Silvercrest
World Brands

PERFORMANCE COMMENT

In March 2025, the Silvercrest-World Brands EUR P was down -12.9% while the MSCI World EUR was -8.01%. The underperformance came mainly from sector allocation and securities selection. Country allocation contributed positively as the fund did benefit from our underweight in the USA and our overweight in Europe and China. The overweight in consumer discretionary and communication services was negative and not having holdings in the energy sectors. Stock selection in China was very good while our selection in Europe and USA was less beneficial. The bottom 5 detractors on a securities level were Meta Platform, Kering, Richemont, Royal Caribbean Cruises and Tesla and the highest contribution came from Laopu Gold, Pop Mart International, JP Morgan, Giant Biogen and Xiaomi, Eli Lilly and Duolingo.

The fund’s allocation to North America is lower at at 55.19% and the allocation to Europe was lower at 20.35%. The fund’s allocation to Japan was at 3.24%, while the allocation to Emerging Markets was higher with Greater China at 17.11% as of 31st March 2025. Cash was at 4.11%.

MARKET REVIEW

Global equity markets fall sharply as we are bracing for the US tariffs impact. The equity markets started to re-price US equity assets and non US assets across the globe and are pricing in a potential recession. If the US tariffs applied on a full scale, we may have to deal with lower GDP growth globally and therefore potentially lower revenues, lower margins and lowr earnings per share. The US equity market started to re-price for a lower Price/Earnings multiple given the increased uncertainty. The Nasdaq Composite Index fell -8.21% and the S&P 500 Index -5.75%. The Russell 3000 was down -5.96%.

The Euro Stoxx 50 Index outperformed the US market, (down -0.10% in USD driven by better the Germany’s fiscal policy and defense plan spending given the geopolitical situation. The DAX Index was up 2.20%.

In the month of March 2025, China remains relatively stable as domestic investors remain relatively reassured on domestic consumption and AI advances. The Hang Seng Index was up 0.74% while the onshore index was up 0.19%. US internet and tech companies de-rated. The MSCI World Communication Services Index was down -7.52% in USD while the MSCI World Information Technology Index was down -8.94% in USD. The MSCI World Consumer Staples Index was down 1.07% in USD. The MSCI World Consumer discretionary was down -8.24% - driven mainly by the big weights Amazon and Tesla - while the MSCI Financials index was down 2.74%.

THEMATIC OVERVIEW

During the month we conducted an EV tour visiting dealer shops of Zeekr, BYD, SAIC and XPeng. Overall we are impressed by the in-vehicle offerings from these OEMs, which ranges from mini fridge/heater, ipad sized screens, lied-flat chairs with massage functions; and car roofs with special lighting effects. Moreover, while most of these Chinese brands have diversified their portfolios to include more premium offerings (e.g. Denza series from BYD), the cars are still priced relatively competitively vs their Western peers (roughly CNY 180k to 300k for sedans and small SUVs; CNY400k to 600k for 6-seater MPVs). The strong value proposition and potential extension of government support keep us confident on further market share expansion for domestic EV players; and on the flip side deepens our concerns on German OEMs. That being said, we note the increase in competitive intensity as most players have guided on volume growth that meaningfully exceeds the ~30% industry level NEV volume growth expectations (e.g. BYD guides for +29% yoy unit growth to 5.5m units; Geely targets +69% yoy increase in NEV units sales to 1.5m units; Nio hopes to double the volume; XPeng similarly aims to more than double the volume; Huawei also targets for over 100% growth), hence we remain selective on the space, favoring structural winners at reasonable multiples (BYD); as well as players with leading technology and various catalysts ahead (XPeng).

In addition to the EV tour, the team also attended the HSBC Global Investment Summit, which hosted over 4,000 investors from across the globe. We noticed a substantial increase of investor interests in Hong Kong listed shares, meanwhile the companies we met, including DiDi, 37 Interactive Entertainment, Baidu, all suggested macro stabilization in China, with IHG in particularly pointing to improved corporate traveling trends. This optimism has also been supported by a generally solid reporting season: within our portfolio, Laopu Gold, the Chinese luxury gold jewelry maker, has printed an impressive 167% revenue growth in 2024 and is confident to achieve triple digit growth in 2025; Giant Biogene increased sales by 57% last year and aims to grow another 25% to 28% this year on further market share gains and the structural tailwind from continued adoption of medical aesthetics treatments; our toy maker Pop Mart had a stellar year in 2024 with 107% top line growth thanks to the Labubu popularity, and the company has guided for >50% yoy sales growth this year; last but not the least, Xiaomi, the leading China smart appliance and EV manufacturer, grew 35% in revenue for 2024 on continued market share gains in its smartphone business, and the successful launch of its first EV car - SU7. Looking ahead, Xiaomi targets another 7% growth in smartphone shipments but also 350k units of EV delivery, representing a 156% increase vs last year on two new model launches. While we acknowledge the current tariff situation introduced a lot of uncertainty to the macro outlook, we note that most of the Chinese names in our portfolio have relatively limited sales in North America and all of them have idiosyncratic growth drivers.

Elsewhere Nvidia hosted its annual GTC Conference in late March, in which its CEO Jensen Huang remains very bullish on the AI demand, with the expectation of total annual capex reaching $1 trillion by 2028 as both inference and training continue to require more compute. On recent business progress, Jensen updated that Blackwell sales has been outperforming expectations with units from top 4 US hyperscalers already reaching 3.6m in 2025, 2.8x vs Hopper’s peak year. Furthermore, he also argued that the impact of DeepSeek is somewhat misunderstand, as the distillation of large models is more about running specific workloads in the most compute-efficient manner possible and hence does not change the broader dynamic related to building the smartest/fastest AI across a wide range of workloads. We see the recent tariffs, geopolitical risks and uncertainties regarding hyperscaler AI spending could post potential disruptions to Nvidia, but we are still confident that NVDA remains the undisputed leader in the fast growing AI GPU space, and with the shares down -17% YTD and trading on a undemanding 19.5x PE, we have gradually started to add more exposure to the name.

FUND ACTIVITY

The fund has 3 overweight stances from a GICS sector perspective globally (1) brands in telecommincation services/internet (2) brands in consumer discretionary. From a regional perspective, in North America, we are are overweight in communication services with names like Meta Platforms, Take-Two Interactive and Netflix as well as within tech brands like Salesforce. We have been increasing our allocation to China tech brands like Xiaomi, Tencent and Alibaba. The global allocation to digital brands in the strategy totals 52% of the fund, mainly in the sectors of Information Technology and Communication Services.

The fund reduced significantly the overweight in brands in the Consumer Discretionary sector (fom 38.8% to 33.28%) and Financials brands (12.86% to 9.01%). We reduced in particular travel brands and sports brands. We increased brands in communication services (from 17.53% to 20.72%) and consumer staples (from 2.14% up to 5.68%). We took advantage of the volatility and entered new positions like T Mobile, Spotify, Duolingo, Coca Cola etc. which has no tariff exposure. We were able to lower significantly to lower the exposure to brands with tariff exposure overall.

QUARTERLY OUTLOOK

The LOF – World Brands fund owns a high conviction diversified portfolio of businesses around the world that are structural winners and have pricing power. We classify all our investments in 3 categories: Digital Brands, Upcoming Brands and Global Brands. Currently the fund holds 52% in Digital Brands, 8% in Upcoming brands and 40% in Global Brands. Looking forwards over the next 2 years (CAGR), the fund’s holdings have very strong financial metrics which significantly exceed the MSCI World benchmark based on the market consensus estimates. The ROE of the holdings in the fund stands at 33.6% compared with the MSCI World at 14.6%. The portfolio is trading at a 19.3x forward 2-year Price to Earnings multiple vs MSCI World 16x (the fund forward PE is 22.2 vs. MSCI World 18x) which continues to represent a very attractive level since we started to manage the fund in 2009. The forward P/E of the fund reached a peak of 35x in February 2021. On a PEG ratio (P/E ratio to earnings growth) the fund is very attractively valued compared to the broader market’s PEG ratio (MSCI World).

We continue to evaluate the potential impact of the US tariffs announcements on a brand-by-brand basis, making adjustments to the portfolio and maintaining an overall risk-on stance. The portfolio has an overall weighted US sales exposure of 38.5%, meanwhile around 40% of the portfolio is deployed in the TMT & services names (e.g. Alphabet, Netflix, Salesforce etc), 6.5% in the US domestic/local for local companies (e.g. Chipotle, Coca-Cola), and 15% in China names which are mostly China domestic and have minimal US sales. As a result, we believe roughly 60% of the portfolio is insulated from the direct impact of tariffs; while for the rest 40, we see the portfolio weighted sales exposure to US market amounts to only 12%. Hence we think the portfolio is relatively defensive at its current state, and we continue to shift the holdings to be more robust and tariff insulated.