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Currency effects were negative in May and reduced the return by 1.5 percentage points. The biggest winners were HCA, Inditex and Schwab, and the biggest losers were Mastercard, Ryman Healthcare and New York Times.

Several holdings reported their first quarter in May, and all nine companies that posted beat expectations, which is very unusual. Some highlights: Salesforce increased its sales by 23 percent, driven primarily by Service Cloud. KKR increased its assets under management by 77 percent, partly through the acquisition of General Atlantic Financial Group. Its organic growth was a strong 30 percent. New York Times had a good start to the year. Digital subscription revenues (the most important and largest segment) increased by 38 percent.

The stock market remains strong, and the MSCI World global stock index is now up 12 percent this year in dollar terms. The industries that have performed best are Energy, Finance, Real Estate and Commodities. The generally positive sentiment persists, and this was apparent in the amount of capital raised for special purpose acquisition companies (SPACs). A SPAC is a company that is listed on the stock exchange with nothing but cash assets, a team and a plan to acquire a company that has not yet been identified at the time of listing. Last year, which was a record year, SPACs worth USD 157 billion were listed. In the second-best year, 2019, this was less than USD 40 billion. So far this year, SPACs worth USD 170 billion have already been listed!

Looking at valuations, things do not appear as extreme. If we divide the S&P 500’s forecast earnings in two years by today’s share prices, we get an earnings yield of 5.5 percent, which is 3.9 percent higher than the return on a 10-year US government bond. Over the past 30 years, the S&P 500 has on average had an earnings yield 3.5 percent higher than government bonds. This means that we today have a higher return spread, which is good from a valuation perspective. That said, the valuation could quickly look expensive if: 1) interest rates rise; or 2) profit forecasts prove too optimistic. Also, we should not get overly obsessed with indices since we invest in individual companies and there are always undervalued companies somewhere.

We made no major purchases or sales during the month.

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