In the first quarter of the year, Delphi recorded a slight decline. After a positive start in January, February had a small decline and March followed with a steeper one. The portfolio’s performance during this period was directly impacted by declines in global markets amidst the conflict with Iran and the rise in oil prices. During April, we observed a significant recovery in the stock prices within our portfolio; however, short-term volatility may persist as geopolitical developments in the Persian Gulf continue to influence market sentiment. Alongside this, it is important to emphasize: the business operations of the companies in which we are invested continue to grow consistently.
The War’s Impact on the Energy Market and Global Economy
The war in Iran led to the blockage of the Strait of Hormuz to shipping traffic, consequently driving up oil prices. The closure of the Strait has a greater impact on Eastern nations, such as China and Japan. The U.S. economy is energy-independent thanks to the shale industry; therefore, oil prices in the U.S. rose at a lower rate compared to the rest of the world. Consequently, it appears that oil shortages will harm the economies of the East and Europe more than the U.S.
Since it is difficult to predict the duration of the fighting and its direct impact on energy prices, we are focusing on companies with exceptional financial resilience. These companies enjoy high survivability even during periods of economic slowdown and continue to grow their profits regardless of market fluctuations. We are confident that in the medium to long term, the real growth in corporate earnings is what will dictate their value and generate excess returns for Delphi investors.
Looking Ahead: The Changing Face of Warfare and Technological Opportunities
Recent wars in Israel and Ukraine illustrate that the fundamental nature of combat is changing. We are seeing a sharp shift toward the use of “smart” tools operated remotely, significantly increasing the demand for autonomous capabilities, real-time data processing, and high computing power installed directly on combat vehicles (such as UAVs and guided missiles). We identify a significant growth opportunity in this trend and are seeking technology companies poised to benefit from these changes.
Summary
We continue to manage the portfolio with a long-term perspective, focusing on established companies in growth sectors. The cash-generation capabilities of the companies in our portfolio are not directly dependent on energy prices, the inflationary environment, or interest rates. We believe this strategy is the key to achieving proper returns over time, even in the face of background noise and temporary volatility.