Mar Vista Q2 2024 Focus Portfolio Commentary
In recent strategy adjustments, we established new positions in Broadcom and Meta Platforms and increased our investment in Apple. Meanwhile, our holdings in Alphabet, Adobe, Microchip Technologies, and Walt Disney witnessed nominal reductions.
The S&P 500® Index showcased a remarkable 15.29% appreciation in the first half of 2024, making it one of its most robust performances since the late 1990s tech boom. This surge in growth is majorly attributed to six tech behemoths: Nvidia, Alphabet, Microsoft, Amazon, Meta, and Apple. The collective influence of these companies, especially fueled by growing excitement around artificial intelligence (AI), contributed to about 60% of the market’s gains for the year, with Nvidia alone accounting for a 30% share.
Despite the promising prospect of AI transforming diverse economic sectors, this rally underscored a market polarization, majorly elevating AI and adjacent sectors while leaving others to underperform. The disparity between the S&P 500® and the S&P 500® Equal-Weight Index—where the latter only increased by 5.1% year-to-date—serves as a testament to this trend, highlighting the largest performance gap recorded in the span of a year’s first half.
Momentum in the market seems to have escalated to levels surpassing those witnessed during the dot-com boom according to S&P measures. Notably, the top ten S&P 500® companies now represent 35% of the index’s total market capitalization but only account for 23% of its earnings, pointing towards sky-high future earnings expectations.
Our Focus strategy netted a 3.74% increase in the second quarter of 2024, with notable performance variances across sectors. The technology giants, Apple, Alphabet, and Microsoft emerged as our portfolio’s stars, while positions in Nike, Walt Disney, and Salesforce detracted from our overall performance.
With Apple announcing the integration of generative AI features in its upcoming iOS 18, it stands at the verge of igniting an iPhone upgrade frenzy. Alphabet, on the other side, has showcased financial resilience through accelerated growth and margin improvements fueled by a revitalizing advertising business. Microsoft continues to dominate the enterprise digital transition landscape, further leveraging generative AI for industry solutions.
Nike’s stock witnessed a downturn post its forecast revision, projecting a mid-single-digit revenue contraction for FY 2025. Disney, despite outperforming financial forecasts, experienced a stock pull-back, reflecting concerns over theme park attendance. Meanwhile, Salesforce faced pressures following adjustments to its FY2025 subscription revenue guidance and industry-wide cyclical challenges, albeit poised for potential generative AI-induced tailwinds.
The addition of Broadcom to our portfolio reflects a strategic move towards benefiting from the surging demand for AI accelerator chips and the integration of VMware, anticipating mid-20% range intrinsic value growth over the mid-term.
Our re-entry into Meta Platforms comes after observing its evolving strategic focus, particularly towards operational efficiency and AI, positioning it for potentially 13-15% annual intrinsic value increment. This repositioning is based on our confidence in Meta’s digital advertising and AI leveraged monetization capabilities, despite ongoing regulatory and operational challenges.
As we step into the second half of the year, the market’s momentum, supported by enduring macroeconomic resilience, corporate earnings strength, and the ever-intriguing AI narrative, appears promising. While acknowledging the gradual unfolding of AI’s upside potentials against its current market valuation, our investment methodology stays grounded on businesses with significant competitive moats and sustainable value accretion capabilities.
Our portfolio’s design aligns with a vision to capitalize on lasting trends while safeguarding against possible economic downturns. Emphasizing a long-term, value-accretive stance, we aim to navigate through evolving market scenarios, particularly those surrounding technological innovations, securing a balanced trajectory towards sustainable investment returns.
