At the time of writing, these seven businesses make up just under 35% of the S&P 500 Index and almost a quarter of the FTSE World. We said it in 2024, and we will say it again – these Seven are wonderful businesses BUT when the market is relying on them so heavily and they are all trading at or near record prices our warning lights come on. We saw a tiny blip in Nvidia (the talisman of the Mag 7) shares at the end of August on the back of the Company reporting astonishingly strong results that, nonetheless, did not beat Wall Street’s expectations – if Mr Market can’t be kept happy with quarterly revenue of $46.7 billion (up 56% vs last year), imagine if they really missed their numbers… 

The price of Esk’s accumulation shares was broadly flat over August, as positive underlying performance was diluted by US dollar weakness vs the pound. The ten-year Cable (GBP vs USD) chart makes for interesting reading – what would Trump have to do to get us back to pre-Brexit vote levels?

Our new position in Novo Nordisk has been nothing if not eventful since our initial investment in April this year. In our note last month, we mentioned share price weakness on the back of competition from ‘copycat’ compounded drugs. Shares were subsequently buoyed by the news that competitors Eli Lilly and Viking Therapeutics appear to be falling short of expectations in their oral weight-loss trials. The market seems to be somewhat obsessed with which of these three businesses will “win” the GLP-1 race – we do not see it this way, the medical requirement for these products is so significant and varied that there is room (and a need) for multiple strong suppliers. Novo remains a quality business with exciting growth opportunities ahead.

During August we initiated a new position in Canadian serial acquirer Constellation Software. Constellation is a holding company that specialises in acquiring small, mission-critical software businesses. Under the idiosyncratic leadership of Mark Leonard (it is worth searching a few pictures of him!) Constellation has compounded at a cool 24.5% over the last decade. It is no wonder the famously reclusive Leonard is seen as the Canada’s answer to Warren Buffett by some. Constellation shares had a rare period of share price weakness over the summer, and we have taken this as our opportunity to buy. We funded the purchase by exiting our holding in Chugai Pharmaceutical. Chugai has been a good friend to Esk, returning 72% in the three years that we were shareholders. Shares have been more volatile recently as Chugai also have exposure to GLP-1 via royalties they receive on Lilly’s obesity pill orforglipron – we did not feel that we needed double exposure to GLP-1 volatility and so were happy to re-allocate the capital into Constellation.

Nestle shares have been in slow decline since 2021. Surprise-surprise, lockdown was peak coffee and chocolate (Nestle’s core markets) consumption for humanity! While we note that the company has undoubtedly been dull in recent years and management must do a better job breathing new life into Nestle, we would also argue that caffeine and sugar are wonderful end-markets to be in, particularly in the event that economic conditions do get tougher. Just look at how well Nestle help up in 2008/9 – we are certainly not predicting another GFC, but it does not hurt to have some ballast in case.
 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.