Last autumn, it was hard to believe that the stock market would rise in the spring. However, that’s exactly what happened. The first quarter of Sifter Fund provided a 9.0% return. The second quarter of the year was also very strong for Sifter investors, with a return of 6.9%. Since the beginning of the year, the R-class of the fund has risen by 16.4%, the I-class by 16.5%, and the PI-class by 16.7%.
Global diversification vs individual market indices
During the past spring, equity diversification has played a significant role again. The phenomenon known as home market bias, which refers to investing in your own country’s stock exchange, has not provided very good returns in a long term.
The only exception may be the S&P 500, which has been one of the best indices in the world for decades, at least in terms of returns. Firstly, U.S. companies are generally very good, and secondly, their valuation multiples are often quite high compared to European or Japanese companies.
There are at least two reasons for the high valuations: the U.S. has enjoyed a safe haven reputation as a superpower, and secondly, U.S. companies often have very high growth expectations, sometimes even too high.
In Europe, for example, the German DAX index has performed very well this year, but over the long term, the returns have been mediocre.
Japan’s Nikkei 225 was a wonder of the 1990s, but since then, the bubble burst completely. During the current year, Japanese stocks have risen strongly, especially in their own currency, but when converted into euros, the returns have been at the level of the DAX.
The Helsinki Stock Exchange has been a real tragedy. This year, the index has suffered a decline of over 5%, and over the past five years, it has provided a cumulative return of about 29%, including dividends.
The closest comparison to Sifter Fund’s global allocation is the unofficial benchmark index, MSCI ACWI, which is a global stock index comprising slightly under 3,000 companies from 47 different countries. It has performed better than individual country indices over 3-5 years but still less than the S&P 500 or Sifter Fund’s focused quality portfolio.
Portfolio changes during Q2
During the past quarter, we did not introduce any new investments, nor did we sell any of our holdings. However, we did what we know. We analyzed several promising quality companies, but we have not made an investment decision in them yet.
This is the last video before the upcoming summer break. During the summer months, anything can happen in the world and the stock markets, but we are heading into the vacation with a calm mindset.
We believe that quality businesses will fare well in both favorable and challenging conditions. This is one of the benefits of long-term quality investing.
