MORNINGSTAR’S 5-STAR AND GOLD-STAR RATED INVESTMENT FUND HOOFBOSCH
Investment Fund Hoofbosch was founded by my long-time, smart and incredibly funny friend Martien van Winden. He runs this fund with an enormous amount of wit, and Morningstar has given his fund both a 5-star rating as well as a Gold star rating. Of the approximately 40,000 rated funds worldwide, only 0.6% (the decimal point is correct) has both a 5-star rating and a Gold rating.
Monthly Bulletin March 2021
March was a good month for most markets despite the implosion of hedge fund Archegos, which invested with borrowed money. When Archegos was unable to provide additional funds to cover risks this led to an enormous sell-off on Wall Street. Investment banks Nomura and Credit Suisse fear billions in losses in the first quarter. The Hoofbosch investment fund ended the reporting month 6.6% higher. Most of our stocks contributed to the positive performance. European long-term interest rates rose and the Dutch 10-year interest rate is currently at -0.24%. A mixed picture on the currency front. The dollar was on the rise and the Swiss franc fell slightly.
We see worrying signals from our eastern neighbors when it comes to the most important pillar of the euro experiment: fiscal discipline. The German Finance Minister Olaf Scholz is counting on a less strict budget policy in the coming years. According to him, a disciplined approach will lose out to calls for a more generous spending pattern by the government. The Germans will go to the polls in September. Scholz, who is eligible for election as Chancellor candidate for the Social Democrats, is increasingly distancing himself with his statements from the conservative approach of coalition partner CDU / CSU of the current Chancellor Angela Merkel. ‘My prediction is: cuts will lose,’ said Scholz. All this means that within the EU, the Dutch are now completely isolated when it comes to fiscal discipline.
The dollar is up 4% since the beginning of this year. The Financial Times featured an article by Harvard Kennedy School economist Megan Greene about the reasons behind it and its significance to the rest of the world. According to Greene, the market is becoming less concerned about the twin deficits (the 15% of GDP budget deficit and the 3.5% current account deficit). This is because US GDP will show significant growth due to the recently adopted support package. US growth is expected to be around 8% this year, resulting in higher business revenues and renewed interest in investments in the US that naturally create additional demand for dollars. Other countries are also benefiting from US growth. The OECD expects the effect of the US bailout plan to add a quarter to a half percent to growth in China and Europe, and even more in Mexico and Canada. This expectation is partly justified by the fact that the trade balance deficit does not seem to be an issue for the US government for the time being. Treasury Secretary Janet Yellen has indicated that she wants to leave the dollar to the market, so we need not fear corrective action to support US exporters. In addition, the FED has announced that the US short-term interest rate is expected to be around zero until 2024. This is still higher than the levels seen in Japan and Europe, which is also helping the dollar.
Just some news from our euro partners: Last month, ex-president Sarkozy was convicted of corruption. That makes him the umpteenth in a row of French top politicians (Giscard d’Estaing, Mitterrand, Chirac, Hollande etc.) whose reputation has been shattered. Our eastern neighbors also had news. The party of German Chancellor Merkel, the CDU / CSU, is under pressure for a corruption scandal involving face masks. Two members of the party have together earned nearly a million euros from mediating between manufacturers and buyers of face masks. Finally, the German constitutional court has temporarily put the €750 billion European emergency fund on hold. If this does indeed stop the plan it does not bode well for the Southern European bond markets. We are actually heartened by the public outcry and the parliamentary scrutiny that followed the alleged cover up of comments by our Prime Minister Mark Rutte about the popular Dutch parliamentarian Pieter Omtzigt during initial talks to form a new government. In our view it says something about the importance the Dutch attach to phenomena such as reliability and transparency.
Expensive tech stocks
The recent rise in interest rates has dampened popularity of technology stocks. Tech companies, some of which are still making little or no profit, become less attractive compared to safe government bonds for instance. After posting high returns last year, stocks such as Apple (-8%), Amazon (-5%) and Tesla (-5%) seem to be out of favor since the start of the year. This shift may mark a drastic reversal in a trend observed since the 2008 financial crisis: out of value stocks and into technology. We say “may” because imbalances in the market often last longer than investors are solvent. The expectations that have been incorporated into the valuations of tech shares are still unprecedentedly high. We therefore believe it will be very difficult for aggressive growth stocks to perform well in the coming years.
Lindt & Sprüngli registered a lower turnover and a lower net profit in 2020. However, its market share has increased in all regions. Furthermore, a shift in consumer preference towards premium chocolate has mitigated the negative effects of the pandemic. Online sales have now doubled to about 5% of the total turnover. A further strong growth of the online segment is expected in 2021. The company will also launch a share buyback program of CHF 750 million, running from June 1 of this year to December 31, 2022. Lindt stock rose 10% last month.
Nestlé’s pet division is expected to continue to grow strongly in the coming years. These activities of the Swiss food and drink manufacturer have played an increasingly important role in the company’s product range. The division now accounts for 17% of sales and 20% of operating profit. There is some evidence that some of the factors that characterized the industry’s strong growth in 2020, such as rising consumer spending and an increase in pet adoption, will continue into 2021 and beyond.
Last month we ordered coffee online from Nespresso again. We highly recommend it! The friendly staff member at the call center told us that in the Netherlands, compared to last year, five times (we understood it correctly) more coffee is sold to private households. This has not been at the expense of the business market. The latter has remained stable despite Corona. Nestlé’s annual report only discloses very brief information about Nespresso. That is one of the reasons we are always looking for alternative sources of intelligence. The exploding demand is probably also the reason for the construction of a new Nespresso factory. Nestlé is investing 117 million Swiss francs (about 105 million euros) in the expansion of a coffee capsule production facility in its home base Switzerland. From the factory in Avenches, Nespresso and Starbucks coffee cups are shipped all over the world. All Nespresso coffee is produced in Switzerland. Here Nestlé has a total of eleven production facilities and four research and development centers. Nespresso employs nearly fourteen thousand people worldwide and has more than eight hundred stores in 82 countries. There are 100,000 collection points to recycle used cups. Nestlé’s share price rose by 12% last month.
Shares of our Special ProQR Therapeutics jumped a whopping 49% to $6.61 last month after the company reported positive results in an analysis of the Phase 1/2 study of QR-421a in adults with hereditary eye disease Usher syndrome and non-syndromic retinitis pigmentosas. The company reported that QR-421a has shown efficacy on multiple face measurements without serious side effects. Citibank has raised the target price for ProQR to $44. Finally, after the price explosion, ProQR has announced a 15% increase in its share capital. We see this as a wise move.
Air Products, which has been in the Hoofbosch portfolio for a few months now, has been rated the best “climate company” by business magazine Barron’s. This as part of the 2021 ranking of the most sustainable companies in America. In total, Barron’s ranked Air Products in 13th place on the list of 100 most sustainable companies, up 20 places from the previous year. Air Products was ranked # 1 in the climate-oriented segment of the rankings, which assesses companies for their efforts to reduce the environmental impact of their operations and provide sustainable solutions. Air Products has also signed an agreement to build a large-scale ammonia production facility using green hydrogen. The plant will produce green ammonia for export purposes. The production facility, which will require an investment of USD 5 billion, will be owned in equal shares by the three partners. The project is being built in NEOM, a new model for a sustainable society in Saudi Arabia. The installation is based on proven technology. This integrates in an innovative way, among other things, the generation of more than four gigawatts of renewable energy from solar and wind energy; the production of 650 tons of hydrogen per day from electrolysis; the production of nitrogen and the production of 1.2 million tons of green ammonia per year. The project is to be ready in 2025. The Air Products share increased by 10% in the month under review.