Quotes for 2 Different Worlds
We are a good portion of the way through earnings season. Everyone on the investment team listens to management conference calls and reviews transcripts and commentary for the companies we own. We also follow general news for firms that we do not own, as it helps us identify different trends or issues that we do not see in our portfolio companies. This quarter, we have noticed a significant bifurcation of the news flow. We’ve spoken about our opinion of the K-shaped economy in the US before, where part of the country is doing well, while part of it struggles. We found some of the comments below that demonstrate the current issue. The first two points show strength:
- “Looking at the macro picture, the economic foundation remains generally supportive with healthy underlying consumer and business spending….Net revenue growth was up 12% and net income up 15% in the first quarter “ – Mastercard ($MA) CEO Michael Miebach
- “Google Cloud’s backlog nearly doubled sequentially, reaching $462 billion at the end of Q1. The increase was driven by strong demand for enterprise AI offerings and the inclusion of TPU hardware sales.” – Alphabet ($GOOGL ) CFO Anat Ashkenazi
…but these comments show how difficult it is for the average consumer:
- “Looking back at Q1, pressure intensified throughout the quarter, in particular, in March because of growing consumer uncertainty. Consumer sentiment hit COVID-level lows, and ongoing inflation continued to impact purchase decisions.” – Domino’s Pizza ($DPZ ) CEO Russell Weiner
- “The U.S., the consumer confidence there remains quite low. We expect it to further deteriorate as the Middle East conflict continues. Purchasing power is up, but the consumer remains very concerned about affordability, economic outlook, and job security.” – Mondelez International ($MDLZ ) CEO Dirk Van de Put
This comment from Coca-Cola summaries both sides of the economy nicely:
- “While many consumers remain resilient, others are under pressure due to persistent inflation, greater macroeconomic uncertainty, and volatility driven by the conflict in the Middle East….The consumers that have, you know, pressure today are the low-income consumers, and we are really dialing up our affordability options, you know, to get closer to them.” – The Coca-Cola ($KO ) CEO Henrique Braun
“This means that” we continue to see strength in the operating results for the companies that we own. For the most part, our funds and mandates are exposed to the part of the global economy that continues to report strong results. However, there are many variables in the environment that can change the picture quickly and valuations also remain high. We will remain laser focused on our investment process and will continue to keep you updated.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Conviction Fund are presented based on the master’s series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Conviction Fund (April 2013), and Pathfinder International Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.