The third quarter of 2024 marked Sifter Fund’s first negative quarter after seven consecutive positive quarters. The Fund’s price (NAV) declined by 6.7% between July and September. Since the beginning of the year, the Fund has returned 10.2%, which is still a respectable performance. (Sifter Fund Global R-Class, 30.9.2024)
Sifter Fund’s strategy does not follow any index. The Fund consists of no more than 30 high-quality companies, and for this reason, it is natural that at times the market value of Sifter Fund’s companies may lag behind the index.
The Fund’s largest holdings have weights of 6-9% of the portfolio, which means that sometimes we outperform the index and sometimes we underperform. However, we believe in our strategy and will continue to adhere to these principles with discipline.
A single quarter or year of underperformance is not concerning in the long term, but we always take it seriously.
Reasons for Underperformance in Q3
Sifter underperformed compared to global stock indices in this quarter, primarily due to the overweight in semiconductor equipment manufacturers (16% vs. 1.4% in global indices). The stock prices of companies like BE Semiconductor, Disco Corporation, Lam Research, and Applied Materials fell significantly more than the overall fund. Novo Nordisk’s stock also declined between July and September. Novo Nordisk remains the largest holding in Sifter’s portfolio.
Long-Term Growth Prospects for the Semiconductor Industry
Three key factors support the long-term growth prospects for semiconductor equipment manufacturers:
- The need for more advanced chips and semiconductors: Data volumes are continuously increasing, and more energy-efficient chips are needed to meet rising demands. While shrinking transistors is becoming more challenging, performance can be improved by packaging more chips side by side and on top of each other. This trend will benefit the semiconductor equipment manufacturers in Sifter’s portfolio.
- Efforts by nations and regions to increase self-sufficiency: Countries and regions like the United States and Europe are aiming to move semiconductor production to their own territories, increasing semiconductor industry investments. This geopolitical competition may also lead to excess capacity, benefiting Sifter’s equipment manufacturers.
- Recovery of demand from a cyclical downturn: The overall semiconductor industry volume experienced a downturn in 2023-2024, but forecasts suggest demand will recover sharply in 2025-2026, particularly in wafer production. This means that production capacity will need to be expanded in the near future.
In light of these factors, the industry’s association SEMI predicts that semiconductor industry investments will grow by over 10% next year, and foundry investments are expected to grow by an average of 7% over the next three years.
Why Did Novo Nordisk Decline During Q3?
Three main reasons:
- U.S. Democratic initiatives to investigate pharmaceutical pricing: Bernie Sanders directly mentioned Ozempic and questioned why Europeans pay around $100 per month while Americans pay $1,000 for the same drug.
- Positive research data on competitor weight-loss drugs: Competitors’ products received favorable media coverage, which impacted Novo Nordisk’s stock price.
- Inversago Pharma acquisition: Novo acquired Inversago Pharma a year ago for $1.075 billion, but its promising drug, INV-202, failed to meet expectations, and the investment value is now lower.
Why are we still holding on Novo Stock?
- Promising drugs in development: Novo has two exciting drugs in the pipeline. These drugs, CagriSema and Amycretin, outperform current weight-loss treatments. They have a high likelihood of reaching the market, and especially CagriSema could replace the current Semaglutide (Ozempic/Wegovy). As a result, potential price declines are not as significant a risk.
- Strengthening competitive position: If the new drugs succeed and gain regulatory approvals, Novo Nordisk’s competitive position will strengthen even further.
- Demand for weight-loss drugs exceeds supply: Production capacity is still a bottleneck, and volume growth is significant.
