For the six-month period ended May 31, 2024, Sextant Growth Fund Investor Shares returned 14.70%, trailing the 16.35% return for the S&P 500 Index. As was the case in the previous fiscal year, the Fund returns suffered in comparison to the S&P 500 due to a handful of mega-cap Technology and artificial intelligence (AI) related stocks driving Index returns.

What Factors Influenced Performance?

After Nvidia's May 2023 earnings announcement, the AI frenzy took off, defining market performance ever since. Indications of declining inflation and imminent rate cuts that buoyed a wider cross-section of the market in late 2023 gave way to inflation resilience and delayed interest rate reductions, which could last into next year. As a result, several of the mega-cap Technology stocks that accounted for much of the S&P 500 gains continued to drive Index performance through the first half of the fiscal year. Nvidia remains the leader of the pack, having appreciated over 130% over the trailing six-month period. The result, while not as dramatic a gap as last year, was the continued outperformance of the market cap-weighted S&P 500 versus the equal-weighted S&P 500.

The Sextant Growth Fund holds several of the mega-cap stocks that led returns over the past six months, including Nvidia, Amazon, Microsoft, and Alphabet. Earlier this year we added Meta (Facebook) to the portfolio. The Fund has investments in AI-adjacent companies such as Broadcom, Oracle, and Quanta, which have performed well. Holdings that detracted from Fund performance were Consumer stocks Lululemon and Monster Beverage, animal health care company Zoetis, and digital media company Adobe.

Looking Forward

With a presidential election approaching, either bravery or foolishness would be required to opine on next year’s outlook. The two candidates have widely divergent opinions on a host of issues including taxation, tariffs, immigration, fossil fuels, alternative energy, and many others. Economic resilience (in terms of jobs and wages) adds to the uncertainty, defying the inverted yield curve prognostications, and consumers are still scarred from the pandemic-engendered period of high inflation. 

For the six-month period ended May 31, 2024, Sextant Growth Fund Z Shares returned 14.84%, trailing the 16.35% return for the S&P 500 Index. As was the case in the previous fiscal year, the Fund returns suffered in comparison to the S&P 500 due to a handful of mega-cap Technology and artificial intelligence (AI) related stocks driving Index returns.

What Factors Influenced Performance?

After Nvidia's May 2023 earnings announcement, the AI frenzy took off, defining market performance ever since. Indications of declining inflation and imminent rate cuts that buoyed a wider cross-section of the market in late 2023 gave way to inflation resilience and delayed interest rate reductions, which could last into next year. As a result, several of the mega-cap Technology stocks that accounted for much of the S&P 500 gains continued to drive Index performance through the first half of the fiscal year. Nvidia remains the leader of the pack, having appreciated over 130% over the trailing six-month period. The result, while not as dramatic a gap as last year, was the continued outperformance of the market cap-weighted S&P 500 versus the equal-weighted S&P 500.

The Sextant Growth Fund holds several of the mega-cap stocks that led returns over the past six months, including Nvidia, Amazon, Microsoft, and Alphabet. Earlier this year we added Meta (Facebook) to the portfolio. The Fund has investments in AI-adjacent companies such as Broadcom, Oracle, and Quanta, which have performed well. Holdings that detracted from Fund performance were Consumer stocks Lululemon and Monster Beverage, animal health care company Zoetis, and digital media company Adobe.

Looking Forward

With a presidential election approaching, either bravery or foolishness would be required to opine on next year’s outlook. The two candidates have widely divergent opinions on a host of issues including taxation, tariffs, immigration, fossil fuels, alternative energy, and many others. Economic resilience (in terms of jobs and wages) adds to the uncertainty, defying the inverted yield curve prognostications, and consumers are still scarred from the pandemic-engendered period of high inflation. 

For the six-month period ended May 31, 2024, the Sextant International Fund Investor Shares returned 12.03%. The MSCI EAFE Index and MSCI ACWI ex US Index returned 13.19% and 11.46% for the same period, respectively. 

What Factors Influenced Performance?

The Sextant International Fund mandates that 65% of net assets be held in companies with their headquarters and at least half of their assets and earnings outside the US, and with market capitalizations greater than $1 billion. The Fund generally holds equity positions in larger companies with strong balance sheets. As of May 31, 2024, Technology was the largest sector weighting at 39.2% followed by Health Care at 18.1%, then Industrials at 16.4%. Consumer Discretionary and Materials were the next largest sector weightings in the portfolio, at 8.6% each. In terms of performance contributions, Health Care, Industrials, Communications, and Technology were the largest contributors. Top performers were Taiwan Semiconductor, Eaton, and ASML. The bottom performers included Lululemon, OpenText, and Accenture.   

Looking Forward

We are entering an economic regime where global growth may remain sluggish, and the costs of capital elevated. While inflation and interest rates are important, their impact is expected to diminish over the next several quarters, as the significant tail risks associated with them have largely been mitigated. Last year, the Federal Reserve's policy actions could be described as a defusing a bomb; even a minor error could have had catastrophic consequences. This year, the challenge is more akin to parking a boat in a narrow slip on a rainy day — there may be bumps and collisions (i.e. economic weakness, sticky inflation), but probably nothing that will sink the ship. Fed Chair Jerome Powell will likely continue to bounce between hawkish and dovish tones based on the prevailing risks at any given time until the US economy achieves some form of "landing."

In this environment (slow growth + elevated cost of capital=margin pressure), the Sextant International Fund prioritizes companies that offer products and services which help enterprises improve operating profitability through productivity gains. Fortunately, surges in innovation (including AI, digital transformation, and accelerated computing) are likely to drive economic upside relative to market expectations over the next several years. Given this backdrop, the Fund maintains a constructive outlook for the remainder of 2024 and beyond.

For the six-month period ended May 31, 2024, the Sextant International Fund Z Shares returned 12.15%. The MSCI EAFE Index and MSCI ACWI ex US Index returned 13.19% and 11.46% for the same period, respectively. 

What Factors Influenced Performance?

The Sextant International Fund mandates that 65% of net assets be held in companies with their headquarters and at least half of their assets and earnings outside the US, and with market capitalizations greater than $1 billion. The Fund generally holds equity positions in larger companies with strong balance sheets. As of May 31, 2024, Technology was the largest sector weighting at 39.2% followed by Health Care at 18.1%, then Industrials at 16.4%. Consumer Discretionary and Materials were the next largest sector weightings in the portfolio, at 8.6% each. In terms of performance contributions, Health Care, Industrials, Communications, and Technology were the largest contributors. Top performers were Taiwan Semiconductor, Eaton, and ASML. The bottom performers included Lululemon, OpenText, and Accenture.   

Looking Forward

We are entering an economic regime where global growth may remain sluggish, and the costs of capital elevated. While inflation and interest rates are important, their impact is expected to diminish over the next several quarters, as the significant tail risks associated with them have largely been mitigated. Last year, the Federal Reserve's policy actions could be described as a defusing a bomb; even a minor error could have had catastrophic consequences. This year, the challenge is more akin to parking a boat in a narrow slip on a rainy day — there may be bumps and collisions (i.e. economic weakness, sticky inflation), but probably nothing that will sink the ship. Fed Chair Jerome Powell will likely continue to bounce between hawkish and dovish tones based on the prevailing risks at any given time until the US economy achieves some form of "landing."

In this environment (slow growth + elevated cost of capital=margin pressure), the Sextant International Fund prioritizes companies that offer products and services which help enterprises improve operating profitability through productivity gains. Fortunately, surges in innovation (including AI, digital transformation, and accelerated computing) are likely to drive economic upside relative to market expectations over the next several years. Given this backdrop, the Fund maintains a constructive outlook for the remainder of 2024 and beyond.