Quarterly Letter

Dear investor,

The third quarter of the year was a volatile period for equities. In a market totally obsessed with the short term, changes in macroeconomic expectations have been constant, causing major fluctuations in the world’s main stock markets. Our funds have taken advantage of these variations without hesitation. BESTINVER’s long-term strategy, based on fundamental analysis and valuation, has been key to taking advantage of market uncertainty and acquiring good businesses at good prices for our portfolios.

During the quarter, stock markets have switched sharply from indecision to concern and from concern to optimism. After a few months in which the market did not seem to lean towards any particular scenario, the publication of weak US unemployment data and overly cautious comments by the US central bank triggered a sudden slide in indices in August. In addition to being sudden, this setback was also brief since a rate cut by the Federal Reserve and the announcement of an impressive stimulus plan in China sufficed for it to be overcome in just a few weeks. Despite these ups and downs, markets again ended the quarter in positive territory.

Setting the noise aside, there are various reasons that explain the stock market recovery. The main reason is the continued strength of the US economy, with estimated quarterly growth rates of 3%. In addition, this strength is accompanied by inflationary pressures that are under control, leaving central banks free to restart the expected cycle of rate cuts. Finally, business activity in China —which was the last great unresolved issue in the post-Covid normalisation process— is about to receive an extraordinary boost. If its success is confirmed, it could strengthen global growth and reactivate business activity in countries that are most dependent on the Asian giant, such as those in northern Europe.

In this scenario, our funds have maintained the gains achieved in previous quarters and several of them have posted double-digit returns for the year. Our flagship companies, Bestinver Internacional and Bestinfond, have achieved cumulative returns of 11.21% and 10.77%, respectively, and their net asset values are close to record levels. Bestinver North America, continues with its excellent run of results and is up 17.66% for the year and 40% since it was launched. Among the fixed income funds, Bestinver Renta should be highlighted, which after a record quarterly gain of 4.2%, increased its return to 7.30% for the year. Overall, our funds are performing in line with what we expected at the beginning of 2024.

There are two reasons for this good performance: the progress achieved by our companies, and the diversified and balanced structure of the portfolios. Regarding the former, BESTINVER’s strategy is clear: investing in companies with fundamentals so strong that they can generate value in most potential macro scenarios. They must necessarily sell everyday essentials, be profitable, be well-run and hold leading positions in their sectors, with extraordinarily strong balance sheets.

Companies with these characteristics have sufficient resources to invest in growth, remunerate their shareholders and emerge stronger from crises. Therefore, when purchased at good prices, they are able to generate high returns for their shareholders without depending on a specific macroeconomic scenario. This differentiating feature of BESTINVER’s strategy has provided important support throughout the quarter.

We have also benefited from the structure of our portfolios in this period. For us, diversification means combining companies with different and complementary profiles in a single fund. In other words, diversifying involves combining businesses whose profits move at different rates over the economic cycle. We thus ensure that a significant portion of each portfolio is always generating value for our funds.

In addition, it is also important to balance the weighting of each position to extract the maximum potential from the whole and to ensure that any individual loss is easily covered by the rest of the fund.

Only if both attributes are combined can we construct portfolios in which the sum of all their positions is of greater value than each of their individual parts. This feature of our strategy has been particularly relevant in a highly volatile
quarter such as the one just ended. Looking ahead to the coming years, we expect our funds to continue to perform strongly. In addition to a positive equity environment, their portfolios will continue to benefit from businesses that are better than average and valuations that are more attractive than average. On the other hand, their diversified and balanced structure will continue to provide solid support, capable of growing capital in periods of expansion and protecting it in times of crisis.

This is not to say that the future will move in a straight and continuous upward line. On the contrary, we are convinced that, as has always been the case in stock market history, from time to time there will be episodes of nervousness, volatility and slumps. Episodes such as the one occurring during the third quarter of 2024 will give us the opportunity to buy good businesses at good prices and continue to accumulate value in our portfolios.

Thank you again for placing your trust in us.
Yours sincerely,

Mark Giacopazzi.