The first quarter of the year continued on an upward trajectory for the Sifter Fund, yielding a 14.7% return (Class R). There were several reasons for this excellent performance, which we will detail in our video report.
During January to March, we made several changes to our portfolio. We re-evaluated all companies in the Sifter Fund. As a result, we implemented considered changes to the portfolio’s composition. We slightly reduced the weight of companies that had become overly expensive and transferred profits to more affordable companies.
Our goal is to keep the Sifter portfolio in good shape for the coming years.
Three Reasons for the Fund’s Outperformance
1. We have been overweight in information technology companies
At the beginning of the year, the exposure of technology companies in the Sifter portfolio was 38.3%. These technology companies include, among others, Microsoft, TSMC, Lam Research, and BE Semiconductor.
However, we have avoided investing in companies we consider too expensive or overly popular, where we see potential risks. During the quarter, we sold two technology companies (Cisco Systems & Verisign), and the technology sector’s weight in the Sifter portfolio decreased by four percent (to 34.3%).
2. Successful stock selections
In addition to being overweight in the technology sector, we have succeeded in finding quality companies from other sectors as well.
With the funds from Verisign and Cisco Systems, we bought Norwegian Tomra Systems (industrial sector), which rose 42.8% during the quarter. Therefore, the trade was successful. Likewise, The Walt Disney Company (38.6%) has performed excellently during the past quarter, even though last year was challenging for the company.
3. We have avoided major failures
The third reason for the Sifter Fund’s outperformance is naturally that our portfolio companies have not encountered significant disappointments, nor have the prices of our individual stocks faced major declines during this earnings season.
Quality companies rarely face unexpected failures, although sometimes the market may unexpectedly punish some companies, for example, when overly high expectations are not met.
Top and bottom performers in Q1/2024
Portfolio changes in Q1/2024
During February 2024, we re-evaluated all companies in the Sifter Fund. As a result, we implemented considered changes to the portfolio’s composition.
We slightly reduced the weight of companies that had become overly expensive and transferred profits to more affordable companies. Calmly but decisively, we aim to maintain a high-quality portfolio at reasonable prices.
Is the Sifter Portfolio Prepared for a Downturn?
Our investment philosophy is straightforward yet time proven: We aim to own a small number of extremely high-quality companies worldwide. We focus our research on the long-term results and predictability of companies’ business operations. Changes in stock prices in a short time are not the main factor in our investment decisions.
We believe that, in the long run, a stock’s price will follow the company’s ability to generate cash. Companies are calmly divested in the Sifter portfolio if their businesses suffer permanent damage or if we find even better companies to replace them.
It’s certain that at some point, the entire stock market will face a short or long downturn. We trust that companies whose products and services are critical to customers, and which have pricing power and a healthy balance sheet, will also perform well in a bear market.
The value of extremely high-quality business does not disappear even if their stock prices fall. Eventually, the fears in the stock market will vanish, and the stock prices of strong companies will recover.
We are not claiming that a downturn is happening right now, but we always want to be prepared for such a possibility. We prefer to avoid risks rather than greedily chase additional returns by taking unnecessary risks.
Santeri Korpinen
CEO
