During the quarter we initiated positions in S&P Global (SPGI, Financial). SPGI has several unique assets that benefit from a couple of strong secular trends that should drive attractive double-digit earnings growth. S&P’s ratings business is in a virtual duopoly and should be a long-term beneficiary of perpetually low interest rates. Low rates and active central bank purchases of corporate debt should help debt issuance trends remain robust even in a lower-GDP-growth environment. In addition, we think the ratings business still has room to scale and drive margin expansion. S&P’s Market Intelligence is a low-price information service offering, growing user base at a double-digit clip as it breaks into non-financial industry verticals. S&P Indices segment is highly profitable due to very little overhead and continues to grow along with passive asset under management equity flows, especially into ETFs. We expect S&P will grow revenues in a mid-to-high single digit range, and possibly faster if global capital markets continue to expand, thanks to routine central bank intervention. The Company also has room to leverage its expense structure by taking higher pricing in its market-dominant ratings business and Indices segments. We started portfolios with a half position and look to increase our weighting if valuation reverts closer to historical averages.
From David Rolfe (Trades, Portfolio)'s Wedgewood Funds fourth-quarter 2019 shareholder letter.
