Investment Manager’s Commentary

It is a curious fact that amidst all the excitement about AI and the strength of the US stock market, US software companies have made less than half the return of the US market so far this year. The cause for this is partly cyclical as the sector consolidates the big gains it made last year. But there are also questions about growth, competition and the implications of generative AI (‘Gen AI’) for incumbent software providers.

Few companies illustrate these dynamics better than Adobe, a company owned by the Strategy since 2022. Last year the shares were +67% (in GBP). This year they are down -21%. Adobe faces intensifying competition from newer web-based rivals at a time when Gen AI threatens to automate the work of the creative professionals that subscribe to Adobe’s products. Monetisation of Adobe’s own Gen AI tools is apparently slow going

We travelled to Miami in October to attend Adobe’s annual conference for creators. The event drew a crowd of 10,000 people, many of them relatively young, all of whom are deeply habituated to Adobe’s various products. They and millions like them can be expected to remain loyal Adobe customers for many years to come. Nor is Adobe standing still. It is bringing more innovation to its users than ever before, and the ability to generatively add, remove and mix elements of creative work eliminates hours of manual drudgery. We believe that Gen AI will lead to a massive proliferation of content that will only enhance the value of Adobe’s highly precise and commercially safe editing tools. These include Adobe’s own lighter-weight web-based applications that enhance collaboration and create opportunity for Adobe to grow its audience way beyond the hardcore of creative professionals. Monetisation can wait. The company is wisely focussed on proliferating usage of these new features and apps, confident that their value will eventually be realised in volume growth, higher retention, cross-sell, and pricing.

These insights reinforce our conviction in the Strategy’s investment in Adobe.

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.