Avoiding ‘banana skins’ has helped the Munro Global Growth Fund post strong performance in the three months to 30 June.
The $1.4 billion fund returned 7.2 per cent in the June quarter versus 6.1 per cent by its benchmark of the MSCI All Country World Index.
Positive contributions came from technology firms NVIDIA and Microsoft, both sat in the fund’s top five holdings at 5.8 per cent and 7.2 per cent as at 30 June. Other holdings in the fund that benefit from the same technology trend include Amazon, Alphabet, ASML, Synopsys and Taiwan Semiconductor.
Earlier this year, NVIDIA reached a US$1 trillion valuation on the back of demand for artificial intelligence (AI).
“The biggest needle mover came from NVIDIA, the graphics processing unit (GPU) chip manufacturer. The company saw earnings expectations increase by more than 80 per cent, driven by high demand for the chips going into data centres to increase compute power required to run large language models used in generative AI.
“We believe the semiconductor market is entering the AI era and will grow towards a $1 trillion industry in a relatively short period of time. As this AI-driven growth in the semiconductor industry plays out, we expect NVIDIA to be a key enabler of AI technology, given they design and sell some of the most powerful semiconductors available,” the firm said.
Regarding Microsoft, the firm felt the technology company could see an acceleration in its cloud activity.
“Microsoft – the early front runner in AI services in the cloud – also reported strong results, stating that their AI services customers had increased 10-fold from the previous quarter.
“Microsoft’s performance in the quarter was driven by its Q3 earnings result and the commentary given. The Office Commercial software business was a stand-out, with growth accelerating in the quarter. The company’s commentary around Azure, their cloud computing business, was taken positively, suggesting that new workloads migrating to the cloud had restarted and that cloud optimisation activity can only be optimised so far, suggesting we could see an acceleration in that key business unit in FY24.”
However, as well as positive performers, the fund was helped by what it avoided, those so-called 'banana skins' which occurred mostly in the US, a two-third geographic weighting in the fund.
These included worries about the US debt ceiling where protracted negotiations rekindled fears of a default and a recession.
“Throughout the quarter, several key ‘banana skins’ or risks, were avoided. Most importantly, US President Joe Biden signed legislation to lift the debt ceiling, averting a catastrophic default on the federal government’s debt.
“Other avoided risks included no further large bank failures, meaning a systemic banking crisis is less likely from here. And finally, the expectation of a much-awaited US recession was pushed further out to late 2023/early 2024, as recent rate hikes have yet to significantly slow the economy.”