Investment letters

With high inflation being compounded by the fastest rise in interest rates in nearly 40 years¹ and increased investor risk aversion, capital markets have changed radically over the past year. Growth stocks have been particularly vulnerable as the market deteriorated. As a quality growth investor this has also hurt Comgest’s portfolios; however, our long-term investment approach and 38 years of experience have reinforced our belief in our quality growth stocks.

Despite the above headwinds, many of Comgest’s portfolio companies have been able to raise prices without a loss in demand or profitability, thus shielding shareholders from inflation. In our view, the high profitability, strong free cash flow and sound balance sheets that we seek in quality growth companies are the fundamentals that make the difference in such an environment. In contrast to many companies that have had to scale down their growth ambitions, our portfolio companies continue to grow unperturbed by the sudden rise in cost of capital and volatility of capital markets. The compound growth of our holdings has always been the basis for their long-term performance. This is what could become the differentiating factor in 2023 following the severe valuation contraction that affected 2022 performance.

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¹ Sahadi, Jeanne. What rising interest rates mean for you, CNN, 2-Nov-2022.