Donville Kent Asset Management March 2026 Commentary

Market Overview - The current market is experiencing volatility due to geopolitical tensions, particularly the Middle East conflict, which has led to a pause in anticipated interest rate cuts by G10 central banks as higher oil prices are expected to boost inflation [3][16] - The stock market is in a "shakeout phase," similar to past geopolitical events, where initial reactions lead to broad sell-offs before more discerning evaluations occur [6][8] Investment Strategy - The company emphasizes a concentrated portfolio approach, focusing on in-depth understanding of individual businesses rather than macro forecasting, which allows for confidence in forward earnings despite market volatility [4][28] - The company believes that many of its largest investments are on track for record financial performance in 2026, with expected revenue growth of 52% and earnings growth of 63% [73] Company-Specific Insights - GoEasy (GSY) was sold after discovering legal issues affecting its subsidiary, highlighting the importance of due diligence in investment decisions [35] - Propel (PRL) reduced its weighting due to concerns over government shutdown impacts, with a focus on future performance recovery [36] - Constellation Software (CSU) faced challenges in modeling its value due to changes in its acquisition strategy and the complexity of its diverse portfolio [42] Economic Factors - The company notes that rising oil prices act as a tax hike for consumers, impacting overall spending and inflation, which in turn affects monetary policy [15][16] - The M2 money supply growth has slowed significantly from COVID-era levels, which may influence future economic conditions [17] Sector Performance - The technology sector, particularly large-cap companies like Amazon, Microsoft, and Alphabet, is expected to see significant capital expenditure aligned with projected net income, indicating strong growth potential [20] - Small-cap stocks are viewed as having a favorable risk-reward profile, with expected earnings growth compensating for liquidity risks [73] Future Outlook - The company is optimistic about the potential for significant upside in its investments, particularly in small-cap stocks, as they are currently at their cheapest levels in over three decades [71][76] - The anticipated growth in sectors such as AI, semiconductors, and energy is expected to drive earnings growth, with a projected increase in company free cash flow by 9% due to tax benefits from new legislation [23][49]