The value of the Sifter Fund increased by +10.8% in 2024, exceeding the fund’s long-term average annual return 9.8% (19.6.2003–31.12.2024, PA class). Please note that past performance is not indicative of future results.
However, global stock indices and the S&P 500 delivered better returns in 2024, primarily driven by large U.S. technology companies. In our view, the valuations of these companies are too high, and we have chosen not to invest in the most of them.
In yearly report video we will cover:
- Contributors & Detractors 2024
- Portfolio Changes 2024
- Largest Holdings
- Allocation Changes
- Valuations & Differences vs S&P500
- Lessons learned
Expensive Stocks Only Get More Expensive
In 2024, U.S. technology companies saw further price increases, largely driven by rising valuation multiples. While these companies exhibit strong earnings growth, their stock price increases are partly fueled by investors’ increasingly high expectations.
It is possible that some of these U.S. tech companies will meet their earnings growth expectations and continue to grow, but falling short of these expectations could result in significant valuation declines.
No company grows indefinitely, which is why it’s essential to critically assess valuation multiples.
Caution Has Been Our Strength
Warren Buffett famously avoided investing in internet companies during the 1990s because he didn’t want to overpay. A somewhat similar situation is unfolding in the technology sector today—expensive stocks are becoming even more expensive. Sifter’s portfolio management team has had to weigh whether to invest in these market favorites or to remain strategically disciplined.
We are not prepared to overpay for market-favorite stocks, but we are willing to invest in companies with highly predictable earnings growth. By sticking to our strategy, we avoid making decisions based on fleeting market trends.
Outlook for 2025
- Strong economic growth in the United States
- High employment rates
- Positive corporate earnings growth expectations
- Ample capital available for investment
The return of Donald Trump as President of the United States brings both opportunities and risks. Some of his anticipated actions may accelerate economic growth, but geopolitical tensions and potential overheating of the economy also pose challenges.
We see attractive investment opportunities, particularly in Europe and the industrial sector. The Sifter Fund has increased investments in industrial companies in both the U.S. and Europe because their valuations have been more moderate compared to technology companies. We believe global industrial production growth will gain momentum in the coming years.
Sifter Fund Valuation and Upside Potential
Historically, the Sifter Fund has been priced lower than the S&P500, and the current valuation supports this view:
EV/EBITDA (last 12 months, weighted average):
Sifter Fund: 21x vs. S&P500: 27.1x
In the technology sector, the difference is even more pronounced.
EV/EBITDA (technology sector, last 12 months, weighted average):
Sifter’s tech companies: 23.4x vs. S&P500 technology sector: 38.7x
We see upside potential particularly in semiconductor equipment manufacturers, whose valuation levels decreased in 2024, but whose business growth expectations for 2025-2026 remain strong.
Industry and Other Sectors Balance the Portfolio
70% of the Sifter Fund’s investments are outside the technology sector. The distribution across other sectors is as follows:
- Industry: 28.4%
- Healthcare: 16.1%
- Communication Services: 12.6%
- Consumer Staples: 5.3%
- Financials: 4.6%
- Consumer Discretionary: 1.5%
In these sectors, valuation multiples are more moderate compared to technology, and the earnings growth for many companies is still ahead. While markets are currently focused on AI and semiconductors, in our view industrial production remains a key growth opportunity in coming years.
Summary
- Sifter Fund’s return in 2024: +10.8%.
- The portfolio’s valuation is more attractive than the S&P 500, indicating upside potential.
- The valuation gap between the technology sector and the S&P 500 is significant.
- Semiconductor equipment manufacturers and industrial companies provide growth potential for 2025.
- We remain committed to our disciplined long-term investment strategy and we won’t overpay for market favorites.
- We believe that quality, reasonable valuations, and a disciplined strategy will deliver the best long-term results.
Santeri Korpinen
CEO
