We have made a couple of small changes in the portfolio and exited two names where we believe there might be stock-specific issues in the coming quarters. We are finding a few exciting new opportunities within the universe and stay positive on the long-term fundamentals. It is important to keep a blended portfolio as volatility continues to persist. We expect the market to favour strong balance sheet companies, especially if growth slows and credit spreads widens. As previously mentioned, we continue to focus on companies with pricing power and strong balance sheets.
Based on our 2024 estimates, investors should find a compelling entry point as the theme is better positioned than in 2008 and 2011-13 corrections, with better balance sheet (1.1x ND/EBITDA vs 3.0x in 2008), higher margin and cash conversion. Dividend yield has increased over time and has often been topped up with buy-backs. The sector provides value creation above cost of capital and currently trades at 14 years of cash flow for a perpetual story. As compared to long-term trends, we currently see a c. 20% discount to historical forward valuation, which compensates for the earnings risk in case of potential economic slowdown. As a reminder, one of the key factors of the theme is earnings persistence.
Past performance is not necessarily a guide to future performance. The value of an investment can go down as well as up as a result of market fluctuations, and currency fluctuations (where relevant), and investors may not get back the amount invested. The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies, and/or current market conditions and are not an exact indicator. What you will get will vary depending on how the market performs and how long you keep the investment/product.