NZS Capital Growth Equity Fund Q4 2022 Update

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Q4 2022 Update

Q4 2022 Update

Market Overview

Interest complaint argumentation stole nan spotlight successful 2022, and, while cardinal authorities plans are acold from settled, nan scope of outcomes whitethorn beryllium coming into focus. Decades of free money whitethorn springiness way, for a time, to higher rates and sustained inflationary pressure. Industries, companies, and investments that benefited from inexpensive money and debased rates must now show they tin besides make rate successful today’s environment. At nan aforesaid time, businesses must measure nan post-pandemic world to find to what grade lockdown-influenced behaviors will persist.

This narrowing of economical and complaint expectations could beryllium a affirmative backdrop for equities successful 2023. However, it whitethorn beryllium a while earlier banal prices accurately bespeak underlying fundamentals, and location whitethorn beryllium immoderate casualties on nan way. Our position is that astir digitalized industries are governed by powerfulness laws, wherever a fistful of participants garner nan lion’s stock of profits. In 2023, we could spot winning companies propulsion moreover farther up arsenic cash-strapped businesses falter. We besides judge proviso chains will proceed to de-globalize arsenic companies and countries go much concerned astir entree and sovereignty alternatively than efficiency. Reshoring could supply a important economical engine, on pinch inflationary unit – astatine slightest until AI-driven automation and robotics sufficiently mature to supply a disinflationary counterweight.

We person crafted our portfolio to bespeak our position that coagulated institution fundamentals will beryllium moreover much captious successful times of heightened uncertainty and economical stress. Specifically, we person added adaptable companies apt to beryllium resilient successful an situation wherever money is nary longer free. Overall, however, our wide predictions regarding nan overarching displacement of nan world system from analog to integer stay unchanged. Our meaningful vulnerability to semiconductors and package successful nan portfolio reflects our position that these companies are ngo captious components of each assemblage successful nan Information Age.

With digitalization comes transparency, and companies consequence losing constituents if they effort to extract exorbitant tariffs from consumers, suppliers, aliases nan environment. As such, companies pinch nan champion worth propositions will beryllium nan astir charismatic complete nan agelong term. After nan macro-driven 2022, we spot a world successful 2023 wherever these factors matter – arsenic they should.

Performance Review

The marketplace rallied during nan 4th quarter, a affirmative extremity to what was a powerfully antagonistic year. Sectors not usually associated pinch maturation stocks, specified arsenic materials, utilities, financials, and industrials, did well. Traditional maturation areas, specified arsenic accusation exertion and connection services, were affirmative but lagged different sectors. Healthcare, which spans maturation and value, did well. Unsurprisingly, therefore, worth indices outpaced maturation indices globally. Overall, markets stay transfixed by nan economical overhang of precocious ostentation and higher rates. China’s reopening gave a boost to its section marketplace arsenic good arsenic to galore companies pinch vulnerability there.

The maturation strategy was up during nan play but meaningfully lagged its index. Sector vulnerability wounded comparative performance, pinch accusation exertion and connection services comprising nan 2 largest concentrations successful nan portfolio and nan worst performing sectors wrong nan index. At nan aforesaid time, comparative capacity suffered from nan underweights successful business and financials, 2 areas typically not ample successful this portfolio. Stock action besides wounded connected a comparative basis. Amazon (AMZN) fell sharply and wounded comparative and absolute performance. Salesforce Inc. (CRM) was only modestly down but, arsenic a ample position, detracted from performance. Tesla (TSLA) besides fell dramatically, impacting wide capacity contempt being a mini position. The portfolio benefited from beardown moves successful Linde successful nan business assemblage and Intuitive Surgical (ISRG) successful nan wellness attraction sector.

We added a fewer companies pinch charismatic fundamentals to nan portfolio, including Progressive (PGR), NextEra Energy (NEE), and Autodesk (ADSK). We sold a fewer stocks that had been ample positions, including Microsoft (MSFT) and Paramount (PARA). Some of nan portfolio sells and trims, specified arsenic Paramount, bespeak immoderate deterioration successful fundamentals and a reassessment of nan business’ outlooks. We utilized nan play of marketplace disruption to attraction nan portfolio wherever we saw much charismatic ranges of outcomes comparative to valuations. As macro uncertainties persisted, we considered really to make nan portfolio little delicate to marketplace fluctuations by widening nan scope of investments. For example, Progressive, a starring security patient utilizing information to connection amended products to consumers, is an charismatic holding pinch a overmuch different vulnerability to liking rates than galore exertion companies.

How to beryllium wrong

Raise your manus if 5 years agone you predicted a world pandemic, a return to precocious ostentation and liking rates, a reversal of globalization, aliases Elon Musk buying Twitter. Anyone? Keep it raised if you predicted really these factors would intersect and thrust behaviour changes. Ok, put your hands down. We do not judge you.

A cardinal characteristic that defines a analyzable adaptive system, for illustration nan world economy, is emergent behavior. When isolated aliases formerly chartless groups of agents interact, we often spot wholly caller behaviors emerge. These behaviors are intolerable to predict. They do not consequence from nan sum of nan parts successful nan strategy but, rather, from nan relationships wrong nan system, a overmuch much analyzable algorithm.

We judge that, during these periods of pronounced emergence, focusing connected adjustment to changing conditions is much important than trying to foretell nan future. Bold predictions intrigue investors and possibly thrust clicks, but they are not valuable. We cognize investing entails immoderate grade of prediction; however, we commencement pinch nan unconventional cognition that predictions are risks, not strengths, and we effort to support our predictions arsenic fewer and arsenic wide arsenic possible, paying adjacent attraction to nan imaginable scope of outcomes that each prediction entails. While astir managers attraction connected really correct they tin be, our extremity is to arsenic hole for really incorrect we tin be.

Our process, therefore, is to see wide predictions. Sometimes these look truthful straightforward they sound silly erstwhile said retired loud.

  • Electronics are apt to push deeper into nan world
  • Companies are apt to usage much package to automate processes
  • Innovation successful nan integer world will progressively spill into nan beingness world
  • The world wants to decarbonize
  • Payments will proceed to displacement to digital

The use of wide predictions pinch staying powerfulness is that they explain wherever we should walk our time.

Put simply, we only walk clip wherever we judge nan knowledge we accumulate tin compound. Compounding knowledge is 1 of nan astir important aspects of being a bully investor. We ask: Based connected our wide predictions, is this an area of study that is apt to beryllium moreover much applicable 10 years from now? If so, we excavation successful and make judge we person portfolio vulnerability to good positioned companies poised to return advantage of an uncertain future.

For example, precocious we person been spending much clip connected business gases. This area entails respective of our wide predictions, specified arsenic electronics pushing deeper into nan world, decarbonization, and invention moving into nan beingness world. The companies starring nan manufacture besides walk our essentialness test: If nan institution disappeared, would it matter? After decades of consolidation, 3 business state companies power 85% of nan world’s business state supplies: Linde (LIN), Air Liquide (OTCPK:AIQUF), and Air Products (APD). Rising geopolitical tensions are starring to much localization of accumulation for equipment ranging from semiconductors to star panels. Perhaps astir breathtaking complete nan agelong word is nan anticipation that nan world importantly moves to hydrogen arsenic a sustainable, non-carbon substance source. It’s early days for nan hydrogen economy, and viable methods for economical accumulation of greenish hydrogen (e.g., pinch star aliases wind) are still nether investigation. However, we spot tremendous optionality successful hydrogen layered onto a resilient business proviso business. Finally, business state accumulation is simply a awesome root of c emissions successful nan world today, truthful conversion to greenish power could importantly move nan needle for nan world c footprint. .

Even if we are correct astir nan business state industry, advancement will not move successful a consecutive line. Complex systems person affirmative and antagonistic feedback loops. Positive feedback loops are nan aforesaid reinforcing attributes wherever maturation begets much growth, specified arsenic web effects, while antagonistic feedback is nan stubborn, real-world challenges that impair growth. Take electrical vehicles, for example. While location is simply a dependable maturation successful request for EVs, nan request to create nan infrastructure astir charging and producing EVs and their batteries push backmost connected EV adoption.

The interplay of affirmative and antagonistic feedback is peculiarly applicable arsenic we see artificial intelligence, which is beforehand of mind pinch nan buzz astir ChatGPT. AI appears to beryllium a caller motor for runaway growth, perchance outpacing moreover software, PCs, and nan Internet. While AI has nan imaginable to double nan productivity of white-collar jobs, AI-driven automation and robotics are starting to effect nan labour market. That disruption, however, is apt to acquisition overmuch stronger antagonistic feedback because it is harder to switch quality beingness labour than encephalon power. In general, nan much integer nan activity, nan much apt that affirmative feedback loops will overwhelm, while nan much analog, nan much apt we spot antagonistic feedback loops triumph out.

Feedback loops mean that moreover nan broadest predictions tin return clip to crystallize and tin beryllium rather vulnerable to mini perturbations. Understanding really this move interplay tin lead to unpredictable outcomes pinch precocious wave is captious to successful semipermanent investing, particularly successful a non-macro driven world. By populating a portfolio pinch resilient, adaptable companies, capable to upwind economical storms and return advantage of turbulence to summation economical share, you tin insulate yourself from nan inevitability of predictions gone awry.

Important Disclosures

There is nary guarantee that nan accusation presented is accurate, complete, aliases timely, nor are location immoderate warranties pinch regards to nan results obtained from its use. Past capacity is nary guarantee of early results. Investing involves risk, including nan imaginable nonaccomplishment of main and change of value.

Net returns are calculated by subtracting nan highest applicable guidance interest (.65% annually, aliases .1625% quarterly) from nan gross return. Gross returns are inclusive of reinvestment of dividends aliases different earnings. Actual fees whitethorn alteration depending on, among different things, nan applicable interest schedule and portfolio size. The fees are disposable connected petition and whitethorn beryllium recovered successful Form ADV Part 2A. Index capacity does not bespeak nan expenses of managing a portfolio arsenic an scale is unmanaged and not disposable for nonstop finance and see dividends aft nan conclusion of withholding taxes.

Any projections, marketplace outlooks, aliases estimates successful this position are forward-looking statements and are based upon definite assumptions. No forecasts tin beryllium guaranteed. Other events that were not taken into relationship whitethorn hap and whitethorn importantly impact nan returns aliases performance. Any projections, outlooks, aliases assumptions should not beryllium construed to beryllium suggestive of nan existent events which will occur.

Opinions and examples are meant arsenic an illustration of broader themes, are not an denotation of trading intent, and are taxable to alteration astatine immoderate clip owed to changes successful marketplace aliases economical conditions. There is nary guarantee that nan accusation supplied is accurate, complete, aliases timely, nor are location immoderate warranties pinch regards to nan results obtained from its use.

An investor should not construe nan contents of this newsletter arsenic legal, tax, investment, aliases different advice.

NZS Capital, LLC claims compliance pinch nan Global Investment Performance Standards (GIPS®)

GIPS® is simply a registered trademark of nan CFA Institute. CFA Institute does not endorse aliases beforehand this organization, nor does it warrant nan accuracy aliases value of nan contented contained herein.

des NZS Growth Equity Composite includes each portfolios that put chiefly successful equity and equity-related securities (including penchant shares, warrants, information notes and depositary receipts). The companies tin beryllium based anyplace successful nan world. The Portfolio Manager believes nan companies and their shares will use importantly from innovation, peculiarly owed to advances aliases improvements successful technology, person charismatic fundamentals, and connection bully prospects for growth. The portfolios will typically clasp 50-70 names.

The NZS Select Composite includes each organization portfolios that put chiefly successful equity and equity-related securities (including penchant shares, warrants, information notes and depositary receipts). The companies tin beryllium based anyplace successful nan world. The Portfolio Manager believes nan companies and their shares will use importantly from innovation, peculiarly owed to advances aliases improvements successful technology, person charismatic fundamentals, and connection bully prospects for growth. The portfolios typically will clasp 20-30 names.

The NZS Technology Composite includes each portfolios that put chiefly successful equity and equity-related securities successful nan accusation exertion and connection services sectors, (including penchant shares, warrants, information notes and depositary receipts). The companies tin beryllium based anyplace successful nan world. The Portfolio Manager believes nan companies and their shares will use importantly from innovation, person charismatic fundamentals; and connection bully prospects for growth. It typically will clasp 50-70 names. .GIPS® Composite Reports and a database of composite descriptions, pooled money descriptions for constricted distribution pooled costs are disposable upon petition by emailing petition to

NZS Growth Equity, NZS Select and NZS Technology are reported successful USD.

The benchmark for nan NZS Growth Equity Composite and NZS Select Composite is nan Morningstar® Global Target Market Exposure Index NR USD. The scale is designed to supply vulnerability to nan apical 85% marketplace capitalization by free float successful each of 2 economical segments, developed markets and emerging markets.

The benchmark for nan NZS Technology Index is nan Morningstar Global Technology and Communications Services NR USD The Index measures nan capacity of companies engaged successful nan design, development, and support of machine operating systems and applications and machine exertion consulting services.

The Morningstar Global Growth Target Market Exposure measures nan capacity of large- and mid-cap maturation stocks listed successful developed and emerging countries astir nan world. These stocks correspond nan much growth-oriented half of nan genitor benchmark, nan Morningstar Global TME Index, and are weighted by float-adjusted marketplace capitalization.

NZS strategies are not sponsored, endorsed, sold aliases promoted by Morningstar, Inc. aliases immoderate of its affiliates (all specified entities, collectively, “Morningstar Entities”). The Morningstar Entities make nary practice aliases warranty, definitive aliases implied, to nan owners who put successful nan strategy aliases immoderate personnel of nan nationalist regarding nan advisability of investing successful nan strategy y aliases to immoderate personnel of nan nationalist regarding the

advisability of investing successful equity securities mostly aliases successful nan strategy successful particular, aliases nan expertise of nan strategy to way nan Morningstar Global


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