Manager Comment - BlueBox Global Technology Fund, July 23

*** For Professional Investors Only ***

The latest monthly tech commentary from our lead portfolio manager William de Gale, FCA, CFA ?has just been published.?Enjoy reading!

July saw equities, including the Technology sector, grind steadily higher, with increasing confidence that US inflation would stabilise at acceptable levels without a major recession. Reporting season got going towards the end of the month, and while some companies’ guidance was a bit disappointing, this wasn’t enough to dampen the mood, with the BlueBox Global Technology Fund up 4.1% during July, up 42.2% year-to-date, and 60.5% above the fund’s October low.

The fund’s strongest performers were Airbnb (+19%), ASM International N.V. (+13%), Intuit (+12%) and Lam Research (+12%). Airbnb and Intuit don’t report until August, but both Lam and ASM International guided above expectations, with the upside coming from “legacy nodes” – equipment that was cutting-edge some years ago. Much of this is thought to be due to Chinese chipmakers, deprived of the most advanced equipment by western sanctions, buying whatever they can get while it’s still available; but it is also likely to be a result of the steady growth of demand for products traditionally made on much older equipment, such as analog, microcontrollers and sensors. That demand has finally exceeded the supply of second-hand equipment, meaning that analog companies such as 德州仪器 are having to build from new rather than buy old capacity. This boom in sales of trailing-edge tools simultaneously both to China and to western analog companies is great for the equipment vendors today, but it does run the risk of eventual over-capacity at older nodes and aggressive pricing from China, and this is something that we shall be keeping an eye on.

July’s biggest laggards were Arista Networks (-4%) and 海克斯康 (-4%). However, after the close on 31 July Arista reported very strong results, leading to a big jump the following day. In contrast, we sold our remaining small position in Hexagon, which we have been scaling down for a while, and replaced it with Amadeus , the leading transaction processor for the airline industry. Founded in 1987, this was a very early example of Direct Connection, linking the IT systems of airlines and travel agents in order to speed processing and reduce errors. It has since been broadened to include everything from pricing to departure control, and the company is now the leading distribution platform for the travel market.

As discussed last month, the recovery of tech companies since October seems like a huge move, but it is simply returning the sector to its 14-year trend of 15% annual growth, after last year’s correction. We believe that trend will continue, as innovation and disruption compel companies in other industries to spend heavily on technology, transferring the entire market’s earnings growth to this single sector, as has been the case since around 2007.

The prime beneficiaries of this extraordinary trend are essentially a key group of companies that enable each disruptive innovation in turn, whether robotics, autonomous vehicles, blockchains, generative AI or whatever comes next. These very profitable enablers remain the main engine of profit growth globally, giving #BlueBox investors exposure to the strongest technology trends, without the absurd valuations and poor business models of many of the high-profile, but profitless, disrupters.

You can also find the commentary as part of the monthly factsheet on our website:?www.blueboxfunds.com.

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