In 2023, the Sifter Fund performed exceptionally well, yielding a 31% return (R/I class). At the beginning of the year, there was great uncertainty in the global economy, and few expected significant returns from the stock markets.
However, as the year progressed, inflation rapidly decreased following interest rate hikes. Additionally, the excitement generated by artificial intelligence particularly boosted stocks in the United States and the technology sector.
Not all companies or stocks fared equally well. The past few years have favored those companies with strong balance sheets, pricing power, and growth potential.
A globally diverse, carefully selected group of quality companies enabled the Sifter Fund to outperform.
Top and Bottom Performers of 2023
The best-performing Sifter holdings in terms of returns were relatively unknown quality companies from Japan, the Netherlands, and the United States.
Notably, among the top performers, there was no presence of the Danish pharmaceutical company Novo Nordisk, which was the top performer for the Sifter Fund in 2022. However, Novo’s contribution to the Sifter Fund was still significant this year, being the largest investment in the Sifter portfolio with about an 8% weight.
*The decline in Johnson&Johnson’s stock is attributed to the company’s decision to spin off its Consumer Health business (Kenvue). We sold the received Kenvue shares, as we believe the company does not meet the characteristics of a quality company.
Changes in the Sifter Fund Portfolio
Often, quality investing is perceived as a “buy and forget” strategy. In practice, we continuously make small active adjustments in our portfolio, reevaluating our companies’ future prospects, competitive advantages, and valuation levels.
In 2023, we implemented several significant adjustments in the portfolio:
Sold: Nitori, Koito Manufacturing, and Kenvue (J&J spin-off)
Reduced: Cisco, Verisign, and Novo Nordisk
New Investment: BE Semiconductor
Increased: West Pharmaceutical, BE Semiconductor, UMG, Applied Materials, Atlas Copco, Canadian National Railway, and SMC Corporation
Global Diversification Rewarded
The Sifter Fund’s excess returns are a result of successful company and allocation choices, differing from the global stock index (iShares MSCI ACWI).
Key differences include a clear overweight in technology stocks (+15.8%) and industrial stocks (+14.0%) compared to the global stock index. Conversely, the Sifter Fund’s decision not to invest in banks is reflected as a significant underweight compared to the index (Financials -11.0%).
Outlook for 2024
The last five years have been challenging times for stock investors. Uncertainties in the macro world have caused exceptional concerns for investors. Despite this, these years have been highly profitable for investors in the Sifter Fund.
What does the future look like? As you may have heard before, we do not promise any returns because we cannot predict how stock prices will change at any given time. What we do promise is to implement Sifter’s quality strategy, continuously monitor the future prospects of the companies in our portfolio, and make necessary adjustments without emotion.
We believe that, in long-term investing, the share price will reflect increased earnings in the long-term. And finally, we will remain fully invested in high-quality companies and make calm, thoughtful portfolio changes.
Santeri Korpinen
CEO
