In 2021, we saw the majority of economies recover and, consequently, the businesses that underlie them. Since the outbreak of the pandemic in the first quarter of 2020, EDM has focused on reviewing and analysing the companies in which we invest. Our investment style, which is decidedly centred on the long term, requires strong conviction to navigate and weather the short-term tensions of the market. With in-depth knowledge and fundamental analysis of the assets, we are able to obtain excellent returns from our main funds.
The speed of the post-COVID rebound has been unprecedented. The development of vaccines, coupled with swift action from the central banks, has provided the ideal accommodative conditions to move toward normalcy. The process has not been without its complications, however. The emergence of new variants, such as Delta and now Omicron, supply chain disruptions, and the sharp increase in the price of raw materials put volatility and inflation in the spotlight this year. In light of this scenario, we reconfirmed our investment approach. We are aware that, despite price volatility, an assets’ underlying value is not given to volatility and, therefore, tremendous opportunities have arisen due to discrepancies between value and price.
Subsequently, despite the exceptional nature of the moment, our funds have achieved outstanding returns. The three main equity funds—EDM Inversión, EDM Strategy and EDM American Growth—have managed to secure healthy results, allowing for the continuous creation of value and yielding to the magic of compound interest.
Among our key investment decisions is a clear commitment to the digitisation megatrend. With the health crisis accelerating the transformation to a digital world, companies and employees have been forced to adapt at lightening speed. EDM Strategy incorporated Accenture, the world’s top digitisation consulting firm. We also maintain positions in ASML, Dassault Systèmes, and ASMI, patented leaders in innovation and major contributors to the fund in 2021. For its part, EDM American Growth remains committed to technology as a profitable sector. Nvidia, Intuit, Visa, and Microsoft all have business models based on technological innovation, allowing them both pricing power and the ability to maintain a competitive advantage over the competition.
In a rapidly changing environment, another investment decision has been to focus on leading companies in the industrial sector. Supply chain disruptions and sharp hikes in energy prices have revealed the ability of certain exceptional companies to mitigate the impact and continue gaining market share while maintaining margins. EDM Inversión holds significant positions in CIE Automotive, Gestamp, Befesa, and Fluidra, all of which have improved their market positions and recovered (or even increased) margins. Valuations remain very attractive and fundamentals remain intact. With regard to the European fund, EDM Strategy, we added Brenntag, a leading German company in the chemical industry, and we remain committed to companies like Sika. The Swiss manufacturer specialising in next-generation building materials continues to spearhead the market, having positioned itself as a clear leader in the energy transition revolution.
Companies in the pharmaceutical and medical sectors have also contributed very favourably to the profitability of our funds. In the case of EDM Inversión, our investment in Laboratorios Farmacéuticos Rovi has met with success. The agreement with Moderna to manufacture its vaccine for markets outside the United States has helped secure its position in third-party manufacturing, not to mention its powerful Heparin business and R&D developments that will debut in 2022. As for the European fund, we hold positions in Roche and Novo Nordisk. The latter was one of the fund’s largest contributors after the announcement of a new drug to treat obesity. With regard to EDM American Growth, we increased positions in companies like Intuitive Surgical and Danaher, both of which focus on revolutionising the medical world through much more personalised treatments and the integration of cutting-edge technology with traditional medical equipment.
In short, we closed a volatile year inundated with headlines that appeared to hinder the already arduous task of active management. We are confident that there is no better way to create value than to invest in quality businesses led by outstanding management teams that ensure healthy balance sheets and elevated cash flows. We expect that the investment decisions made this year will provide our funds with the balance needed to keep outperforming the market, which, doubtless, will continue to test us.
