Quarterly Letter

Dear investor,

During the first half of 2024, our funds have continued the good performance with which they ended last year. Moreover, the markets have benefited from a favourable environment thanks to the normalisation of monetary policy, resilient economic activity and the strength of business profits. Behind these headlines, however, there are important details that should be highlighted.

The first is that markets are rediscovering that they are able to live with interest rates close to 5%. These rates may seem abnormally high compared to what we have seen over the last ten years. However, if we look back over the history of monetary policy, we can see that the real anomaly was zero rates. In fact, current levels are similar to those in the decades before Mark Giacopazzi, CIO – Chief Investment Officer of BESTINVER the 2008 crisis, when the economy was growing without fear of deflation and investors were rewarded for their savings with good returns. Therefore, the re-emergence of inflation and the end of zero rates seem to us to be significant steps in the return to normality and mark the beginning of a more
sustainable period in the markets.
Secondly, the road to normalisation has been tested several times in the last two years and, on each occasion, the test was passed with flying colours. We are referring to the resurgence of inflation, the most aggressive rate hike in four decades, geopolitical tension in Ukraine, the regional bank crisis in the US or the collapse of Credit Suisse in Europe. All of these were events that would otherwise have created serious problems, but which, this time around,
have been resolved without the economy going into recession. This is a demonstration of resilience that we must not overlook.

Third, in the face of this strength, it is understandable that central banks are more reluctant to lower rates than was assumed at the beginning of the year. This reticence has been welcomed by the markets, which see it as confirmation that the economy is doing well. In addition, corporate profits have continued to grow and, together with a healthy labour market and high levels of private sector solvency, have created a very positive environment for
companies. But for which companies, exactly?

For the market, the main beneficiaries of this process are the larger companies with more weight in the indices. This has led to an extreme concentration of positions, which in the US and its seven largest companies(1), has reached unprecedented levels. To give a few representative figures, thesecompanies account for more than half of the gains in the US stock market so far this year, their combined capitalisation is ten times higher than Spanish GDP and their weighting in the indices is the highest in history.

Clearly, as investors, we cannot ignore the importance of these seven companies —indeed, we are shareholders in some of them in some of our funds— but neither should we forget the existence of all the others. The excessive attention that the largest companies are receiving has meant that a significant part of the market has been completely neglected. This part is full of good businesses which, thanks to this lack of attention, are trading at very attractive valuations that our funds are quick to take advantage of. Precisely, the fourth relevant factor that we would like to highlight is that such a dichotomous context as the current one is particularly favourable for the active value management that we apply at BESTINVER.

Finally, focusing our outlook, the environment remains favourable for equities. Good corporate fundamentals, low private sector indebtedness and reasonable valuations are usually a positive mix for stock markets. In the short term, we do not rule out some slowdown in the economy. But if necessary, for the first time in a decade, central banks can rely on the support of monetary policy to soften the effects of the cycle and help the markets. Another event to monitor due to its potential implications at European level is
the consequences of the electoral process in France. Although our companies have shown a greater capacity to weather periods of uncertainty than their competitors, political uncertainty often generates price movements that we must take advantage of. However, beyond strictly cyclical considerations, the long-term outlook seems clear to us.

Concerning our portfolios, the rotation we explained in previous quarters continues to bear fruit and to expand potentials. During the first half of 2024, funds such as Bestinver Internacional, Bestinfond or Bestinver Norteamérica have achieved cumulative returns of 11.1%, 9.8% y 17.4%, respectively. In fixed income, Bestinver Corto Plazo and Bestinver Renta ended the first half with gains of 1.9% and 2.9%, respectively. As our managers explain in their quarterly newsletters, the quality of the businesses in the portfolio and their valuations should be sufficient for this positive performance to continue over the next few years. In addition to the major headlines that have accompanied us in this half-year, the details we have highlighted in this statement also point in the same direction.

Thank you again for placing your trust in us.

Sincerely,

Mark Giacopazzi.

(1) Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta and Tesla.