Investment Manager’s Commentary

Your Fund returned -0.8% during the month compared to -1.7% for the IA Global sector (TR).
L’Oréal is the world’s largest beauty products company and has been owned by the Fund since 2018. The company’s half-year results, published in late July, offered a textbook illustration of so many of the attributes of resilience and adaptability that we look for in our equity investments. Revenues grew at double-digit rates, running far above pre-pandemic levels, and growth is well-balanced between unit volumes and pricing. At a time when many consumer-facing companies are struggling with the impact of inflation, softer consumer demand, and a weaker-than-hoped-for recovery in China, L’Oréal is operating at an exceptional level.
L’Oréal’s results contrast markedly with its closest peer, Estée Lauder (not owned in the Fund). Estée is having a torrid year despite favourable dynamics for the beauty industry. Poor execution in Asia, accompanied by a deterioration in their home market of the United States, exposes important differences between the two companies. L’Oréal has formidable breadth, scale, and agility, giving it multiple ways to sustain its progress. For instance, it has recently accelerated the growth of its mass beauty (e.g. L’Oréal Paris, Garnier, Maybelline) and dermatological skincare brands (e.g. La Roche-Posay, CeraVe), demonstrating it is not dependent on any one region, brand, channel or price point. L’Oréal has also expanded its margins and cashflows whilst increasing its reinvestment back into brand building, product innovation and distribution. By contrast, Estée has been found wanting in multiple areas.
With L’Oréal’s strengths on full display its shares have re-rated to a free-cash-flow yield of just below 3%. This is rich compared to other opportunities within the Fund, prevailing interest rates and L’Oréal’s own trading history. For this reason, the investment remains a modest one within the portfolio, but L’Oréal’s recent operational performance reaffirms our longstanding admiration for the company.

Past performance is not a guide to the future. The value of the shares and the income from them can go down as well as up and you may not get back the full amount originally invested. Source: Yealand Fund Services Limited, NAV to NAV in sterling with net income reinvested. Returns are shown net of annual management charge, other expenses and net income reinvested. Returns do not include the effect of initial charges.

Investment Objective and Policy

The Company’s investment objective is to seek to achieve long term (at least 5 years) capital growth with some potential for income.

To achieve the investment objective, the Company’s investment policy is to invest principally (at least 80%) in a portfolio of global equities, and may also invest in other transferable securities, bonds (both corporate and government debt securities), collective investment schemes (“CIS”), warrants, money market instruments, cash, near cash and deposits. The Company may borrow and may enter into underwriting arrangements. It is the ACD’s intention that derivatives and forward currency transactions will only be used for the purposes of efficient portfolio management, including hedging, as defined by the Regulations.

The Company is actively managed and has, with the exception of the above noted minimum, no limit to which it can be invested in each sector or asset type, nor is there any particular geographic focus. The Portfolio Manager has full flexibility to adjust the proportion of the property of the Company depending on their view of market conditions and the assets which it believes are most likely to achieve the Company’s investment objective. From time to time the liquidity of the Company may be increased substantially if judged to be in the interests of investors.

The Company may invest in CIS which have different investment strategies or restrictions than the Company, including the ability to invest in derivatives for investment purposes and to gain exposure to assets which are not expressly listed above. Investment in CIS will usually be limited to those which invest primarily in the assets listed above and without exception, CIS will only be held in so far as the rules permit the Company to gain exposure to the assets held by those CIS.

A Glossary of Definitions which provides definitions to some of the technical language used on this website is available from www.yealand.com/policies.

Comparator Benchmark

To gauge the relative performance of the Fund, Shareholders may compare the Fund’s performance against the Investment Association’s Global Sector. This is not a performance target nor constrains the way in which the Fund is managed. For further information on the Sector and its intended use, please refer to the Fund’s Prospectus.