COMGEST GROWTH PLC

COMGEST GROWTH PLC (an investment company with variable capital and having segregated
liability between its sub-funds)
Company Registration No: 323577
UNAUDITED INTERIM REPORT AND
JUNE 2021
COMGEST GROWTH plc
(An open ended investment company with variable capital structured as an umbrella fund with segregated liability between Funds incorporated with limited liability in Ireland)
(Registration Number 323577)
for the 6 month financial period ended
30 June 2021
COMGEST GROWTH plc
Investment Manager’s Report
COMGEST GROWTH WORLD 6 COMGEST GROWTH WORLD PLUS 8 COMGEST GROWTH GLOBAL FLEX 10 COMGEST GROWTH EAFE 12 COMGEST GROWTH AMERICA 14 COMGEST GROWTH JAPAN 16 COMGEST GROWTH JAPAN COMPOUNDERS 18 COMGEST GROWTH EMERGING MARKETS 20 COMGEST GROWTH EMERGING MARKETS EX CHINA 22 COMGEST GROWTH EMERGING MARKETS FLEX1 24 COMGEST GROWTH EMERGING MARKETS PLUS 25 COMGEST GROWTH GEM PROMISING COMPANIES 27 COMGEST GROWTH EUROPE 29 COMGEST GROWTH EUROPE COMPOUNDERS 31 COMGEST GROWTH EUROPE PLUS 32 COMGEST GROWTH EUROPE S 34 COMGEST GROWTH EUROPE OPPORTUNITIES 35 COMGEST GROWTH EUROPE SMALLER COMPANIES 37 COMGEST GROWTH EUROPE EX SWITZERLAND 39 COMGEST GROWTH EUROPE EX UK 41 COMGEST GROWTH ASIA 43 COMGEST GROWTH ASIA EX JAPAN 45 COMGEST GROWTH ASIA PAC EX JAPAN 47 COMGEST GROWTH CHINA 49 COMGEST GROWTH INDIA 51 COMGEST GROWTH LATIN AMERICA 53 Statement of Financial Position - Unaudited 55
Statement of Comprehensive Income - Unaudited 84
Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares - Unaudited 112
Statement of Cash Flows - Unaudited 156
Notes to the Financial Statements - Unaudited 184
Other Unaudited Information Schedule of Investments
COMGEST GROWTH WORLD 281 COMGEST GROWTH WORLD PLUS 286 COMGEST GROWTH GLOBAL FLEX 291 COMGEST GROWTH EAFE 296 COMGEST GROWTH AMERICA 301 COMGEST GROWTH JAPAN 304 COMGEST GROWTH JAPAN COMPOUNDERS 307 COMGEST GROWTH EMERGING MARKETS 310 COMGEST GROWTH EMERGING MARKETS EX CHINA 317 COMGEST GROWTH EMERGING MARKETS PLUS 323 COMGEST GROWTH GEM PROMISING COMPANIES 329 COMGEST GROWTH EUROPE 335 COMGEST GROWTH EUROPE COMPOUNDERS 340
1 Comgest Growth Emerging Markets Flex was merged with Comgest Growth Global Flex on 31 May 2021.
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CONTENTS (continued) Schedule of Investments (continued) COMGEST GROWTH EUROPE PLUS 344 COMGEST GROWTH EUROPE S 349 COMGEST GROWTH EUROPE OPPORTUNITIES 354 COMGEST GROWTH EUROPE SMALLER COMPANIES 360 COMGEST GROWTH EUROPE EX SWITZERLAND 365 COMGEST GROWTH EUROPE EX UK 370 COMGEST GROWTH ASIA 375 COMGEST GROWTH ASIA EX JAPAN 380 COMGEST GROWTH ASIA PAC EX JAPAN 385 COMGEST GROWTH CHINA 390 COMGEST GROWTH INDIA 394 COMGEST GROWTH LATIN AMERICA 397 Significant Portfolio Changes
COMGEST GROWTH WORLD 401 COMGEST GROWTH WORLD PLUS 402 COMGEST GROWTH GLOBAL FLEX 403 COMGEST GROWTH EAFE 405 COMGEST GROWTH AMERICA 407 COMGEST GROWTH JAPAN 408 COMGEST GROWTH JAPAN COMPOUNDERS 409 COMGEST GROWTH EMERGING MARKETS 410 COMGEST GROWTH EMERGING MARKETS EX CHINA 411 COMGEST GROWTH EMERGING MARKETS FLEX1 412 COMGEST GROWTH EMERGING MARKETS PLUS 414 COMGEST GROWTH GEM PROMISING COMPANIES 416 COMGEST GROWTH EUROPE 417 COMGEST GROWTH EUROPE COMPOUNDERS 418 COMGEST GROWTH EUROPE PLUS 419 COMGEST GROWTH EUROPE S 421 COMGEST GROWTH EUROPE OPPORTUNITIES 422 COMGEST GROWTH EUROPE SMALLER COMPANIES 423 COMGEST GROWTH EUROPE EX SWITZERLAND 424 COMGEST GROWTH EUROPE EX UK 425 COMGEST GROWTH ASIA 427 COMGEST GROWTH ASIA EX JAPAN 429 COMGEST GROWTH ASIA PAC EX JAPAN 431 COMGEST GROWTH CHINA 433 COMGEST GROWTH INDIA 434 COMGEST GROWTH LATIN AMERICA 436 Appendix I Additional Provisions for Investors in Switzerland 437 Appendix II Total Expense Ratios 438 Appendix II Turnover Ratios 442 Appendix II Fund Performance Data 443 Appendix III Cybersecurity Risk 448 Appendix IV Securities Financing Transactions Regulation 449
CRS Data Protection Information Notice 449 1 Comgest Growth Emerging Markets Flex was merged with Comgest Growth Global Flex on 31 May 2021.
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GENERAL INFORMATION Registered Office 6th Floor 2 Grand Canal Square Dublin 2, D02 A342 Ireland Investment Manager Comgest Asset Management International Limited 6th Floor 2 Grand Canal Square Dublin 2, D02 A342 Ireland Sub Investment Managers Comgest SA 17 Square Edouard VII Paris 75009, France
Comgest Far East Limited Level 10 28 Hennessy Road Hong Kong Comgest Singapore Pte. Ltd. 8 Temasek Boulevard #20-01A Suntec Tower Three Singapore 038988 Administrator, Registrar and Transfer Agent RBC Investor Services Ireland Limited 4th Floor One George’s Quay Plaza George’s Quay Dublin 2, D02 E440 Ireland Legal Advisors William Fry LLP 2 Grand Canal Square Dublin 2, D02 A342 Ireland Secretary Wilton Secretarial Limited 6th Floor 2 Grand Canal Square Dublin 2, D02 A342 Ireland
Depositary RBC Investor Services Bank S.A. Dublin Branch 4th Floor One George’s Quay Plaza George’s Quay Dublin 2, D02 E440 Ireland Independent Auditors Deloitte Ireland LLP Deloitte and Touche House Chartered Accountants and Statutory Audit Firm Earlsfort Terrace Dublin 2, D02 AY28 Ireland Directors Daniel Morrissey (Irish) Philippe Lebeau (French) Jan-Peter Dolff (German) David Raper (New Zealander) (Resigned 4 February 2021) Bronwyn Wright (Irish)* Gaurish Pinge (Australian) (appointed as of 4 February 2021) * Independent Director All Directors are non-executive (Please see the Directors’ Report) Bankers RBC Investor Services Bank S.A. Dublin Branch 4th Floor One George’s Quay Plaza George’s Quay Dublin 2, D02 E440 Ireland KBC Bank N.V., Dublin Branch KBC House 4 George’s Dock Dublin 1, D01 E4W9 Ireland KBC Bank Ireland Sandwith Street Dublin 2, D02 X489 Ireland BNP Paribas Dublin Branch 5 George’s Dock IFSC Dublin 1, D01 X8N7 Ireland
COMGEST GROWTH plc
Société Générale International Limited Comgest Belgium (a branch of Comgest Asset Management International Limited)
10 Bishops Square Avenue Louise 480 London, E1 6EG 1050 Brussels United Kingdom Belgium
Representative in Switzerland Comgest Italia (a branch of Comgest Asset Management International Limited)
Via Dante, 7 BNP Paribas Securities Services, Paris 20123 Milan Succursale de Zurich Italy Selnaustrasse 16 8002 Zurich Comgest Deutschland GmbH Switzerland Sky Office Kennedydamm 24 Paying Agent in Switzerland 40476 Düsseldorf Germany BNP Paribas Securities Services, Paris Succursale de Zurich Comgest Benelux B.V. Selnaustrasse 16 Gustav Mahlerplein 3-115 8002 Zurich 1082 MS, Amsterdam Switzerland Netherlands Shariah Supervisory Board Comgest S.A. 17, square Edouard VII Amanie Advisors Sdn. Bhd. 75009 Paris Level 13A-2 France Menara Tokio Marine Life 189, Jalan Tun Razak Comgest US LLC 50400 Kuala Lumpur 101 Arch Street, 8th Floor Malaysia Boston, MA 02110 USA 1 Comgest Growth Emerging Markets Flex was merged with Comgest Growth Global Flex on 31 May 2021.
COMGEST GROWTH plc
INVESTMENT MANAGER’S REPORT
FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021 Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH WORLD USD ACC USD 4.13 COMGEST GROWTH WORLD USD I ACC USD 4.45 MSCI AC World - Net Return* USD 12.30 COMGEST GROWTH WORLD EUR I ACC EUR 7.79 COMGEST GROWTH WORLD EUR R ACC EUR 7.18 COMGEST GROWTH WORLD EUR Z ACC EUR 7.75 COMGEST GROWTH WORLD EUR DIS EUR 7.29 COMGEST GROWTH WORLD EUR SI ACC EUR 7.84 COMGEST GROWTH WORLD EUR FIXED DIS EUR 7.29 MSCI AC World - Net Return* EUR 15.87 COMGEST GROWTH WORLD GBP U ACC GBP 3.39 COMGEST GROWTH WORLD GBP U DIS GBP 3.36 MSCI AC World - Net Return* GBP 11.12
*used for comparative purposes only Commentary Market rotations continued to be a theme in the first half of 2021; away from Covid beneficiaries to Covid reopeners, and away from long duration, growth assets to value assets due to inflation and bond yield concerns. If we could characterise the key debates that the market continues to grapple with, many are along the lines of what is temporary versus what is permanent. This pertains to whether inflation is temporary. Are the behaviours we adopted to deal with the pandemic, such as a hybrid work environment, permanent. Will consumers continue to save their cash or participate in revenge spending? These are some of the many questions where the answers can dramatically alter one’s assessment of the investment environment. When considering what is permanent versus temporary, we take confidence in our conclusions that the limited number of stocks in your portfolio have sustainable competitive advantages and business models and that their long-term growth profiles are only temporarily impacted by Covid or inflation. In some cases, the quality and growth drivers have not only proved resilient but have also been enhanced or accelerated since the pandemic began. For example, HDFC Limited, the Indian mortgage provider, has continued to access funding at attractive rates and therefore taken market share, and luxury goods provider LVMH was able to implement 4-7% price increases in the first quarter. The recent rotations and focus on inflation however have resulted in the fund underperforming in this period. Despite this, we remain of the view that the stocks in your portfolio are well positioned to deliver long-term outperformance. The fund continues to be a bottom-up representation of our assessment of the best stocks from a quality, growth and valuation perspective. Regional and sector allocations are purely an output of this process rather than the driver of how the portfolio is constructed. The top contributors to performance for this period included Alphabet, Microsoft and Eli Lilly. Microsoft, a name that has been in your fund since 2008, continues to execute well, capitalising on its strong competitive position while benefitting from secular tailwinds in most of its businesses from cloud to video gaming. The pharmaceutical company Eli Lilly performed well after the FDA granted breakthrough therapy designation for Donanemab, the investigational antibody therapy for Alzheimer's. Eli Lilly can now submit Donanemab under the accelerated approval pathway later this year based on Phase 2 data. Alphabet, owner of the Google search engine, continued to benefit from structural growth and participated in a cyclical recovery in ad markets post the depths of the pandemic. Its cloud business also delivered above our expectations.
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The largest detractors to fund performance included Autohome, Inner Mongolia Yili and Hikari Tsushin. Inner Mongolia Yili, the Chinese dairy manufacturer, announced a secondary placement equivalent to 5% of share capital in order to finance future expansion. We remain confident in its long-term prospects, however the issuing of equity caused some concern. Autohome, the leading auto website in China, is experiencing greater competitive intensity, a lack of visibility into near-term auto sales and will also release the findings of its strategic review in the second half. Hikari Tsushin, a leading provider of services and solutions to more than one million Japanese small businesses, was negatively impacted by a short-term spike in power procurement costs in Japan which had some impact on its electricity business. During the period we initiated a position in Verisk, a data and analytics provider and Experian, a leader in the credit bureau industry. We also bought a new position in Amazon based on the company’s dominance in e-commerce and public cloud. Costco was added to the portfolio after an unwarranted sell off, and we initiated a position in Activision, the leading video games publisher with well-established franchises benefitting from digital and Covid tailwinds. We had longer-term concerns about the beer industry for Heineken, concerns around execution for Ping An and Unilever and valuation concerns for SAP. As a result, we sold these names. We endeavour to ensure that the names in the portfolio represent the best opportunities from a quality, earnings growth and valuation perspective. We do this in the belief that over the long term, share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of shorter-term underperformance. The portfolio remains constructed on a bottom-up basis and in this sense reflects a strong and continuous competition for capital. To succeed in this, we also need to ensure our watchlist has the highest quality, best growth companies regardless of valuation so that we can take advantage of dislocations when they happen in the belief that this will deliver long-term outperformance. It is for this reason that not only has your portfolio been upgraded, but also the watchlist. This is not a unique experience but one that has been and will continue to be pursued in all market environments. Bouts of volatility may take place and to the extent that this results in share price dislocations we will seek to take advantage. Leveraging the insights that Comgest has built in the quality growth space for over thirty years and applying discipline, rigour, opportunism and patience are all necessary ingredients in the pursuit of long term, through the cycle returns.
COMGEST GROWTH plc
a fund of Comgest Growth plc
INVESTMENT MANAGER’S REPORT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH WORLD PLUS EUR I ACC EUR 7.59 MSCI AC World - Net Return* EUR 15.87 COMGEST GROWTH WORLD PLUS EUR Z ACC1 EUR 3.50 MSCI AC World - Net Return* EUR 4.25 COMGEST GROWTH WORLD PLUS GBP U ACC1 GBP 2.40 MSCI AC World - Net Return* GBP 3.08 COMGEST GROWTH WORLD PLUS GBP U DIS2 GBP 0.30 MSCI AC World - Net Return GBP 0.26 COMGEST GROWTH WORLD PLUS USD ACC1 USD 1.70 MSCI AC World - Net Return* USD 2.52 ¹inception date 06/05/2021 ²inception date 28/06/2021
*used for comparative purposes only Commentary Market rotations continued to be a theme in the first half of 2021; away from Covid beneficiaries to Covid reopeners, and away from long duration, growth assets to value assets due to inflation and bond yield concerns. If we could characterise the key debates that the market continues to grapple with, many are along the lines of what is temporary versus what is permanent. This pertains to whether inflation is temporary. Are the behaviours we adopted to deal with the pandemic, such as a hybrid work environment, permanent. Will consumers continue to save their cash or participate in revenge spending? These are some of the many questions where the answers can dramatically alter one’s assessment of the investment environment. When considering what is permanent versus temporary, we take confidence in our conclusions that the limited number of stocks in your portfolio have sustainable competitive advantages and business models and that their long-term growth profiles are only temporarily impacted by Covid or inflation. In some cases, the quality and growth drivers have not only proved resilient but have also been enhanced or accelerated since the pandemic began. For example, HDFC Limited, the Indian mortgage provider, has continued to access funding at attractive rates and therefore taken market share, and luxury goods provider LVMH was able to implement 4-7% price increases in the first quarter. The recent rotations and focus on inflation however have resulted in the fund underperforming in this period. Despite this, we remain of the view that the stocks in your portfolio are well positioned to deliver long-term outperformance. The fund continues to be a bottom-up representation of our assessment of the best stocks from a quality, growth and valuation perspective. Regional and sector allocations are purely an output of this process rather than the driver of how the portfolio is constructed. The top contributors to performance for this period included Alphabet, Microsoft and Eli Lilly. Microsoft continues to execute well, capitalising on its strong competitive position while benefitting from secular tailwinds in most of its businesses from cloud to video gaming. The pharmaceutical company Eli Lilly performed well after the FDA granted breakthrough therapy designation for Donanemab, the investigational antibody therapy for Alzheimer's. Eli Lilly can now submit Donanemab under the accelerated approval pathway later this year based on Phase 2 data. Alphabet, owner of the Google search engine, continued to benefit from structural growth and participated in a cyclical recovery in ad markets post the depths of the pandemic. Its cloud business also delivered above our expectations.
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The largest detractors to fund performance included Autohome, Inner Mongolia Yili and Hikari Tsushin. Inner Mongolia Yili, the Chinese dairy manufacturer, announced a secondary placement equivalent to 5% of share capital in order to finance future expansion. We remain confident in its long-term prospects, however the issuing of equity caused some concern. Autohome, the leading auto website in China, is experiencing greater competitive intensity, a lack of visibility into near-term auto sales and will also release the findings of its strategic review in the second half. Hikari Tsushin, a leading provider of services and solutions to more than one million Japanese small businesses, was negatively impacted by a short-term spike in power procurement costs in Japan which had some impact on its electricity business. During the period we initiated positions in Verisk, a data and analytics provider, and Amazon based on the company’s dominance in e-commerce and public cloud. Costco was added to the portfolio after an unwarranted sell off. We also initiated positions in Activision, the leading video games publisher, and Shimano, the bicycle parts manufacturer, which are both beneficiaries from Covid-19 tailwinds and have attractive underlying dynamics. Ping An and Unilever were sold from the portfolio following concerns around execution. SAP was also exited on valuation concerns. We endeavour to ensure that the names in the portfolio represent the best opportunities from a quality, earnings growth and valuation perspective. We do this in the belief that over the long term, share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of shorter-term underperformance. The portfolio remains constructed on a bottom-up basis and in this sense reflects a strong and continuous competition for capital. To succeed in this, we also need to ensure our watchlist has the highest quality, best growth companies regardless of valuation so that we can take advantage of dislocations when they happen in the belief that this will deliver long-term outperformance. It is for this reason that not only has your portfolio been upgraded, but also the watchlist. This is not a unique experience but one that has been and will continue to be pursued in all market environments. Bouts of volatility may take place and to the extent that this results in share price dislocations we will seek to take advantage. Leveraging the insights that Comgest has built in the quality growth space for over thirty years and applying discipline, rigour, opportunism and patience are all necessary ingredients in the pursuit of long term, through the cycle returns.
COMGEST GROWTH plc
COMGEST GROWTH GLOBAL FLEX a fund of Comgest Growth plc
FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021 Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH GLOBAL FLEX EUR I ACC EUR 3.24 COMGEST GROWTH GLOBAL FLEX EUR R ACC EUR 2.70 COMGEST GROWTH GLOBAL FLEX EUR Z ACC EUR 3.24 MSCI AC World - Net Return* EUR 15.87
*used for comparative purposes only Commentary Market rotations continued to be a theme in the first half of 2021; away from Covid beneficiaries to Covid reopeners, and away from long duration, growth assets to value assets due to inflation and bond yield concerns. If we could characterise the key debates that the market continues to grapple with, many are along the lines of what is temporary versus what is permanent. This pertains to whether inflation is temporary. Are the behaviours we adopted to deal with the pandemic, such as a hybrid work environment, permanent. Will consumers continue to save their cash or participate in revenge spending? These are some of the many questions where the answers can dramatically alter one’s assessment of the investment environment. When considering what is permanent versus temporary, we take confidence in our conclusions that the limited number of stocks in your portfolio have sustainable competitive advantages and business models and that their long-term growth profiles are only temporarily impacted by Covid or inflation. In some cases, such as LVMH or HDFC Limited, the Indian mortgage provider, the quality and growth drivers have not only proved resilient but have also been enhanced or accelerated since the pandemic began. The equity hedging contributed negatively to performance, but its impact was strongly limited, which is very good given the magnitude of the global equities’ rally (MSCI ACWI Total Return index +13.4% in local currency). This is thanks to a relatively low equity hedging rate of 31% on average. The hedging rate remained very stable around this average, despite some of our strategies’ outputs evolving over time. Notably, on most equity indices, our long-term volatility regime strategy progressively lowered the equity hedging level, while our strategy on price-earnings ratio identified a downward trend and increased the hedging level in Q2 2021. The currency hedging had a negative contribution to performance, most of it occurring in June. The US and Hong Kong dollars appreciated against the euro year to date while the Japanese yen depreciated (USD +3.2%, HKD +3.0%, JPY - 4.0% vs EUR). On the one hand, there was no clear trend on the US and Hong Kong dollars, their respective hedging rates were 57% and 58% on average and fluctuated between 25% and 100% along with currency moves. The hedging mainly suffered during its strong appreciation in June against the euro, but strategies quickly reacted to lower the hedging level and capture the remaining upside. On the other hand, the Japanese yen’s downward trend was clearly identified by the model as the currency was highly hedged (at 97% on average). The recent rotations and focus on inflation however have resulted in the equity portfolio underperforming in this period. The equity portfolio continues to be a bottom-up representation of our assessment of the best stocks from a quality, growth and valuation perspective. Regional and sector allocations are purely an output of this process rather than the driver of how the portfolio is constructed. The top contributors to performance for this period included Alphabet, Microsoft and Eli Lilly. Microsoft continues to execute well, capitalising on its strong competitive position while benefitting from secular tailwinds in most of its businesses from cloud to video gaming. The pharmaceutical company Eli Lilly performed well after the FDA granted breakthrough therapy designation for Donanemab, the investigational antibody therapy for Alzheimer's. Eli Lilly can now submit Donanemab under the accelerated approval pathway later this year based on Phase 2 data. Alphabet, owner of the Google search engine, continued to benefit from structural growth and participated in a cyclical recovery in ad markets post the depths of the pandemic. Its cloud business also delivered above our expectations.
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The largest detractors to the equity portfolio’s performance included Autohome, Inner Mongolia Yili and Hikari Tsushin. Inner Mongolia Yili, the Chinese dairy manufacturer, announced a secondary placement equivalent to 5% of share capital in order to finance future expansion. We remain confident in its long-term prospects, however the issuing of equity caused some concern. Autohome, the leading auto website in China, is experiencing greater competitive intensity, a lack of visibility into near-term auto sales and will also release the findings of its strategic review in the second half. Hikari Tsushin, a leading provider of services and solutions to more than one million Japanese small businesses, was negatively impacted by a short-term spike in power procurement costs in Japan which had some impact on its electricity business. During the period we initiated a position in Verisk, a data and analytics provider and Experian, a leader in the credit bureau industry. We also bought a new position in Amazon based on the company’s dominance in e-commerce and public cloud. Costco was added to the portfolio after an unwarranted sell off, and we initiated a position in Activision, the leading video games publisher with well-established franchises benefitting from digital and Covid tailwinds. We had longer-term concerns about the beer industry for Heineken, concerns around execution for Ping An and Unilever and valuation concerns for SAP. As a result, we sold these names. We endeavour to ensure that the names in the portfolio represent the best opportunities from a quality, earnings growth and valuation perspective. We do this in the belief that over the long term, share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of shorter-term underperformance. The portfolio remains constructed on a bottom-up basis and in this sense reflects a strong and continuous competition for capital. To succeed in this, we also need to ensure our watchlist has the highest quality, best growth companies regardless of valuation so that we can take advantage of dislocations when they happen in the belief that this will deliver long-term outperformance. It is for this reason that not only has your portfolio been upgraded, but also the watchlist. This is not a unique experience but one that has been and will continue to be pursued in all market environments. Bouts of volatility may take place and to the extent that this results in share price dislocations we will seek to take advantage. Leveraging the insights that Comgest has built in the quality growth space for over thirty years, and the dynamic and cost-efficient protection implemented through our equity and currency hedging overlays, are necessary ingredients in the pursuit of long term, through the cycle returns.
COMGEST GROWTH plc
FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021 Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EAFE USD I ACC USD 0.52 MSCI EAFE + Emerging Markets - Net Return* USD 8.39
* used for comparative purposes only Commentary Market rotations continued to be a theme in the first half of 2021; away from Covid beneficiaries to Covid reopeners, and away from long duration, growth assets to value assets due to inflation and bond yield concerns. If we could characterise the key debates that the market continues to grapple with, many are along the lines of what is temporary versus what is permanent. This pertains to whether inflation is temporary. Are the behaviours we adopted to deal with the pandemic, such as a hybrid work environment, permanent. Will consumers continue to save their cash or participate in revenge spending? These are some of the many questions where the answers can dramatically alter one’s assessment of the investment environment. When considering what is permanent versus temporary, we take confidence in our conclusions that the limited number of stocks in your portfolio have sustainable competitive advantages and business models and that their long-term growth profiles are only temporarily impacted by Covid or inflation. In some cases, the quality and growth drivers have not only proved resilient but have also been enhanced or accelerated since the pandemic began. For example, HDFC Limited, the Indian mortgage provider, has continued to access funding at attractive rates and therefore taken market share, and luxury goods provider LVMH was able to implement 4-7% price increases in the first quarter. The recent rotations and focus on inflation however have resulted in the fund underperforming in this period. Despite this, we remain of the view that the stocks in your portfolio are well positioned to deliver long-term outperformance. The fund continues to be a bottom-up representation of our assessment of the best stocks from a quality, growth and valuation perspective. Regional and sector allocations are purely an output of this process rather than the driver of how the portfolio is constructed. The top contributors to performance for this period included Straumann, TSMC and NetEase. Straumann, the dental implants company, benefitted from economies reopening and reported 1Q organic sales growth of +34%. TSMC, the semiconductor foundry, continues to see improving competitive dynamics and benefits from the shortage in chips. In the video gaming space, NetEase did well reporting 11% growth in online gaming on a particularly tough comparison i.e. peak covid effects last year when stay-at-home dynamics stepped up. The largest detractors to fund performance included Autohome, Inner Mongolia Yili and Hikari Tsushin. Inner Mongolia Yili, the Chinese dairy manufacturer, announced a secondary placement equivalent to 5% of share capital in order to finance future expansion. We remain confident in its long-term prospects, however the issuing of equity caused some concern. Autohome, the leading auto website in China, is experiencing greater competitive intensity, a lack of visibility into near-term auto sales and will also release the findings of its strategic review in the second half. Hikari Tsushin, a leading provider of services and solutions to more than one million Japanese small businesses, was negatively impacted by a short-term spike in power procurement costs in Japan which had some impact on its electricity business. We initiated seven new positions in the period – Adyen, the high growth payments provider, Recruit, the Japanese-owned recruitment and media solutions internet platform, Dassault Systèmes, the leading provider of product lifecycle management software, ASML the semiconductor equipment manufacturer, Shimano the Japanese bicycle parts manufacturer, Daifuku the Japanese manufacturer of conveyer and distribution systems, and finally Sony, the electronics and entertainment conglomerate. We had longer-term concerns about the beer industry for Heineken, concerns around execution for Ping An Insurance and valuation concerns for Pan Pacific. As a result, we sold these names.
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We endeavour to ensure that the names in the portfolio represent the best opportunities from a quality, earnings growth and valuation perspective. We do this in the belief that over the long term, share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of shorter-term underperformance. The portfolio remains constructed on a bottom-up basis and in this sense reflects a strong and continuous competition for capital. To succeed in this, we also need to ensure our watchlist has the highest quality, best growth companies regardless of valuation so that we can take advantage of dislocations when they happen in the belief that this will deliver long-term outperformance. It is for this reason that not only has your portfolio been upgraded, but also the watchlist. This is not a unique experience but one that has been and will continue to be pursued in all market environments. Bouts of volatility may take place and to the extent that this results in share price dislocations we will seek to take advantage. Leveraging the insights that Comgest has built in the quality growth space for over thirty years and applying discipline, rigour, opportunism and patience are all necessary ingredients in the pursuit of long term, through the cycle returns.
COMGEST GROWTH plc
FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021 Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH AMERICA USD ACC USD 13.84 COMGEST GROWTH AMERICA USD I ACC USD 14.23 S&P 500 - Net Return* USD 15.00 COMGEST GROWTH AMERICA EUR R ACC EUR 17.17 COMGEST GROWTH AMERICA EUR Z ACC EUR 17.87 S&P 500 - Net Return* EUR 18.65 COMGEST GROWTH AMERICA EUR I H ACC EUR 13.77 S&P 500 100% Hedged to EUR - Net Return* EUR 14.58 COMGEST GROWTH AMERICA GBP U ACC GBP 13.02 S&P 500 - Net Return* GBP 13.79
* used for comparative purposes only Commentary Too much, or not enough? With the US reopening, investors have been wondering whether too much money has been injected into the financial system. One camp believes the inflows have increased commodity prices and wages, and are accentuating supply chain pressures (the “inflation trade”). Another camp believes we have yet to find a “new normal”, as employment remains below peaks, many people are still working from home, and the US Central Bank maintains that inflationary pressures are “transitory”. The first half of 2021 saw a relatively fast “reflation trade”, with the S&P energy sector rising over 40% in USD terms. This spoke to successful vaccine rollouts in the US and Europe, supporting strong consumer demand. However, trends started to slow in the second quarter, as the US Central Bank hinted that it would not let inflation run unchecked, and the resurgence of the virus in several parts of the world cast uncertainty over the speed of the recovery. An agreement not to raise the US corporate tax rate from 21% to 28%, setting instead a “floor” of 15%, took some pressure off large American corporations. As a result, the “risk free rate” (10-Year bond) remains below 1.5%, or roughly half of the level it reached in 2018. This allows companies to borrow and invest, and suggests that bond investors expect more of the same, i.e. no spike in growth or inflation. Comgest Growth America aims to invest in franchises that can weather various environments. Companies with strong intellectual property, installed bases of consumers, and strong balance sheets tend to be able to pass on pricing in inflationary environments as well as grow in benign environments. Alphabet increased the disclosure into its businesses and benefitted from a strong rebound in its core advertising business. Google Search revenues grew +28% in Q1 and YouTube grew +49%. Google’s key Travel advertising vertical should continue to see support through the year. Meanwhile, the company’s Cloud performance (+46%) was a tad disappointing relative to competitors, but the strong backlog and significant recent wins (including LVMH) lead us to expect good things to come. Eli Lilly’s performance was less about quarterly results – still very much driven by its GLP-1 blockbuster Trulicity, used in the treatment of diabetes – than successes from two promising drugs in its pipeline. One is Tirzepatide, a next-generation drug to treat diabetes: its Phase 3 results demonstrated unrivalled sugar control and weight loss. Meanwhile, Donanemab’s best-in-class Phase 2 results offered hope in the treatment of Alzheimer’s disease just as rival Biogen received the greenlight from the FDA for a comparable drug – increasing Lilly’s chance of success. Avery Dennison, the leader in label adhesives and RFID (radio frequency identification) tags, beat expectations on the back of a quicker-than-planned recovery across the board. This led to strong organic growth in all segments, record margins and material upgrades to 2021 guidance for organic growth and Free Cash Flow. The group is raising prices across its portfolio to offset higher input costs and is ramping up investments in its high growth RFID segment.
COMGEST GROWTH plc
15
Detractors to fund performance during H1 2021 included Verisk, which produced another mixed quarter and raised questions of capital allocation; New York Times where questions remain around subscriber growth coming out of the pandemic; and BioMarin following delays in its gene therapy product approval. Year to date we have reinforced the fund’s positions in Costco, Equifax and Service Corp. Walmart, Cisco and Analog Devices were trimmed. We also initiated positions in Roblox, Paycom and Vulcan Materials and exited our positions in Omnicom, Ecolab, Church & Dwight and Ulta Beauty, based on our opportunity set. We also initiated engagements on ESG topics with Ecolab, Eli Lilly, Facebook, Avery Dennison, Service Corp and Walmart. As part of a wider initiative driven by the ‘Carbon Disclosure Project,’ we were the lead investor in encouraging Facebook to be more transparent on its climate change and carbon-related strategies. We believe the global recovery will continue to unfold at an uneven pace. As such, it will take time to see which of the Covid-driven changes will be lasting, and which will be transitory. A key topic on the horizon for investors is global regulation, notably for large technology corporates. While we have seen a cooperative tax deal with the G7 setting a 15% corporate tax “floor”, anti-monopolistic regulations are still being drafted and discussed at local levels. Comgest Growth America will continue to be disciplined, looking for attractive opportunities in companies with strong moats.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH JAPAN JPY ACC JPY -2.49 COMGEST GROWTH JAPAN JPY I ACC JPY -2.13 COMGEST GROWTH JAPAN JPY I DIS JPY -2.18 Topix - Net Return* JPY 8.71 COMGEST GROWTH JAPAN EUR I ACC EUR -5.61 COMGEST GROWTH JAPAN EUR R DIS EUR -6.04 COMGEST GROWTH JAPAN EUR R ACC EUR -5.98 COMGEST GROWTH JAPAN EUR Z ACC EUR -5.62 COMGEST GROWTH JAPAN EUR I DIS EUR -5.54 Topix - Net Return* EUR 4.34 COMGEST GROWTH JAPAN EUR I H ACC EUR -2.16 COMGEST GROWTH JAPAN EUR H DIS EUR -2.77 COMGEST GROWTH JAPAN EUR Z H ACC EUR -2.38 COMGEST GROWTH JAPAN EUR X H ACC EUR -1.87 COMGEST GROWTH JAPAN EUR R H ACC EUR -2.78 Topix Hedged to EUR - Net Return* EUR 8.44 COMGEST GROWTH JAPAN EUR SI ACC1 EUR -6.60 Topix Hedged to EUR - Net Return* EUR 0.55 COMGEST GROWTH JAPAN GBP U ACC GBP -10.27 COMGEST GROWTH JAPAN GBP SU ACC GBP -10.18 Topix - Net Return* GBP 0.06 COMGEST GROWTH JAPAN GBP Z H ACC GBP -1.80 COMGEST GROWTH JAPAN GBP U H ACC GBP -1.99 Topix Hedged to GBP - Net Return* GBP 8.63 COMGEST GROWTH JAPAN USD I ACC USD -8.98 COMGEST GROWTH JAPAN USD R ACC USD -9.40 Topix - Net Return* USD 1.13 COMGEST GROWTH JAPAN USD I H ACC USD -1.97 COMGEST GROWTH JAPAN USD R H ACC USD -2.43 Topix Hedged to USD - Net Return* USD 8.80
¹inception date 03/02/2021 *used for comparative purposes only Commentary The Topix index has caught up rapidly with the S&P, FTSE and DAX in recent weeks. The ‘vaccine discount’ and the country’s less flattering growth comparisons following the relatively low impact of the pandemic in Japan in 2020 were the major perception problems for Japanese equities this year. However, both of these are now receding. ‘Foreigner favourite’ stocks such as Daifuku and Sysmex, which appeared to suffer disproportionately under this context, have begun to rebound in recent months on the back of their record earnings situation and valuations which are well within historical parameters. The separate phenomenon of Japanese equities being used as a crude proxy for a global inflation trade, which peaked in February with the bank rally, continues to fade. Japan’s Covid-19 emergency measures were relatively gentle compared to other countries, with most shops, restaurants and construction sites staying open. As such, the economic impact of the country’s normalisation is likely to be smaller, yet we expect our companies’ growth to return to trend following the distortions caused by the pandemic.
COMGEST GROWTH plc
17
ETF flows to Japan remain the second largest after the US, but more importantly, we believe that the potential for active investment in Japanese equities in globally leading companies continues to be supported by the returning domestic investor. ‘Cool Japan’ lifestyle exporters, healthcare providers and consolidators in rationalising domestic industries – some of which are not yet all recognised – remain rich areas of opportunity for quality growth investors in Japan. We detail some examples below, with recent evidence of their appeal. During the first half of the year, we continued to actively speak with our portfolio companies, with some meetings now being held face-to-face. From the stories and figures shared below, it should again be clear how little correlation there is between the profit growth of these companies – which we carefully selected for their superior strategy – and the overall GDP growth of the Japan economy. Daikin published a five-year plan with an operating profit growth target in the teens, as the company grows its US presence thanks to an ecological leadership. The group also explained to us its thoughts on profitability improvement. Kobe Bussan, a Costco-style bulk discount supermarket with innovative products, raised its profit guidance 19% thanks to quicker-than-planned new store openings and an increase in private brands. We met with the company at its headquarters in May 2021 and learned that it was struggling to meet demand from would-be store franchisees. Dai-ichi Life’s CEO confirmed to us the normalisation of domestic sales since roughly September, along with a recovery in its life and medical and other insurance products business. The company also noted growth prospects for its Australian, US and Asian operations. As part of our Shimano research, we spoke with Giant which confirmed significant bicycle demand far beyond the company’s capacity to supply and assessed the potential for Shimano’s electric bicycle equipment; the company was slow to enter this segment but is catching up. A call with Sony confirmed market share gains for its PS5 console, its sensor technology opportunity especially in automobile, and the company’s expansion of anime and other content. During H1 2021, we purchased Renova, Japan’s pure play renewable energy company with a growing pipeline of profitable assets in solar, geothermal and wind power. We also added Lasertec, the world’s only inspection equipment maker for the projection devices called photoblanks which are used in semiconductor circuit design. Following our greater confidence in the growth of miniaturisation technology, which creates new demand for Lasertec, we sold Disco to limit our weight to the semiconductor equipment sector. Japan has one of the more stable political backdrops within developed markets right now, with Europe questioning its very future and America perhaps edging close to gridlock again. Japan’s relative success with the Covid-19 pandemic perhaps augments that sense of stability. We believe that major political change which could disrupt the investment environment seems unlikely. As the global situation remains uncertain, we continue to invest in companies which are relatively immune to the overall economic circumstances, whether it be from a specific social purpose which they address or a strong company culture which underpins all they do. Family ownership, or a large residual share for a founder, have helped foster these dimensions for several of our companies. The peculiar structure of the Japan market offers particular opportunities for Comgest’s Japan portfolio. First, research is lacking. Second, the domestic investor which has sold Japanese equities for many years, is starting to return to the market. Third, an absence of resources and policy confusion has forced companies which want to survive to adapt unique business models. These trends suit us in the following ways. Comgest’s experience in Japanese equities is among the longest for non-Japanese managers; the returning domestic investor, careful of long-term returns, to some extent favours a similar investment criteria to us; and many companies can be found to fit our Quality Growth criteria.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH JAPAN COMPOUNDERS JPY SI ACC JPY 2.15 Topix - Net Return* JPY 8.71
*used for comparative purposes only Commentary The Topix index has caught up rapidly with the S&P, FTSE and DAX in recent weeks. The ‘vaccine discount’ and the country’s less flattering growth comparisons following the relatively low impact of the pandemic in Japan in 2020 were the major perception problems for Japanese equities this year. However, both of these are now receding. ‘Foreigner favourite’ stocks such as Nidec, which appeared to suffer disproportionately under this context, have begun to rebound in recent months on the back of their record earnings situation and valuations which are well within historical parameters. The separate phenomenon of Japanese equities being used as a crude proxy for a global inflation trade, which peaked in February with the bank rally, continues to fade. Japan’s Covid-19 emergency measures were relatively gentle compared to other countries, with most shops, restaurants and construction sites staying open. As such, the economic impact of the country’s normalisation is likely to be smaller, yet we expect our companies’ growth to return to trend following the distortions caused by the pandemic. ETF flows to Japan remain the second largest after the US, but more importantly, we believe that the potential for active investment in Japanese equities in globally leading companies continues to be supported by the returning domestic investor. ‘Cool Japan’ lifestyle exporters, healthcare providers and consolidators in rationalising domestic industries – some of which are not yet all recognised – remain rich areas of opportunity for quality growth investors in Japan. We detail some examples below, with recent evidence of their appeal. During the first half of the year, we continued to actively speak with our portfolio companies, with some meetings now being held face-to-face. From the stories and figures shared below, it should again be clear how little correlation there is between the profit growth of these companies – which we carefully selected for their superior strategy – and the overall GDP growth of the Japan economy. Daikin published a five-year plan with an operating profit growth target in the teens, as the company grows its US presence thanks to an ecological leadership. The group also explained to us its thoughts on profitability improvement. Kobe Bussan, a Costco-style bulk discount supermarket with innovative products, raised its profit guidance 19% thanks to quicker-than-planned new store openings and an increase in private brands. We met with the company at its headquarters in May 2021 and learned that it was struggling to meet demand from would-be store franchisees. Dai-ichi Life’s CEO confirmed to us the normalisation of domestic sales since roughly September, along with a recovery in its life and medical and other insurance products business. The company also noted growth prospects for its Australian, US and Asian operations. As part of our Shimano research, we spoke with Giant which confirmed significant bicycle demand far beyond the company’s capacity to supply and assessed the potential for Shimano’s electric bicycle equipment; the company was slow to enter this segment but is catching up. A call with Sony confirmed market share gains for its PS5 console, its sensor technology opportunity especially in automobile, and the company’s expansion of anime and other content.
COMGEST GROWTH plc
19
During H1 2021 we purchased Disco, reflecting our growing confidence in semiconductor equipment volume growth and the resulting demand for wafer dicers where Disco is increasingly dominant. Japan has one of the more stable political backdrops within developed markets right now, with Europe questioning its very future and America perhaps edging close to gridlock again. Japan’s relative success with the Covid-19 pandemic perhaps augments that sense of stability. We believe that major political change which could disrupt the investment environment seems unlikely. As the global situation remains uncertain, we continue to invest in companies which are relatively immune to the overall economic circumstances, whether it be from a specific social purpose which they address or a strong company culture which underpins all they do. Family ownership, or a large residual share for a founder, have helped foster these dimensions for several of our companies. The peculiar structure of the Japan market offers particular opportunities for Comgest’s Japan portfolio. First, research is lacking. Second, the domestic investor which has sold Japanese equities for many years, is starting to return to the market. Third, an absence of resources and policy confusion has forced companies which want to survive to adapt unique business models. These trends suit us in the following ways. Comgest’s experience in Japanese equities is among the longest for non-Japanese managers; the returning domestic investor, careful of long-term returns, to some extent favours a similar investment criteria to us; and many companies can be found to fit our Quality Growth criteria.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EMERGING MARKETS USD ACC USD -3.30 COMGEST GROWTH EMERGING MARKETS USD DIS USD -3.31 COMGEST GROWTH EMERGING MARKETS USD I ACC USD -3.08 COMGEST GROWTH EMERGING MARKETS USD X ACC USD -2.60 COMGEST GROWTH EMERGING MARKETS USD R ACC USD -3.53 COMGEST GROWTH EMERGING MARKETS USD Z DIS USD -3.10 COMGEST GROWTH EMERGING MARKETS USD Z ACC USD -3.10 MSCI Emerging Markets - Net Return* USD 7.45 COMGEST GROWTH EMERGING MARKETS EUR DIS EUR -0.25 COMGEST GROWTH EMERGING MARKETS EUR I ACC EUR 0.00 COMGEST GROWTH EMERGING MARKETS EUR I DIS EUR -0.02 COMGEST GROWTH EMERGING MARKETS EUR R ACC EUR -0.49 COMGEST GROWTH EMERGING MARKETS EUR Z ACC EUR -0.03 COMGEST GROWTH EMERGING MARKETS EUR Z DIS EUR -0.01 COMGEST GROWTH EMERGING MARKETS EUR FIXED DIS EUR -0.23 COMGEST GROWTH EMERGING MARKETS EUR I FIXED DIS EUR 0.03 COMGEST GROWTH EMERGING MARKETS EUR Y ACC EUR 0.08 MSCI Emerging Markets - Net Return* EUR 10.86 COMGEST GROWTH EMERGING MARKETS GBP U ACC GBP -4.10 COMGEST GROWTH EMERGING MARKETS GBP Z ACC GBP -4.10 MSCI Emerging Markets - Net Return* GBP 6.32
*used for comparative purposes only Commentary Markets remain dominated by several themes: significant ongoing fiscal and monetary stimulus offset by rising concerns over inflation and increased talk of monetary tightening, and the evolution of Covid-19. Considering the 7.5% return in USD (+10.9% in EUR) of the MSCI Emerging Markets index over the period under review, loose financial conditions have triumphed. Developed Markets, in particular the United States, and currencies have led both the economic and market strength. The combination of Covid-19 vaccine rollouts and considerable government stimulus have led to significant GDP upgrades overcoming expanding twin deficits. However, at the same time, inflation estimates have also been rising as a consequence of this, and of labour shortages, product supply shortages (such as semiconductors) and supply chain delays, problems shared in Emerging Markets (EMs). Several Central Banks, including in Brazil, Mexico, Russia and Hungary, have been raising interest rates in anticipation of the US tightening and due to domestic inflation. EM currencies have generally firmed year-to-date, especially those in commodity exporting countries. Economic growth and market returns have been clearly linked to the impact of Covid-19 variants and the success of vaccination rollouts, which have lagged in EMs. Despite their successful handling of the pandemic in 2020, Asian economies are currently suffering the impact of slow vaccination programmes. The Chinese market has suffered from a tightening in financial conditions causing GDP downgrades and market weakness since mid March, notably in more speculative high growth but poor EPS growth companies; stocks we avoid.
COMGEST GROWTH plc
21
Investors have increasingly shifted their focus to more cyclical countries such as Brazil, South Africa and Russia, and sectors including energy, materials and industrials. However, selectively, we have seen a broadening out of the market, with certain stocks in utilities like China Resources Gas and Power Grid contributing strongly over the period. Lepu Medical and Shandong Weigao, both relatively new portfolio additions, also benefitted from this market broadening and contributed strongly to performance in the latter part of H1’21. These names had previously suffered from concerns over China’s new Group Purchasing Organisation which emphasised volume over price. In this difficult environment, both companies are expecting over 20% EPS growth in 2021. TSMC released strong Q1’21 results. 2021 capital expenditure (capex) was raised from USD25-28bn to USD30bn with a 3-year capex guidance of USD100bn, indicative of the company’s confidence in long-term demand expansion for semiconductors and enhancing earnings predictability. The two drawbacks are the consequential increase in depreciation as a result of the capex expansion, and the 2021 P/E valuation of 29x, which was at historical highs. Moscow Exchange performed well. The broad picture is seeing a significant ongoing shift of assets from fixed income into equities in Russia. The company has consistently produced stronger-than-expected results, reflecting this change. Detractors to fund performance included names from China, reflecting the impact of the recent sharp unwinding of speculative positions. Autohome fell on concerns over a slower-than-expected Chinese auto sales recovery together with rising online competition and recent management changes, leading to a reduction in its 2021 sales forecast. Ping An was also weak. In 2020, given social distancing measures, agent activity levels were not particularly high which impacted growth. Meanwhile the Technology, Healthcare and Asset Management parts of the group performed strongly. Midea and Inner Mongolia Yili were affected by rising input costs. In both cases strong top line growth, ongoing product price increases and cost management protected operating margins. We remain disciplined taking profits where share price performance has removed any upside. Examples include TSMC, NetEase, AIA, Moscow Exchange, Power Grid, Localiza and Inner Mongolia Yili. PT Telkom Indonesia was reduced on the relatively less encouraging earnings growth outlook. We added several exciting mid-cap names including Russian holding Detsky Mir, a multi-channel retailer and leader in the children’s goods market, and Chilean retailer Falabella. Chile has vaccinated a large proportion of its total population and after two difficult years (riots followed by Covid-19), large fiscal stimulus and withdrawals from pension funds, there is likely to be a major rebound in consumer spending. Similar names are in our Watchlist and will likely be incorporated as our conviction grows, enhancing the funds’ differentiation and long-term growth prospects. Global growth is starting to slow but will remain at a high level; the OECD (Organisation for Economic Co-operation and Development) is forecasting 5.8% in 2021 and 4.4% in 2022. This will be characterised by a Covid-19 and manufacturing recovery, leading into a significant capex cycle and continued recovery in consumption, backed by the high savings rates in the Developed World. Having said this, H2’21 should experience slower growth thanks to weaker fiscal stimulus, less slack in the labour market and a tapering of gains from Covid-19 vaccinations. Central Banks of EMs are already in a tightening cycle in response to global inflation increases and the likely forthcoming FED tightening. Extraordinary liquidity conditions have seen prices diverting from fundamentals, a situation which is likely to revert once liquidity conditions normalise. Some sectors are extrapolating the current strong growth into the future; the possibility must exist that value sectors suffer to the benefit of quality growth companies as credit conditions tighten. We continue to populate the portfolio with companies displaying sustainable competitive advantages and business models which are ultimately immune to the vagaries of economic cycles. For instance, Samsung Electronics is at the earlier stages of growth pick-up, while other holdings such as NetEase and NCsoft should continue to have strong, sustainable EPS growth building upon the explosive demand for gaming in 2020. In Latin America, the two consumer companies Falabella and FEMSA have yet to realise the full benefits of post-pandemic pent-up demand. Others, such as LG H&H, HDFC Corporation and Midea have product offerings which have been gaining market share in the past 18 months. We believe that over the long term share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of underperformance.
COMGEST GROWTH plc
COMGEST GROWTH EMERGING MARKETS EX CHINA
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EMERGING MARKETS EX CHINA USD I ACC USD 3.32 MSCI Emerging Markets ex China - Net Return* USD 11.06
*used for comparative purposes only Commentary In the first half of 2021, markets have remained dominated by several themes: significant ongoing fiscal and monetary stimulus offset by rising concerns over inflation and increased talk of monetary tightening, and the evolution of Covid-19. Considering the 11.1% return in USD of the MSCI Emerging Markets ex China index over the period under review, loose financial conditions have triumphed. Developed Markets, in particular the United States, and currencies have led both the economic and market strength. The combination of Covid-19 vaccine rollouts and considerable government stimulus have led to significant GDP upgrades overcoming expanding twin deficits. However, at the same time, inflation estimates have also been rising as a consequence of this, and of labour shortages, product supply shortages (such as semiconductors) and supply chain delays, problems shared in Emerging Markets (EMs). Several Central Banks, including in China, Brazil, Mexico, Russia and Hungary have been tightening credit conditions. EM currencies have generally firmed year-to-date, especially those in commodity exporting countries. Economic growth and market returns have been clearly linked to the impact of Covid-19 variants and the success of vaccination rollouts, which have lagged in EMs. For instance, despite their successful handling of the pandemic in 2020, Asian economies are currently suffering the impact of slow vaccination programmes. Investors have increasingly shifted their focus to the more cyclical countries, such as Brazil, South Africa, Russia and the Gulf, and to sectors, including energy, materials and industrials. These sectors are not natural hunting grounds for us given our quality growth approach and the renewed market excitement towards these more cyclical names has hurt our relative performance. More defensive sectors such as utilities, consumer staples and healthcare underperformed materially. Vinamilk, the dominant dairy company in Vietnam, underperformed. While the company showed strong resilience last year amid the pandemic, growth has not yet picked up. Q1’21 results showed a decline in sales and profit of 6% year-on- year. Vietnamese consumers, particularly in rural areas, are still under pressure given social distancing restrictions and a lack of tourism. Cognizant, a leading IT Services company, was also a detractor to performance. Q1’21 results were broadly in line with expectations, but reported growth was lower than peers as Cognizant decided to exit a few lower margin contracts. On the other hand, its peer Infosys was a top contributor during H1 2021. The management changes the company witnessed a few years ago now seems history. The company’s March quarter results showed strong revenue growth, margin expansion and good confidence in the outlook. TSMC released strong Q1’21 results. 2021 capital expenditure (capex) was raised from USD25-28bn to USD30bn with a 3-year capex guidance of USD100bn, indicative of the company’s confidence in long-term demand expansion for semiconductors and enhancing earnings predictability. The two drawbacks are the consequential increase in depreciation as a result of the capex expansion, and the 2021 P/E valuation of 29x, which was at historical highs. MTN, Africa’s largest mobile telecommunications company, was the fund’s largest contributor during the period. The company’s strong operational performance continued during the first quarter of the year, with both revenue and profits growing at around 20% during the period. MTN has also made strong headway in reducing its financial leverage, while
COMGEST GROWTH plc
23
the announcement that the company intends to separate its valuable fintech operations in a separate structure within 12 months drove a rerating of the stock. We remain disciplined taking profits where share price performance has reduced upside. Examples include TSMC, MTN, Moscow Exchange and Infosys. We sold our position in Catcher as the outlook remains unclear. We also exited IEnova in Mexico, as its parent company bought out minority investors, and Power Grid in India as we found higher growth opportunities. We reinvested the capital in Detsky Mir, the largest retailer of children’s products in Russia that has a large and fast-growing online segment, PagSeguro, a Brazilian “fintech” company focusing on small vendors who typically don’t have a bank account and Delta Electronics, a Taiwanese power supply maker which is increasing its exposure to electrical vehicles. Global growth is starting to slow but will remain at a high level; the OECD (Organisation for Economic Co-operation and Development) is forecasting 5.8% in 2021 and 4.4% in 2022. This will be characterised by a Covid-19 and manufacturing recovery, leading into a significant capex cycle and continued recovery in consumption, backed by the high savings rates in the Developed World. Having said this, H2’21 should experience slower growth thanks to weaker fiscal stimulus, less slack in the labour market and a tapering of gains from Covid-19 vaccinations. Central Banks of EMs are already in a tightening cycle in response to global inflation increases and the likely forthcoming FED tightening, even though the FED is suggesting that the current inflation increase is transitory. Having said that, it has clearly brought forward the timeline for when interest rates will start increasing. The extraordinary liquidity conditions of the past 12 to 18 months have seen financial markets behave very speculatively (with prices diverting from fundamentals) but this is expected to normalise as the liquidity conditions normalise. Despite the fund’s relative underperformance year-to-date, in a market driven by its cyclical components, we remain consistent in our investment philosophy. As such, we continue to populate the portfolio with companies which display sustainable competitive advantages and with business models which are ultimately resilient to the vagaries of economic cycles. We have boosted the portfolios dynamic growth prospects by adding several exciting midcap stocks, and will likely continue in this direction by adding more of these types of companies over the coming months as our conviction grows. This will add to the asymmetric nature of the fund’s long-term growth rate and increase its differentiation. We continue to believe that over the long term, share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of underperformance.
COMGEST GROWTH plc
1 Comgest Growth Emerging Markets Flex was merged with Comgest Growth Global Flex on 31 May 2021.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EMERGING MARKETS PLUS GBP U ACC GBP -3.91 COMGEST GROWTH EMERGING MARKETS PLUS GBP X DIS GBP -3.47 COMGEST GROWTH EMERGING MARKETS PLUS GBP U DIS GBP -3.92 MSCI Emerging Markets - Net Return* GBP 6.32 COMGEST GROWTH EMERGING MARKETS PLUS EUR ACC EUR 0.00 COMGEST GROWTH EMERGING MARKETS PLUS EUR I ACC EUR 0.22 COMGEST GROWTH EMERGING MARKETS PLUS EUR Z ACC EUR 0.16 MSCI Emerging Markets - Net Return* EUR 10.86
* used for comparative purposes only Commentary Markets remain dominated by several themes: significant ongoing fiscal and monetary stimulus offset by rising concerns over inflation and increased talk of monetary tightening, and the evolution of Covid-19. Considering the 6.3% return in GBP (+10.9% in EUR) of the MSCI Emerging Markets index over the period under review, loose financial conditions have triumphed. Developed Markets, in particular the United States, and currencies have led both the economic and market strength. The combination of Covid-19 vaccine rollouts and considerable government stimulus have led to significant GDP upgrades overcoming expanding twin deficits. However, at the same time, inflation estimates have also been rising as a consequence of this, and of labour shortages, product supply shortages (such as semiconductors) and supply chain delays, problems shared in Emerging Markets (EMs). Several Central Banks, including in Brazil, Mexico, Russia and Hungary, have been raising interest rates in anticipation of the US tightening and due to domestic inflation. EM currencies have generally firmed year-to-date, especially those in commodity exporting countries. Economic growth and market returns have been clearly linked to the impact of Covid-19 variants and the success of vaccination rollouts, which have lagged in EMs. Despite their successful handling of the pandemic in 2020, Asian economies are currently suffering the impact of slow vaccination programmes. The Chinese market has suffered from a tightening in financial conditions causing GDP downgrades and market weakness since mid March, notably in more speculative high growth but poor EPS growth companies; stocks we avoid. Investors have increasingly shifted their focus to more cyclical countries such as Brazil, South Africa and Russia, and sectors including energy, materials and industrials, although IT continued its strong performance. However, selectively, we have seen a broadening out of the market, with certain stocks in utilities such as Power Grid contributing strongly. Lepu Medical and Shandong Weigao, both relatively new portfolio additions, also benefitted from this market broadening. These names had previously suffered from concerns over China’s new Group Purchasing Organisation which emphasised volume over price. In this difficult environment, both companies are expecting over 20% EPS growth in 2021. TSMC released strong Q1’21 results. 2021 capital expenditure (capex) was raised from USD25-28bn to USD30bn with a 3-year capex guidance of USD100bn, indicative of the company’s confidence in long-term demand expansion for semiconductors and enhancing earnings predictability. The two drawbacks are the consequential increase in depreciation as a result of the capex expansion, and the 2021 P/E valuation of 29x, which was at historical highs. Moscow Exchange performed well. The broad picture is seeing a significant ongoing shift of assets from fixed income into equities in Russia. The company has consistently produced stronger-than-expected results, reflecting this change.
COMGEST GROWTH plc
26
Detractors to fund performance included names from China, reflecting the impact of the recent sharp unwinding of speculative positions. Autohome fell on concerns over a slower-than-expected Chinese auto sales recovery together with rising online competition and recent management changes, leading to a reduction in its 2021 sales forecast. Ping An was also weak. In 2020, given social distancing measures, agent activity levels were not particularly high which impacted growth. Meanwhile the Technology, Healthcare and Asset Management parts of the group performed strongly. Midea and Inner Mongolia Yili were affected by rising input costs. In both cases strong top line growth, ongoing product price increases and cost management protected operating margins. We remain disciplined taking profits where share price performance has removed any upside. Examples include TSMC, NetEase, AIA, Moscow Exchange, Power Grid and Inner Mongolia Yili. PT Telkom Indonesia was sold on the relatively less encouraging earnings growth outlook. We added several exciting mid-cap names including Russian holding Detsky Mir, a multi-channel retailer and leader in the children’s goods market, and Chilean retailer Falabella. Chile has vaccinated a large proportion of its total population and after two difficult years (riots followed by Covid-19), large fiscal stimulus and withdrawals from pension funds, there is likely to be a major rebound in consumer spending. Similar names are in our Watchlist and will likely be incorporated as our conviction grows, enhancing the funds’ differentiation and long-term growth prospects. Global growth is starting to slow but will remain at a high level; the OECD (Organisation for Economic Co-operation and Development) is forecasting 5.8% in 2021 and 4.4% in 2022. This will be characterised by a Covid-19 and manufacturing recovery, leading into a significant capex cycle and continued recovery in consumption, backed by the high savings rates in the Developed World. Having said this, H2’21 should experience slower growth thanks to weaker fiscal stimulus, less slack in the labour market and a tapering of gains from Covid-19 vaccinations. Central Banks of EMs are already in a tightening cycle in response to global inflation increases and the likely forthcoming FED tightening. Extraordinary liquidity conditions have seen prices diverting from fundamentals, a situation which is likely to revert once liquidity conditions normalise. Some sectors are extrapolating the current strong growth into the future; the possibility must exist that value sectors suffer to the benefit of quality growth companies as credit conditions tighten. We continue to populate the portfolio with companies displaying sustainable competitive advantages and business models which are ultimately immune to the vagaries of economic cycles. For instance, Samsung Electronics is at the earlier stages of growth pick-up, while other holdings such as NetEase and NCsoft should continue to have strong, sustainable EPS growth building upon the explosive demand for gaming in 2020. In Latin America, the two consumer companies Falabella and FEMSA have yet to realise the full benefits of post-pandemic pent-up demand. Others, such as LG H&H, HDFC Corporation and Midea have product offerings which have been gaining market share in the past 18 months. We believe that over the long-term share prices will deliver similar performance to earnings growth whilst acknowledging that the strategy may see periods of underperformance.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH GEM PROMISING COMPANIES EUR ACC EUR 6.90 COMGEST GROWTH GEM PROMISING COMPANIES EUR DIS EUR 6.88 COMGEST GROWTH GEM PROMISING COMPANIES EUR I ACC EUR 7.10 COMGEST GROWTH GEM PROMISING COMPANIES EUR R ACC EUR 6.49 COMGEST GROWTH GEM PROMISING COMPANIES EUR Z ACC EUR 7.04 MSCI Emerging Markets SMID Cap - Net Return* EUR 19.99 COMGEST GROWTH GEM PROMISING COMPANIES USD I ACC USD 3.85 MSCI Emerging Markets SMID Cap - Net Return* USD 16.30
*used for comparative purposes only Commentary The MSCI Emerging Markets SMID index rose 20.0% in EUR during H1 2021, driven by a recovery in cyclical and value plays such as industrials and materials. As quality growth managers, these areas are not natural hunting grounds for us and as such, the fund underperformed during the period under review. Markets remain dominated by several themes: significant ongoing fiscal and monetary stimulus offset by rising concerns over inflation and increased talk of monetary tightening, and the evolution of Covid-19. Developed Markets, in particular the United States, and currencies have led both the economic and market strength. The combination of Covid-19 vaccine rollouts and considerable government stimulus have led to significant GDP upgrades overcoming expanding twin deficits. However, at the same time, inflation estimates have also been rising as a consequence of this, and of labour shortages, product supply shortages (such as semiconductors) and supply chain delays, problems shared in Emerging Markets (EMs). Several Central Banks, including in Brazil, Mexico, Russia and Hungary, have been raising interest rates in anticipation of the US tightening and due to domestic inflation. EM currencies have generally firmed year-to-date, especially those in commodity exporting countries. Economic growth and market returns have been clearly linked to the impact of Covid-19 variants and the success of vaccination rollouts, which have lagged in EMs. Despite their successful handling of the pandemic in 2020, Asian economies are currently suffering the impact of slow vaccination programmes. The Chinese market has also suffered from a tightening in financial conditions causing GDP downgrades and market weakness since mid March, notably in more speculative high growth but poor EPS growth companies. In the first half of the year, investors increasingly shifted their focus to more cyclical countries such as Brazil, South Africa, Russia and the Gulf, and to sectors, including energy, materials and industrials, although IT continued its strong performance. This meant that some of our more cyclical stocks did well as investors started anticipating a recovery. For example, Shriram Transport and Endurance in India, where the reopening of the economy despite the new Covid-19 waves, meant that drivers of secondhand trucks were back on the road and sales of two-wheelers rose. We also saw strong recoveries in the South African pharmacy chain, Disc-chem, the K-12 school network Curro, and the Mexican business hotel operator Hoteles City. Chinese medical supplies makers Lepu Medical and Shandong Weigao also benefitted from this market broadening and contributed strongly to performance in the latter part of H1’21. These names had previously suffered from concerns over China’s new Group Purchasing Organisation which emphasised volume over price. Shoe designer and retailer Arezzo weathered the Covid storm well and its recent acquisitions of Reserva, ZZ Malls and TROC have been a major differentiator. We expect Reserva’s sales to nearly double by 2023 as it shifts to Arezzo’s footwear production know-how.
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With the Russian employment situation improving, job search site HeadHunter posted strong 1Q21 results, leading it to raise its 2021 revenue growth guidance to 42%. The group’s acquisition of the “blue-collar” Siberia/Urals player Zarplata is helping the company get ahead of its competition. Cheil Worldwide, Korea’s largest marketing firm closely linked to the Samsung group, performed well on the back of solid results. The company’s 1Q21 Operating Profit (OP) rose by 34% year-on-year to KRW41bn, while its OP margin improved to 5.9% in 1Q21 (vs. 4.5% in 1Q20). This was driven by a disciplined operating-cost strategy and the continued transition of marketing channels to digital. Autohome fell on concerns over a slower-than-expected Chinese auto sales recovery together with rising online competition and recent management changes, leading to a reduction in its 2021 sales forecast. Despite this, the application receives more than double the daily visitors than its nearest competitor. NCsoft, the Korean game developer of Lineage, was soft due to a few weak game launches in H1 2021. However, its pipeline for H2 is strong and the games it will be launching have been receiving a large amount of pre-registrations. During the period we purchased Allegro, the largest e-commerce company in Poland which has a market share of more than 50%. We believe the company should continue to benefit from rising e-commerce penetration and the development of its fintech business. We also added Vipshop in China, which specialises in discount retail sales and has shown a significant improvement in its profitability post a strategic shift. Finally, we continued building our position in L’Occitane, the global natural and organic well-being product retailer best known for its hand creams. The group is seeing significant growth through its Elemis facial products and significantly beat results this year as its group transformation is bearing fruit. The fund sold its positions in Catcher and CIB due to slower-than-anticipated growth. Global growth is starting to slow but will remain at a high level; the OECD (Organisation for Economic Co-operation and Development) is forecasting 5.8% in 2021 and 4.4% in 2022. This will be characterised by a Covid-19 and manufacturing recovery, leading into a significant capex cycle and continued recovery in consumption, backed by the high savings rates in the Developed World. Having said this, H2’21 should experience slower growth thanks to weaker fiscal stimulus, less slack in the labour market and a tapering of gains from Covid-19 vaccinations. China is more advanced in this process, being several months into a tightening period. Central Banks of EMs are already in a tightening cycle in response to global inflation increases and the likely forthcoming FED tightening. Even though the FED is suggesting that the current inflation increase is transitory, it has clearly brought forward the timeline for when interest rates will start increasing. As the global situation remains uncertain, we continue to populate the portfolio with companies displaying sustainable competitive advantages and business models which are ultimately immune to the vagaries of economic cycles. Although the portfolio’s forecast NTM EPS growth is similar to the benchmark, we have confidence in the sustainability of the fund’s earnings growth, while an index which has been driven by cyclical sectors, such as oil and materials, will find the ability to sustain such growth more difficult. The portfolio’s EPS growth profile is attractive and we expect it to produce a compelling mid-teens CAGR in EPS for the next 5 years.
COMGEST GROWTH plc
FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2021 Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EUROPE EUR ACC EUR 15.43 COMGEST GROWTH EUROPE EUR DIS EUR 15.42 COMGEST GROWTH EUROPE EUR I ACC EUR 15.72 COMGEST GROWTH EUROPE EUR I DIS EUR 15.70 COMGEST GROWTH EUROPE EUR R ACC EUR 15.17 COMGEST GROWTH EUROPE EUR Z ACC EUR 15.70 COMGEST GROWTH EUROPE EUR Z DIS EUR 15.71 COMGEST GROWTH EUROPE EUR I FIXED DIS EUR 15.73 COMGEST GROWTH EUROPE EUR FIXED DIS EUR 15.41 MSCI Europe - Net Return* EUR 15.35 COMGEST GROWTH EUROPE USD I ACC USD 12.14 MSCI Europe - Net Return* USD 11.80 COMGEST GROWTH EUROPE USD Z ACC1 USD 8.70 MSCI Europe - Net Return* USD 5.27 COMGEST GROWTH EUROPE USD I H ACC USD 16.12 MSCI Europe 100% Hedged to USD - Net Return* USD 14.77
¹inception date 06/04/2021 *used for comparative purposes only Commentary Your fund performed in line with the MSCI Europe index which rose 15.4% in EUR (+11.8% in USD) in the first half of 2021. For all the talk of inflation, interest rates and rotations, there was little to separate the performance of the MSCI Europe Value and MSCI Europe Growth indices (with the latter slightly outperforming, for what it is worth). In the end, we think the Value vs Growth debate is misleading. Apart from anything else, there is the question of what constitutes “value” and what constitutes “growth”: not everyone has the same definition. For our part, we think the best value is actually to be found in durable growth companies. Take ASML, a company trading at €160 a share in 2018 when we first bought it, a multiple of 32x its 2017 earnings. By most traditional measures, it would not be considered a value stock. Fast forward to today and that entry price was a multiple of 19x the earnings it delivered in 2020 and, on our estimates, a multiple of 7x what we expect the company to deliver in 2025. If we are right, ASML will have been a growth stock for the earnings growth it delivered and a value stock on the basis of the multiple we paid on those future earnings. That is what we call the value of growth. 2021 has started in a strong manner for your portfolio holdings. Aggregate organic revenue for the first quarter rose 15% year-over-year and sits 14% above the equivalent quarter of 2019, despite European GDP still tracking below the 2019 level. In the words of the Accenture CEO, the crisis “has hit a giant fast-forward button to the future”. First quarter results would certainly seem to support this assertion. ASML was the strongest contributor to fund performance, rising 46.2% in EUR (+41.7% in USD) over the period under review, on the back of growing demand from the semiconductor industry. The company delivered an 80% increase in first quarter sales while also raising its guidance for 2022 EUV (extreme ultraviolet lithography) machine sales. The crisis has accelerated semiconductor demand, whether it be for electric vehicles, laptop PCs or data centres – all of which support ASML’s long-term prospects. Accenture also benefitted from accelerated digital investments, leading it to raise its full-year guidance to +10-11% sales growth and +17-18% EPS growth. In the luxury space, LVMH reported a stellar +30% organic growth in the first quarter of 2021, driven by the core Fashion and Leather division whose sales are close to 40% above pre-pandemic levels. As with Hermès, Louis Vuitton ranks among the elite brands whose market share gains have accelerated during this crisis. In the healthcare space, Novo Nordisk and Straumann performed well on the back of strong fundamentals. Demand for Novo Nordisk’s GLP1 class of drugs, where the company enjoys a 50% market share, continues to drive growth, while Straumann’s market share gains have accelerated, with notable competitors retrenching.
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Among the detractors to performance, Prosus fell as the discount to its main underlying asset, Tencent, widened – while Tencent’s share price also came under pressure. On the one hand, increasing regulatory scrutiny in China over large internet companies has increased the risk premium on Tencent, while a complex operation with its parent company, Naspers, displeased many investors. While we do not approve of the complexity of the operation, we continue to like the quality and growth prospects for Tencent, in addition to the potential to unlock value in a number of its other internet assets. Over the period under review, we added four new positions to the portfolio and exited three. We built positions in Kingspan, Nemetschek, Adidas and Alcon, while exiting Unilever, Chr. Hansen and SAP. We see scope for Kingspan and Nemetschek to continue consolidating their growing markets, respectively for insulation boards and panels and construction industry software. For Adidas and Alcon, we see good scope for margin expansion as both companies leverage the growth of their underlying markets. We exited Unilever and SAP for quality and growth reasons and sold out of Chr. Hansen for growth reasons. The debate around interest rates and inflation continues to dominate the market’s psychology. For our part we continue to believe there is no better arm against inflation than pricing power, and no better protection against rising interest rates than a sound balance sheet. Already in the first quarter, LVMH enjoyed a price effect of somewhere between 4-7% on the sales of its major fashion luxury brands while in the industrial gases space, Linde managed to pass through roughly 5% price increases for its bulk business. In the construction space, Kingspan expects an 8-9% price effect on its sales for the full year. Not only do quality companies have pricing power, but they also tend to run more conservative balance sheets. In an environment of rising interest rates, we believe low leverage and strong cash generation will help stand these companies apart.
COMGEST GROWTH plc
Performance Summary Sub-fund share class Currency Performance 2021 COMGEST GROWTH EUROPE COMPOUNDERS EUR SI ACC EUR 17.15 MSCI Europe - Net Return* EUR 15.35
*used for comparative purposes only Commentary The fund rose 17.2% in euro terms during the first half of 2021, outperforming the MSCI Europe index. For all the talk of inflation, interest rates and rotations, there was little to separate the performance of the MSCI Europe Value and MSCI Europe Growth indices (with the latter slightly outperforming, for what it is worth). In the end, we think the Value vs Growth debate is misleading. Apart from anything else, there is the question of what constitutes “value” and what constitutes “growth”: not everyone has the same definition. For our part, we think the best value is actually to be found in durable growth companies. Take ASML, a company that was trading at €266 a share at the end of 2019 when we bought it, a multiple of 43x its 2019 earnings. By most traditional measures, it would not be considered a value stock. Fast forward to today and that entry price was a multiple of 31x the earnings it delivered in 2020 and, on our estimates, a multiple of less than 12x what we expect the company to deliver in 2025. If we are right, ASML will have been a growth stock for the earnings growth it delivered and a value stock on the basis of the multiple we paid on those future earnings. That is what we call the value of growth. 2021 has started in a strong manner for your portfolio holdings. Aggregate organic revenue for the first quarter rose 14% year-over-year and sits almost 10% above the equivalent quarter of 2019, despite European GDP still tracking below the 2019 level. In the words of the Accenture CEO, the crisis “has hit a giant fast-forward button to the future”. First quarter results would certainly seem to support this assertion. ASML was the strongest contributor to fund performance, rising 46.2% in EUR over the period under review, on the back of growing demand from the semiconductor industry. The lithography machines specialist delivered an 80% increase in first quarter sales while also raising its guidance for 2022 EUV (extreme ultraviolet lithography) machine sales. The crisis has accelerated semiconductor demand, whether it be for electric vehicles, laptop PCs or data centres – all of which support ASML’s long-term prospects. In the luxury space, LVMH reported a stellar +30% organic growth in the first quarter of 2021, driven by the core Fashion and Leather division whose sales are close to 40% above pre-pandemic levels. As with Hermès, Louis Vuitton ranks among the elite brands whose market share gains have accelerated during this c

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COMGEST GROWTH PLC