From the team at Freedom Asset Management
Fund performance starts as we mean to go on
I always like it when our investors are making money. The world and especially the US felt a lot better last week with longer term bond yields coming in somewhat. That means our year-to-date returns (all 19 days of them) are now positive across both of our public market private wealth funds.
For Sterling thinking investors, there is the added bonus that Sterling is still wildly unpopular, boosting the value of non-Sterling assets in Sterling terms. We don’t see that changing any time soon. To demonstrate how absurd that is, the funds have generated a greater return in Sterling during the first 19 days of this year than if that money had been sitting in a typical savings account for 1 year. I know it is not the same thing, but if you are a Sterling thinking investor, it should at least make you feel good(!)
We believe there is another good performance year ahead as things stand right now.
Source: * Estimates Freedom Asset Management as at 19/1/25. Please note depending upon how the funds are invested a small number of underlying funds can price 1-2 days after we take our estimates above so final published NAVs may vary. Estimated GBP returns are from a $1.25 FX rate on 31/12/24, ** as at 30/9/24, note fund prices quarterly and includes 5% discount to NAV expressed as 5% performance above for 2024 – the final quarter has still not yet priced, *** FT Markets as at 19/1/25, I shares.
Trump takes office and the world holds its breath
The much-awaited return of Trump to the Oval Office happens today, Monday 20th 2025. Unlike his first term, he has wasted no time pulling together his team and setting out his stall. And unlike his first term, he has strong backing from the rest of the Republican party and the requisite majorities to pull off his plans.
There are many reasons to be hopeful that Trump will usher in a time of growth and peace – and in the short term he seems to have been instrumental in bringing about a ceasefire in Gaza. I think we all look forward to him reaching a resolution in Ukraine, which otherwise is in danger of descending into a frozen conflict of more death and senseless destruction. Then there is unfinished business in Iran… and Yemen. And the news cycle seems to have forgotten about Syria already (it was only 2 months ago), but we should not be naïve to think that it will not rear its head again at some point in the next 4 years.
Trump’s assault on government spending complacency through DOGE is to be commended, and if successful, could be a model that other Western nations use as the excuse to look closely at wasteful public spending, which is everywhere. This is the only way we are going to cut the external debt of Western countries.
There are other sides to Trump’s character which are less pleasant, but I will give him the benefit of the doubt for now and hope he can unpick some of the mess that Biden’s team got us all into. And if he can do all of that, then I will head back to New York and buy that “Trump 45 & 47” cut glass decanter that was sadly out of stock last weekend!
Women’s Sport makes an impact
Last week, I was in the UK with Nicki Boyd founding partner of Sphera, meeting family offices to discuss the growing opportunity in Women’s Sports. Coincidentally, I listened to an interview with Avenue Capital’s billionaire owner and investor Mark Lasry on CNBC discussing exactly this opportunity. Women’s sport in the US (especially football and basketball) has gone from marginal to mainstream in a little less than 4 years – in true ‘hockey stick’ style.
The US has shown Europe how Women’s sport can work. Lasry’s key investment decision around sport investing is “how many people are watching it?”. And his strategy is to invest in sports that are “undervalued, so that in 5 years’ time, when they get their new media deals, that is when you will capture the upside”. Of all new sports trends, he believes that women’s sports have the most upside potential. He particularly pointed to a social trend that 30+ years ago, a father would not have dreamt of invited his daughter to watch a football game – it was basically an exclusive male preserve, whereas now, a father would not dream about not taking his daughter to watch the game – and the basic social point that it is natural that girls want to see more women playing sport. He added that in the US “today’s generation does not care – you are going to go to a women’s game, you are going to go to a men’s game.” And all of that means that the franchise of women’s sport – in this case football/soccer – is greatly undervalued.
Source: CNBC, SquawkPod, 13/1/25
In football/soccer, what the US has done well is to set up an entirely new league where the clubs are completely different to the existing men’s soccer league. In the UK, the women’s teams are owned by the existing men’s clubs – and this has possibly held back development of the women’s game, because although the women’s game is important, in the near term, for each club, the financial outcome from the men’s team dwarfs whatever is possible from the women’s team – and so naturally shareholder resources and management time is devoted to the men’s game. This should and will change, and we should expect to see clubs invite private equity firms to take significant stakes in their women’s teams to drive this commercial focus.
Pictured: Ilona Maher celebrating success for Bristol Bears, Jan 2025, Picture Credit: Agence France-Presse
Social media has a big role to play – it has made stars out of the players, like Ilona Maher, the US rugby star, and Paris 2024 Olympic bronze medallist, currently playing in the UK for the Bristol Bears – she has over 4.8 million followers on Instagram. She is the most “followed” rugby player (male or female). She uses this fame to promote the game and body positivity – and thus makes a big impact especially on girls looking for strong role models. All of this should encourage more girls into sport for longer, with the consequent pure health, mental health and societal benefits. For all of us who have daughters, that is a very good thing.
When you listen to the pitch for Women’s Sports, as I did with Nicki last week, it is difficult to see how this impact investment will not also be a significant commercial success for private equity investors.
This week’s articles
Canaccord’s Justin Oliver writes for us continuing his theme of a positive outlook – looking at exceptional US earnings growth.
Michael Griffith-Dixon takes another look at Greenland and Ukraine with his piece “Geopolitics is revving up”.
Please scroll down to read the articles.
I am in sunny Hong Kong this week, ending up in Abu Dhabi by Friday. Next week is 2 days in Saudi and the rest of the week in Abu Dhabi for me.
We are getting dangerously close to the launch of the US Technology VIP fund – so stay tuned!
Let me wish you a wonderful week ahead,
Adrian
Adrian Harris
CEO
Freedom Asset Management Limited
M: +44 7781 40 11 11 // M: +971 585 050 111
“A positive outlook – part II – exceptional earnings growth in the US”, 20/1/25
By Canaccord’s Justin Oliver – Investment Adviser to Opus Global Growth Fund
The US has been exceptional, especially its earnings growth. Over the last quarter of a century, US equity index earnings have outpaced the rest of the world, including Europe. US earnings are 373% higher than in 2000, equating to growth of 6.4% pa. In contrast, European earnings (MSCI Europe in USD) have increased by about 156%, which is growth of just 3.8% pa. Moreover, most of this European growth was achieved prior to the financial crisis of 2008/9. European earnings (in USD) are below the peak of 2008.
But a significant proportion of US earnings growth over the last 3 years has come from the Magnificent Seven companies. Excluding these stocks, US earnings growth in the decade since 2015 falls from 82% to 53%.
Over the past decade, Europe has recorded better earnings growth, and until the 2023 was keeping pace with the ‘S&P 493’, but there has been a broadening of growth in the US and ‘493’ earnings have started to grow, European earnings have faded away. In local currency, EUR, the decline in European earnings is less pronounced, but still present.
Aggregating earnings growth by band of US company size shows that the 10 largest companies are currently growing by an average of 50% pa. The last 5 years have been exceptional for the largest companies. Moreover, they are generating returns at a level that have not been seen in over 30 years. The largest 10 US companies have an ROE of 40%, allowing them to both invest in AI capacity, but also to continue buying back their own shares. In contrast, the companies ranked from 26-500 by market cap have ROE’s only around 15%. With lower profitability, these companies have less scope to invest while distributing cashflow.
Unlike the US, the largest 10 European companies have not been posting exceptional growth rates: their growth has been similar to the rest of the European market and declining towards zero. But there might be a glimmer of hope on the horizon: the largest 10 European stocks have seen their profitability increase. Their average ROE is now running around 30% giving them firepower to invest while buying back their own shares that are only trading on 18x forward earnings. Finally, ROE of the stocks outside of the top 100, is currently around 11% for Europe not far behind the ROE of 12% for smaller US stocks (101st -500th).
The bottom line is that US earnings growth has been exceptional over the last 20 years, driven by exceptional profitability among the largest stocks. Beyond the largest 100 stocks, in recent years, growth and profitability of US companies looks more similar to European companies.
Justin Oliver
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“Geopolitics is revving up!” 20/1/25
By Michael Griffith Dixon – Investment Manager
A few weeks ago, Adrian wrote about Tim Marshall’s book “Prisoners of Geography”. I wondered if Adrian had been spying on me as I was reading the same book over Christmas and have recently finished. It is a very enjoyable read which covers most of the world in under 300 pages. I think Marshall overplays the importance of physical geography and often sidelines economics which doesn’t involve shipping lanes, but it is still worth a read.
What was interesting to me was how much Marshall got wrong. He makes several predictions about the near future based on geographical determinism and many have already failed the test of time. I don’t blame Marshall for getting predictions wrong. I studied economics at university and according to John Kenneth Galbraith “The only function of economic forecasting is to make astrology look respectable.“
“Prisoners of Geography” was written in 2015 and the copy I had was updated in 2019. In the book Marshall predicts that Russia likely won’t venture further into Ukraine than Crimea, or at the most the Luhansk and Donetsk regions. He suggested that a full-scale invasion and attempting to take Kyiv would be a step too far for Putin. Although he does give many reasons why he felt Putin felt forced to make a move against Ukraine.
Pictured in green: North European Plain from “Prisoners of Geography”
The North European Plain is a flatland that extends from France all the way to the Ural Mountains. This Marshall claims is the reason for Russian paranoia. An army could easily march across this flatland and occupy western Russia where 78% of its population resides. Marshall attributes this to a long-term view of history from Putin, he knows Russia’s been invaded through the Plain by the Germans, French and Poles at various points in history. You can’t blame a geographer for seeing the importance in plains and mountains, but I think Putin feared an intellectual shift in Eastern Europe. The EU and the West were winning the battle for hearts and minds, joining the EU and NATO are symptoms of a wider feeling of distain for Russian orthodoxy.
Further, Marshall predicted that the Assad regime in Syria wouldn’t be toppled in the near future especially whilst the regime was supported by Russia. We now know that the Assad regime was hanging on by a thread and fell very quickly in November 2024. Russia are housing Assad, living up to their promises to support those loyal to the Kremlin, but they did not intervene militarily to hold Damascus.
Finally, Marshall notes that the USA has taken a laissez-faire approach to the Arctic. I think Marshall considers this an odd blind spot for the most powerful economic and military power on the planet. Russia certainly haven’t ignored the Arctic.
They see global warming as a gift to the Russian economy as melting polar ice allows for new sailing routes which save time, money and fuel. But now the President-elect Donald Trump has indicated he wants Greenland. I think it’s very unlikely the Americans will use force to take the territory of a NATO ally. For one, they probably won’t need to since Greenland already hosts a US base. However, this shows that Trump is looking north. He perhaps understands that melting ice in the Arctic isn’t just a disaster for low-lying floodplains, but as sea levels rise the world will see new paths for battleships and submarines.
Like most things with Trump, we shouldn’t take him too literally. He won’t rule out military force, but the US already has troops there and has de facto military control. Trump is signalling a general world view – America won’t play world police without compensation. He’s telling Denmark they’d better up their spending in the Arctic or else America will take over.
I think all of these developments speak to the quickening pace of geopolitical change. Historian Dominic Sandbrook commented that the election of Trump doesn’t look unusual given the long view of US elections; he was the only host of a “The Rest is” podcast to predict the result. Political Scientist David Runciman has also written extensively about how ancient ideas, like democracy, stick around but the modern form of democracy is very new and we should not be surprised if it doesn’t survive the winds of time. Maybe in the future we will look back and say these developments weren’t out of the ordinary, but for now they feel breakneck. And anyone like Marshall trying to find a single theory to explain our complex world will struggle to make sense of the modern age.
Michael Griffith-Dixon