Although markets were higher overall in June, these gains are increasingly concentrated in a small number of very large companies; on an equal weighted basis, the S&P500 was down 3% during Q2. Inflationary pressures eased slightly, and we expect a healthy progression for consumer company gross margins during the reporting season later this month. 

June is always a quiet month for company reporting, but often a busy period for conferences and company events. We attended the Deutsche Bank consumer conference in Paris, an event that brings together 100 companies and 400+ investors over 3 days. Whilst the primary purpose of the event is to discuss longer-term themes and strategies, it can also be an event where companies make informal comments on trading through the first half of the year. One of the most positive updates came from Heineken, whose business in Vietnam has started to improve after a difficult 12 months. It is one of Heineken's strongest emerging market businesses (dominant market share; highly profitable), so the improvement is a clear positive. With its European business also performing well, ahead of the Euro 2024 football and the Olympics, Heineken is likely to report H1 results next moth that shows growth well ahead of its current full-year guidance.

In contrast to the strong performance from Heineken, the updates from the spirits industry were more downbeat. Diageo and Pernod (neither of which are in our portfolio) both said that growth in the important US market continues to run below its long-term rate, a trend that has continued for the last 12-18 months. Brown Forman confirmed a similar picture at its FY results, guiding to only modest growth for the current year. Howver, these shorter-term concerns on trading have now driven the Brown Forman valuation down to a level that is c30% below its long-term average, which we believe has created an excellent opportunity. The company's admirable long-term record, where growth has averaged 6% pa for most of the last 7 decades, suggests that the current slowdown is only temporary. We see an acceleration in sales growth, together with improving margins (supported by lower agave costs for tequila), as likely to drive both improvements in both free cash flow and the valuation. Lower agave costs should have a marked impact at Becle, whose Jose Cuervo brand is also benefiting from the tailwinds driving the US tequila category.

Elsewhere, we also attended the Capital Markets day at Beiersdorf, now the portfolio's largest (active) position. Since Vincent Warnery became CEO 3 years ago, the company has been delivering above average sales growth with healthy margin expansion, and we believe that is likely to continue for the medium-term. A management team with renewed focus on its 3 core (and iconic) brands - Nivea; Eucerin; La Prairie - is driving strong share gains, with both increased advertising and product innovation supporting that growth. Although the share price closed modestly lower over the month (on no 'new news' at the event), we see a considerable medium-term opportunity for the business. The share price should also be supported by the first dividend increase for over a decade, as well as its first share buy-back.

Progress in our Asian beauty holdings had a setabck at the end of the month following some cautious comments from the L'Oreal CEO on current trading in China. We believe this is generally well known and likely to be just a shorter-term issue, and also overlooks the progress some of the key brands are making in other important markets. Most notably, trading in Japan is not only strong but also accelerating, with domestic consumption now being supported by the growth in tourism, no doubt attracted to the country by the recent weakness in the Yen. Our Korean businesses are also seeing strong export growth to the US which, along with progress in Europe, is helping to offset the modest decline in China.

The top 3 contributors in the month were Unilever, Jamieson Wellness and Becle. The top 3 detractors were Amorepacific, LG Health and Household and Beiersdorf.