Hyperion Global Growth Companies B (WHT8435AU) Report & Performance

The Hyperion Global Growth Companies Fund (Managed Fund)* returned 3.3% for July, outperforming its benchmark (MSCI World Accumulation Index (AUD)) by 1.1%. Roku, Inc., Palantir Technologies Inc., and Block, Inc. saw the largest positive share price movements, while Spotify Technology SA, Intuitive Surgical, Inc., and Microsoft Corp. (Microsoft) saw the largest share price declines over the month.

Our global strategy saw continued strength in the month of July as many of our portfolios companies reported their quarterly financial results, which have broadly been positive and in line with our long-term forecasts. We believe several positive emerging themes will continue throughout the year and beyond.

The first is a shift in corporations focusing more on efficiencies within their businesses, particularly at the bottom line (earnings). We believe the ability for companies to run their businesses harder by being more astute with their spending and sizing their workforce appropriately can help them achieve earnings leverage; this may produce considerable upside to margins, which is starting to be seen in several companies’ second-quarter 2023 results. The second positive has been around artificial intelligence (AI) and machine learning (ML), where we are starting to see inflection points, for example, Microsoft trialling their “Copilot” product and ServiceNow, Inc.

launching a customer service AI tool, which we believe in time may provide revenue uplifts. A key structural theme that Hyperion identified approximately 10 years ago was AI and ML, however the potential upgrades to revenue streams, efficiencies in productivity and eventually earnings are only now starting to be recognised by market participants. Read more about the benefits of AI and ML within our Global strategy here.

Although we have seen strong performance for the year to date, we believe the long-term return outlook for our portfolio remains attractive, with forecast internal rates of return above their long-run averages.

The Hyperion Global Growth Companies Fund (Managed Fund)* returned 5.7% for June, outperforming its benchmark (MSCI World Accumulation Index (AUD)) by 2.6%. Tesla, Inc., Airbnb Inc., and Intuitive Surgical Inc. saw the largest positive share price movements, while Salesforce, Inc. and Alphabet Inc., were the only companies to see share price declines over the month.

The month of June closed off a strong month and financial year for the global strategy, and investors with long-term mindsets are being rewarded for their patience as a more stable 10-year U.S bond yield has helped the attractive economics of our portfolio produce positive results.

Hyperion has always believed that our portfolio would recover from what we viewed as a non-fundamental drawdown period and the negative duration impact from higher bond yields continues to provide an opportunity for long-term investors to increase exposure to some of the best listed businesses in the world at attractive prices. The global strategy continues to offer above average forecast 10-year returns at current prices. The portfolio has robust fundamentals with high and sustainable returns on capital, low financial gearing and the ability to produce positive free cash flows.

Our portfolio’s ability to take market share tends to increase during economic downturns when weaker competitors are suffering. This ability to grow by taking market share enables our stocks to handle cyclical earnings downturns relatively better than most listed companies.

In our most recent webinar (watch the replay here), we reminded our investors why we believe investing in high quality structural growth companies is important and discussed why we remain confident in our portfolio companies and their ability to produce excess returns.

The Hyperion Global Growth Companies Fund (Managed Fund)* returned 12.2% for May, outperforming its benchmark (MSCI World Accumulation Index (AUD)) by 11.1%. Palantir Technologies Inc., Tesla Inc. and ServiceNow Inc. saw the largest share price increases, while Kering SA, LVMH and Airbnb, Inc. saw the largest declines over the month. The month of May saw strong performance for the global strategy as a more stable 10-year U.S bond yield has helped the attractive economics of our portfolio to once again produce positive results. As we look forward, there are several positive emerging themes that we believe will continue throughout the year and beyond.

The first of which is a shift in corporations focusing more on efficiencies within their businesses, particularly at the bottom line (earnings). The ability to run these businesses harder and achieve earnings leverage may produce considerable upside to margins over the medium term. The second positive has been around artificial intelligence (AI) and machine learning (ML), where we are starting to see inflection points. A key structural theme that Hyperion identified approximately 10 years ago was AI and ML, however the potential upgrades to revenue streams, efficiencies in productivity and eventually earnings are only now starting to be recognised by market participants.

In our most recent webinar (watch the replay here), we reminded our investors why we believe investing in high quality structural growth companies is important and discussed why we remain confident in our portfolio companies and their ability to produce excess returns. We believe the long-term return outlook for our portfolios continues to look attractive with robust fundamentals, high and sustainable returns on capital, low financial gearing and the ability to produce positive free cash flows.

The Hyperion Global Growth Companies Fund (Managed Fund)* returned -1.1% for April, underperforming its benchmark (MSCI World Accumulation Index (AUD)) by 4.3%. Intuitive Surgical, Inc., Meta Platforms Inc., and Hermes International SCA saw the largest positive share price movements while Tesla, Inc., Roku, Inc., and Block, Inc. saw the largest share price declines over the month.

The first quarter reporting season for the global strategy has been very encouraging as a number of companies surprised on the upside, with revenue and earnings exceeding market expectations. We’ve seen a shift of focus from many companies to achieving bottom-line growth (earnings), rather than just top line (revenue) which we view as a positive move.

We believe this shift, coupled with the structural growth themes that we identify within our portfolios, is enabling our portfolio companies to continue their growth and profitability in a challenging consumer landscape. Ultimately, profitable businesses that grow by taking market share will become more valuable and should be in a better position to produce attractive returns over the long term.

The Hyperion Global Growth Companies Fund (Managed Fund)* returned 8.4% for March, outperforming its benchmark (MSCI World Accumulation Index (AUD)) by 4.5%. Salesforce, Inc., Meta Platforms, Inc., and Microsoft Corp. saw the largest positive share price performance while Block Inc. (Block) was the only position to see share price declines over the month.

It has been a very encouraging start to the year for our global strategy which has pleasingly responded well to several factors, including a strong reporting season and a continued decline in U.S. inflation which has seen a reduction in 10-year U.S. Treasury yields from a recent peak in October 2022. However, the unprecedented rise in interest rates by central banks has produced some casualties including Silicon Valley Bank, Signature Bank, and First Republic Bank. Hyperion did not and does not have any direct exposure to any of these companies nor any other mid/lower tier bank or traditional financial institution. We believe the recent events in the banking system may result in slowing credit growth and should be a net positive for long duration and higher quality assets.

While many of Hyperion’s portfolio companies have risen strongly since the start of the year, Block has underperformed recently after being the target of a short seller’s report. Overall, it is not unusual for Hyperion’s portfolio companies to face short sellers; this has occurred numerous times in the past. It is a function of our holdings being highly innovative businesses that are often difficult to assess.

Our ability to deeply analyse businesses is a key driver of our longterm success. We are however humble and cognisant that ‘short’ reports can in certain instances present information that may not be known to the market and/or ourselves. Following our initial review, we believe the evidence provided by Hindenburg’s short report is largely anecdotal and subjective and in our view is sensationalised.

The Hyperion Global Growth Companies Fund (Managed Fund)* returned 4.4% for February, outperforming its benchmark (MSCI World Accumulation Index (AUD)) by 2.3%. Tesla Inc, Meta Platforms Inc and Roku Inc. saw the strongest share price performance while Alphabet Inc., Amazon.com Inc and Intuitive Surgical, Inc. saw the largest price declines over the month. As we progress through the start of the year, Hyperion has been pleased with a number of our global companies’ full-year financial reports. Share prices over the month have responded positively to favourable financial reports released in February.