2024 has been a very strong year for US equity markets, with the S&P 500 up 28.5% to the end of November (in GBP). Aubrey’s Global Conviction Fund has taken advantage of this environment and gained 49.2% YTD against 20.7% for its index (MSCI AC World Index).
The Global Conviction Fund’s midcap stocks have generated significant value this year, a trend we expect to continue as performance broadens out. This is where we believe we add most value to investors, with our flexible, market cap agnostic approach allowing us to pivot to wherever we see the most opportunity. While many others are fearful of what the coming months holds for the US, we remain confident that further upside remains with effective stock selection in the right areas.
The strength of the US has started to throw up questions amongst investors as we head into 2025. The past few weeks have seen news feeds and social channels clogged with people pointing to the S&P 500 valuations and predicting doom and gloom for US investors. The chart below is used to support this negative view with the index P/E of 22.7x now almost at peak levels over 10 years and a 23% premium to the average, however, the Mag-7 now account for ~30.5% of the S&P 500 so focusing on the S&P 500 from a market cap weighted perspective has become less reflective of where overall US valuations stand.
A more interesting insight is to add onto the chart another line showing the P/E of the S&P 500 Equal Weighted Index, which lays bare the bifurcation we have seen between the largest stocks in the index and the rest showing that since 2022 the two indices have substantially diverged from a valuation perspective, and that the equal weighted remains closer in line with its 10-year average with a 7.5% premium.
With the US economy remaining robust and the prospect of further interest rate cuts into 2025, we view this premium as justified for the growth opportunities on offer.
YTD performance as of 30 November 2024, GBP net of fees basis.
