LTGG Reflections: materiality

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If we had similarly hibernated during the first few months of 2025 to wake in May, we wouldn’t have heard about the United States’ jaw-dropping 145 per cent tariff on Chinese imports or China’s 125 per cent retaliation, which had only fleetingly dominated media headlines before being withdrawn. We also wouldn’t have noticed that, at one point during our hibernation, Amazon’s share price had dropped by 20 per cent or NVIDIA’s had plummeted by over 30 per cent, because both had largely recovered to their start-of-year prices by the time we rolled out of bed. We wouldn’t have realised that the Long Term Global Growth portfolio’s performance year-to-date was negative in absolute and relative terms to end April, because by end May it had turned robustly positive on both fronts. Most of the headlines that once were at the centre of conversations would have since moved to their edges, replaced by newer arrivals. 

In summary, we probably would have woken up feeling rather optimistic. After all, portfolio fundamentals are looking in characteristically robust shape. And the upside-down world of stock markets presents us with a rich idea pipeline of exciting growth companies with outlier potential. 

Hopefully this goes without saying, but for the avoidance of any doubt, be assured that the LTGG Team has not been asleep throughout the recent period of market tumult. Instead, while the constant cacophony of news rages around us, attempting to cajole us into making snap decisions, we have been quietly studious. As ever, we have been asking ourselves the most crucial of questions: What might be material to portfolio holdings over our five-to-10-year investment horizon, versus what is simply noise?

In response to this question, and based on our analysis, we retain conviction in the deep multi-decade transitions that many companies in the LTGG portfolio are pioneering – from electrification to ecommerce to artificial intelligence and more. We also note that the tariffs introduced since the start of the year pertain to physical goods, which exclude a large swathe of the portfolio in digital services (around 40 per cent by weight). Moreover, our upside cases for much of the rest of the portfolio do not rely on cross-border US trade; examples include the likes of MercadoLibre in Latin America and Kweichow Moutai in China. Meanwhile, Amazon, which we identified as being among the more exposed to tariffs, appears resilient even in our bear-case scenario, thanks to its scale and other segments, notably the (highly profitable) AWS cloud servicing business. 

As a result of our assessment, we have eschewed kneejerk reactions and, as of end May, made no drastic changes to the portfolio since early April’s ‘Liberation Day’. In fact, the greatest portfolio decision we’ve taken is to hold on. This is deceptively simple. Our decision to hold hinges on our ongoing fundamental research, our long-term investment horizon, and – by the same token – ensuring we don’t succumb to short-termism. Such hold discipline is a crucial component of LTGG’s ability to generate long-term returns for our clients.

There are inevitably some exceptions. One relatively minor change we’ve made since early April has been to reduce our holding in Shopify from over 3 per cent to c. 2 per cent, as its range of possible outcomes appears to have expanded unfavourably due to trade tensions while its valuation has remained punchy. Nonetheless, while Shopify has delivered around a six-fold return in absolute share price terms since our initial investment six years ago in 2019, it remains in the portfolio because we believe there is still further runway from here. 

Frankly, for most holdings in the portfolio, we believe there are other issues beyond tariffs that are potentially far more material over our investment horizon. For example:

• Can ecommerce company Coupang increase its penetration of the South Korean retail market while improving margins and expanding in Taiwan and beyond? 
• Can Dexcom execute on the over-the-counter market opportunity for its health monitoring devices to unlock substantially more growth? 
• Can Tencent meaningfully increase the monetisation of its 1.3 billion regular users of its WeChat app in China through advertising, without harming the user experience? 

We believe these companies are progressing well against our investment theses and we therefore recycled proceeds from our Shopify reduction to add to these holdings.

We may of course be wrong on all these fronts. Perhaps we shouldn’t have trimmed Shopify when we did, if it transpires that the headwinds we’ve identified prove immaterial to its growth trajectory. Or perhaps our relatively minor changes to the portfolio will prove too tame if headwinds become far more material than anticipated. Time will tell. At the end of the day, materiality is a matter of judgment. We can accept failures in our judgment; that’s the nature of stock-picking. We cannot, however, accept failures in our process. This is why we continue to assess materiality through the lens of our 10-Question Stock Research Framework, which we apply to every company on a pre-buy and post-buy basis. 

Meanwhile, we continue to research a plethora of new ideas, some of which appear all the more attractive where share prices have become dislocated from company fundamentals. Questions that could really move the dial in our upside scenarios for such ideas include, for instance: 

• Can the space company Rocket Lab expand its rocket line-up to unlock new growth opportunities without overstretching its finances? 
• Could the adoption of AI agents materially enhance the prospects for enterprise software company ServiceNow? 
• For Zealand Pharma (a Danish company specialised in the design of a peptide-based treatment for weight loss), what strategic moves would it need to make on its route to commercialisation in the shadow of very large incumbents?

Back to the bat. If the noisy news didn’t wake it from its hibernation, then what did? Temperature change is thought to be the leading determinant of hibernation periods. It so happens that the year 2024 was the warmest year ever recorded in human history. This leads us to another potentially material issue for many companies in the portfolio over the coming decade and beyond: climate change.

Climate change matters for the likes of Moutai, whose production of premium liquor hinges entirely on one river basin in China. It matters for NVIDIA, which has acknowledged that physical climate risk is a material concern for its supply chain. It also matters to Rivian and CATL, whose business models are predicated on the societal shift to a low-carbon future. The list goes on. 

We therefore seek to better understand LTGG companies’ resilience and adaptability to climate change. We are also undertaking a review of LTGG’s 2021 climate ambitions and commitments ahead of their five-year anniversary. For more information on this and other potentially material societal issues, please see our newly released LTGG Stewardship Report and LTGG TCFD Report. 

Looking to the future, there will be more twists and turns in politics and macroeconomics. Headlines will revel in the inevitable stock market tumult. For us, however, we will continue to ask ourselves what, if anything, may materially enhance or erode our long-term upside cases for the companies in the LTGG portfolio. The rest is irrelevant.

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