Global stocks resumed their ascent in August thanks to a strong corporate earnings season and a resilient economy. This came despite renewed tension in the Middle East and hawkish commentary from the new Chair of the Federal Reserve, Kevin Warsh, at the Jackson Hole Symposium. Nvidia's stellar results confirmed that the AI investment super-cycle continues, albeit with ongoing doubts in its sustainability. Warsh's comments and higher oil prices pushed up sectors that appreciate higher rates such as financials, whilst pushing down indebted sectors such as real estate and utilities. Brunner's Net Asset Value (NAV) total return for August was 1.29%, versus 1.63% for the benchmark. Attention within the tech sector pivoted towards software and services stocks that had previously been decimated by concern over the impact of AI on their businesses. We had also noted the extreme value on offer in the sector and recently acquired positions in Accenture and Intuit, both of which rebounded strongly in the month. Another strong contributor to performance was UK listed aerospace company Melrose, now a top ten holding. Here we expect free cash flow in the coming years to ramp from low levels today thanks in part to growing fees from its revenue sharing partnerships with all the world's major jet engine manufacturers. This is a highly visible, multi-decade stream of pure profit which we think deserves to be valued highly. Detractors included Tesco, where shares shed a few percent. Tesco has had a few good years, partially thanks to share gains from competitors such as Asda, Morrison and Coop. These are now slowing somewhat, moderating one source of growth in what is a mature end market. Asian insurer AIA was also weak due to concerns that new tax legislation may limit their ability to sell to Chinese mainlanders visiting Hong Kong. Other detractors included stocks that we don't own such as Nvidia and Tesla, both of which rallied. We had an active month. We took three new positions in three very different companies. Firstly, we bought a 1% stake in Seagate, which makes hard disk drives (HDDs) used for digital storage. Whilst historically a commodity market, the industry has consolidated to just three key players, only two of which offer the latest heat assisted magnetic recording (HAMR) technology, which boosts capacity. Past demand for HDDs had been weakened by the shift in PCs and laptops to solid state drives, but growth is now resuming thanks to their use in data centres where they are by far the cheapest way of storing data. We believe the combination of renewed growth and improved industry structure may prove transformational to profitability. The second new holding is Convatec, a UK listed medical device company with strength in ostomy bags, continence care and advanced wound care.
