Market Commentary - March 2024

The first quarter of 2024 was a pretty good period for the stock market. However, Q1, especially in the US, showed a slightly more stubborn inflation than hoped for. The trend is definitely in the right direction, but inflation has come in higher than the Fed's expectations. This has led to more cautious statements regarding future cuts. From expecting a cut as early as March, the market is now pricing in a first cut in July, with a reasonably high probability of a cut as early as June. Incoming data will be decisive for when cuts become reality. Interest rate cuts are usually positive for the stock market and definitely for the smaller growth companies.

Augmented Reality Fund

On the positive side, the holding in Micron stood out with a return of +23.9% in March. This American company, a global leader in memory chips, has benefitted from the surge in AI demand, supporting the necessary hardware infrastructure that includes Nvidia as one of its major customers. Micron's memory chips play an essential role in Nvidia's GPUs, and the company reports strong demand, with some chip models currently sold out. Additionally, Micron’s memory chips are central to finished products like AR glasses, and the company is now positioned to potentially raise prices and improve margins as a result.

On the downside, Adobe was the fund's worst-performing holding, with a return of -11.6%. Adobe experienced a strong year in 2023, becoming the fund’s second-largest holding at over 6.2% in early November. At that time, I indicated in the monthly letter that I planned to secure some profits in the stock, as its valuation had become challenging. Today, Adobe represents 3.7% of the fund. Most of the decline in March followed the release of Adobe’s quarterly report, which included a slightly lower-than-expected forecast.

eSports Fund

The Swedish media company Media and Games Invest had a strong performance following the release of its quarterly report at the end of February, which highlighted impressive organic growth and the acquisition of numerous new clients. Additionally, there is a trend of existing clients beginning to increase their advertising budgets again. As a result, the stock rose by +43% in March. Another positive contributor was Huya, the Chinese streaming giant, which also reported solid performance and saw its stock increase by +21% during the month. The report noted that cost-saving measures are proving effective, with sales exceeding expectations.

On the downside, Corsair Gaming was one of the largest detractors, with a return of -5% for the month. The American company, which focuses primarily on gaming accessories such as keyboards and headphones, is directly impacted by the state of the PC market. In 2023, the PC market declined by approximately 15%, but there is now a general belief that the market has bottomed out, with cautious growth starting to reappear.

Space Fund

The top-performing holding for the month was Velo3D, which gained +80.6%. This 3D printing company has one of the clearest connections to the space sector. While the stock faced challenges in 2023, it has recently trended positively, benefiting from cost reductions and an influx of new orders. The 3D printing sector has also seen numerous acquisitions, a trend that could be beneficial. However, Velo3D remains a high-risk stock with a balance sheet that leaves room for improvement, and there is a significant likelihood of needing additional capital. For this reason, the holding remains relatively small in the fund at 2.62%.

Another strong performer was Redwire, which increased by +42.1% in March and is now among the top five holdings. This American company exclusively focuses on components for the space sector, making it a true space-focused business. Most of the increase occurred after the release of its quarterly report, which featured better-than-expected sales and profits.

On the downside, several holdings posted losses around -10% for the month. One notable example is Rocket Lab, the fund’s largest holding, which declined by -9.5%, thereby having the largest negative impact. News surrounding the company was relatively quiet this month as it prepares for its next Electron rocket launches in April. Rocket Lab is also working on developing its new rocket, Neutron, with a first launch anticipated later this year. In 2023, Rocket Lab achieved its first profitable year for rocket launches. Given Rocket Lab’s growth potential, I believe its valuation remains relatively low. Rocket Lab stands as the second-largest rocket company after Elon Musk's SpaceX, which is not publicly listed but is valued at approximately twice Rocket Lab’s valuation.