May Report

• Global equity markets bounced back in May upon growing hopes that inflation will ease enough to allow central banks across major developed economies to begin cutting interest rates later this year.
• Corporate earnings continue to hold up well, especially those growing profits and cash flows from the adoption of generative AI technologies.
• The Portfolio returned +4.7% in May, while the benchmark returned +3.6%, as currency hedging protected the Fund from the impact of the stronger Australian dollar.

Top Holdings (alphabetically)

Alphabet Inc

United States

Communication Services

Alphabet Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

Amazon.com Inc

United States

Consumer Discretionary

Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.

ASML Holding NV

Netherlands

Information Technology

ASML Holding N.V. develops, produces, and markets semiconductor manufacturing equipment, specifically machines for the production of chips through lithography. The Company services clients worldwide.

Eli Lilly & Co

United States

Health Care

Eli Lilly and Company discovers, develops, manufactures, and sells pharmaceutical products for humans and animals. The Company products are sold in countries around the world. Eli Lilly products include neuroscience, endocrine, anti-infectives, cardiovascular agents, oncology, and animal health products.

Meta Platforms Inc

United States

Communication Services

Meta Platforms, Inc. operates as a social technology company. The Company builds applications and technologies that help people connect, find communities, and grow businesses. Meta Platform is also involved in advertisements, augmented, and virtual reality.

Microsoft Corp

United States

Information Technology

Microsoft Corporation develops, manufactures, licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops video game consoles and digital music entertainment devices.

Novo Nordisk A/S

Denmark

Health Care

Novo Nordisk A/S develops, produces, and markets pharmaceutical products. The Company focuses on diabetes care and offers insulin delivery systems and other diabetes products. Novo Nordisk also works in areas such as haemostatis management, growth disorders, and hormone replacement therapy. The Company offers educational and training materials. Novo Nordisk markets worldwide.

NVIDIA Corp

United States

Information Technology

NVIDIA Corporation designs, develops, and markets three dimensional (3D) graphics processors and related software. The Company offers products that provides interactive 3D graphics to the mainstream personal computer market.

Taiwan Semiconductor Manufactu

United States

Information Technology

Taiwan Semiconductor Manufacturing Company, Ltd. manufactures and markets integrated circuits. The Company provides the following services: wafer manufacturing, wafer probing, assembly and testing, mask production, and design services. TSMC's ICs are used in computer, communication, consumer electronics, automotive, and industrial equipment industries.

Visa Inc

United States

Financials

Visa Inc. operates a retail electronic payments network and manages global financial services. The Company also offers global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities.

May saw the global equity market resume the upward growth trajectory that it has followed over much of this year. Share prices were boosted by signs that global inflation continues to ease around the world, raising hopes that this will enable central banks to begin reducing interest rates later this year. Gains in technology stocks aligned to AI innovation provided further support to market returns.

US Core PCE inflation – a metric closely watched by the Federal Reserve – remained unchanged at 2.8% in April. Expectations that cooling inflation will bring lower interest rates pushed the US dollar 1.5% lower relative to a basket of its main trading partners’ currencies. The US consumer remains resilient, with retail sales (excluding autos and fuel) growing 4.0% in April, which was slightly slower than in March.

Meanwhile, Eurozone April retail sales were unchanged year-on-year, having grown 0.7% in the 12 months to March. This supported expectations that the European Central Bank will cut interest rates in June, despite inflation edging up in May.

Manufacturing activity in China continues to expand in response to government stimulus measures. However, consumer spending remains weak, held back by the highly indebted residential property market.

Growth stocks outperformed value in May by over 2.5% as interest rate expectations moderated and technology stocks outperformed. The Fund’s growth orientation helped it to outperform the benchmark.

The Fund continues to overweight information technology, communications services and consumer discretionary, while underweighting financials, energy and materials.

The Fund benefitted from strong stock selection in consumer discretionary and communications services and the overweight position in information technology. This was somewhat offset by weaker stock selection within information technology and the overweight position in consumer discretionary.

The Fund’s strongest contributor to relative returns in May was its overweight position in Nvidia, the world’s leading developer of graphics processing units. It continued to rally after reporting stronger than expected first  quarter revenue and earnings. It also upgraded its forward guidance as the growth in data centres, which support AI innovation, continued to outpace expectations.

Taiwan-based semiconductor manufacturer TSMC also continued to outperform following the earnings announcement by Nvidia, a key customer. Strong monthly sales reports which exceeded investor expectations further boosted investor sentiment.

Japan-based international department store chain Isetan Mitsukoshi reported better than expected first quarter earnings results. It benefited from strong demand for big-ticket luxury goods and clothing from both Japanese and international customers. The Fund Manager tracks bi-monthly department stores sales data, which continues to trend upwards, supporting its earnings forecast which remains far ahead of company guidance and investor expectations.

US cloud-based document database provider Mongo DB was the largest detractor from relative returns in May. It underperformed after reporting disappointing earnings and forward guidance after customer spending and new business wins slowed.

The Fund’s large position in US-based enterprise software company ServiceNow underperformed after weaker-than-expected earnings results and guidance from large-cap software companies Salesforce.com and Workday. The manager is confident that ServiceNow is one of the best positioned software companies to benefit from AI adoption.

The Fund’s underweight position in US-based global technology group Apple detracted from relative returns after the stock began to outperform, following a period of underperformance. iPhone sales volumes increased in China after prices were reduced.

The Fund increased its exposure to Apple in May as a result and also continued to build its positions in Isetan Mitsukoshi and US-based provider of critical infrastructure for data centres and communication networks, Vertiv.

The Fund reduced its exposure to software companies MongoDB, ServiceNow and Adobe in May. The Fund Manager’s analysis of forward data points revealed a trend across the sector of enterprise customers beginning to manage their technology budgets more carefully as AI innovation is prioritised.