic activity and disappointing earnings reports, with the Eurostoxx 600 falling by 3.22%.
VAM Managed Funds (Lux) – VAM Cautious Fund
October was a month of pronounced volatility for equity markets, with many of the world’s biggest companies reporting on their 3rd quarter performance. Equities moved lower following a strong rally during the first nine months of the year, as uncertainty grew around the upcoming US election and the potential implications of a policy shift on inflation and interest rates. Japanese equities were the top performer despite concerns that the need for tighter policy and a stronger Yen could impact export-oriented companies, as well domestic political uncertainty driven by recent election results. Global equities outperformed UK eq-uities, as UK equities fell over the month amid concerns surrounding the Labour Party’s budget announcement and its impact on the macroeconomic outlook of the UK economy. Emerging markets struggled following a sharp decline in the month after stimulus measures by the Chinese government in a bid to boost the country’s flagging economy failed to improve investor sentiment. Rising US bond yields and a stronger US Dollar were also notable headwinds for Emerging Markets.
Government bonds in developed markets struggled, with uncertainty around the US election in addition to “sticky” core inflation seeing yields rise (and prices fall) in the US. In the UK, government bond yields also increased following the labour budget announcement, as markets priced in slower central bank rate cuts over the next year. Investment grade bonds also struggled, however outperformed government bonds. High yield bonds and emerging market debt outperformed investment grade credit albeit still struggled in performance overall.
VAM Managed Funds (Lux) – VAM Balanced Fund
October was a month of pronounced volatility for equity markets, with many of the world’s biggest companies reporting on their 3rd quarter performance. Equities moved lower following a strong rally during the first nine months of the year, as uncertainty grew around the upcoming US election and the potential implications of a policy shift on inflation and interest rates. Japanese equities were the top performer despite concerns that the need for tighter policy and a stronger Yen could impact export-oriented companies, as well domestic political uncertainty driven by recent election results. Global equities outperformed UK eq-uities, as UK equities fell over the month amid concerns surrounding the Labour Party’s budget announcement and its impact on the macroeconomic outlook of the UK economy. Emerging markets struggled following a sharp decline in the month after stimulus measures by the Chinese government in a bid to boost the country’s flagging economy failed to improve investor sentiment. Rising US bond yields and a stronger US Dollar were also notable headwinds for Emerging Markets.
Government bonds in developed markets struggled, with uncertainty around the US election in addition to “sticky” core inflation seeing yields rise (and prices fall) in the US. In the UK, government bond yields also increased following the labour budget announcement, as markets priced in slower central bank rate cuts over the next year. Investment grade bonds also struggled, however outperformed government bonds. High yield bonds and emerging market debt outperformed investment grade credit albeit still struggled in performance overall.
VAM Managed Funds (Lux) – VAM Growth Fund
October was a month of pronounced volatility for equity markets, with many of the world’s biggest companies reporting on their 3rd quarter performance. Equities moved lower following a strong rally during the first nine months of the year, as uncertainty grew around the upcoming US election and the potential implications of a policy shift on inflation and interest rates. Japanese equities were the top performer despite concerns that the need for tighter policy and a stronger Yen could impact export-oriented companies, as well domestic political uncertainty driven by recent election results. Global equities outperformed UK eq-uities, as UK equities fell over the month amid concerns surrounding the Labour Party’s budget announcement and its impact on the macroeconomic outlook of the UK economy. Emerging markets struggled following a sharp decline in the month after stimulus measures by the Chinese government in a bid to boost the country’s flagging economy failed to improve investor sentiment. Rising US bond yields and a stronger US Dollar were also notable headwinds for Emerging Markets.
Government bonds in developed markets struggled, with uncertainty around the US election in addition to “sticky” core inflation seeing yields rise (and prices fall) in the US. In the UK, government bond yields also increased following the labour budget announcement, as markets priced in slower central bank rate cuts over the next year. Investment grade bonds also struggled, however outperformed government bonds. High yield bonds and emerging market debt outperformed investment grade credit albeit still struggled in performance overall.
*Fund is currently closed to new subscriptions.
Sources: atomos, Driehaus Capital Management LLC, Foresight Capital Management, FactSet Research Systems, Inc., Reuters, Yahoo Finance and Bloomberg.
Featured securities were the top contributor to or detractor from return and were held by the Fund at some point during the month of October 2024. The performance numbers for the Funds are provided by VAM Funds (Lux). The performance discussed above represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance quoted.
The information presented is intended for the sole and exclusive use of VAM Funds and contains confidential information that should only be relied on by the intended recipient.
South African Investors: This is a Section 65 approved fund under the Collective Investment Schemes Control Act 45, 2002 (CISCA). Boutique Collective Investments (RF) (Pty) Ltd is the South African Representative Office for this Fund. Boutique Collective Investments (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002).
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