Librarian Capital's Monthly Ranked Top Buys - April/May 2024

Portfolio Strategy: Our "Select 15" portfolio is now up 35.3% since the start of 2023. We make several changes after reviewing recent news, including Q1 results.

Introduction

This edition of our "Monthly Ranked Top Buys“ series covers both the months of March and April, the previous edition having been published on March 26 prior to the earnings season. As before, the intent is to present a model portfolio to showcase our most-preferred stocks and to use portfolio weights to quantify our view of each stock’s relative attractiveness. We call this portfolio “Select 15”, and it closely resembles how we manage capital in real life, including more than 80% of our personal assets.

“Select 15” gained 3.8% in March and lost 1.4% in April in U.S. Dollars. As of April month-end, it has gained 6.2% year-to-date (compared a 5.0% gain for MSCI World, our benchmark) and 31.0% since inception at the start of 2023 (compared to 30.7% for MSCI World):

We outperformed our benchmark as well as the S&P 500 index by more than 2 ppt in April, when markets were weak globally and the S&P 500 had its worst week since last October. This is in line with our longstanding view that our portfolio consists of higher-quality assets than the benchmark and would be more resilient in a market correction.

We have gained a further 3.2% in May 1-10, more than erasing our April losses, which means our "Select 15" portfolio has now gained 35.3% since inception less than 1.5 years ago. Beginning with a notional $1m, it is now worth $1.353m:

Compared to the end of February, as of May 10, the largest share price increases (in local currencies) among our holdings were in NatWest (+33.5%), Alphabet (Class A) (+21.8%) and RTX (+18.6%), while the largest share price decreases were in Estée Lauder (-11.2%), Rightmove (-4.5%) and Diageo (-3.8%).

We now have good visibility over our portfolio companies’ operational performance during Q1 2024, with 13 of our 15 holdings having reported quarterly results; the other 2 are U.K. companies that only report half-yearly, and for these we have comparable results from their peers. In general, global macro remains healthy, including in the U.S.; however, some pockets of cyclical weakness have persisted, notably in China and U.S. Spirits. The latter have impacted some of our holdings, specifically Diageo and Estée Lauder, though only temporarily in our view. In addition, British American Tobacco faces some structural headwinds and PayPal is in a turnaround, but both no worse in Q1 than before.

Interest rates are still likely to fall in the medium term. While expectations on the number of U.S. rate cuts this year have receded, both the European Central Bank and the Bank of England appear on track to start reducing rates this summer, and central banks in Switzerland and Sweden have started with their first cuts this cycle in the last 2 months.

We are making several changes to the portfolio this month, including: exiting NatWest, initiating Home Depot as a new position, adding to Rightmove and reducing Mastercard.

This letter follows the usual structure of a performance update, market commentary, portfolio news (which includes recap of Q1 results for each stock) and portfolio changes.