January Report

Global equity markets began the year strongly after some investors took profits at the end of a very strong 2024. Positive investor sentiment was driven by solid December US quarter earnings reports and slowing global inflation, as inflation remained unchanged at 2.8% in the US and 2.7% in the Eurozone. This enabled the European Central Bank to reduce its interest rate by 0.25% to 2.75% and raised hopes the US Federal Reserve would also cut rates further this year.

The Eurozone economy showed signs of modest improvement as composite purchasing managers’ index (PMI) data edged up above the level consistent with economic expansion. Retail sales increased 1.9% year-on-year in November, up slightly from the previous month’s 1.2%.

Government stimulus measures continue to help manufacturing activity expand in China. However, broader Chinese economic data continues to largely disappoint expectations as household spending remains constrained by weak consumer price growth and falling home prices in the highly indebted real estate market.

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

Strong stock performance in communications services and industrials and the overweight position in communication services drove relative returns. However, this was somewhat offset by the overweight position in information technology, the underweight to financials and weaker stock performance in healthcare.

The Fund’s largest contributor to relative returns in January was its overweight position in US-based technology group and Facebook-owner Meta Platforms. It outperformed after announcing stronger than expected fourth quarter revenue, earnings and user numbers. This was driven by robust advertising revenue growth as the company integrates AI into its digital advertising platform.

US-based international streaming and production company Netflix also outperformed after reporting stronger than expected fourth quarter earnings results. The company announced its largest ever inflow of new subscribers, driven by its screening of major live sporting events such as Christmas Day NFL games and the Jake Paul vs Mike Tyson boxing match.

The Fund’s holding in US-based medical device company Boston Scientific also contributed to relative returns in January. Its competitor, Johnson & Johnson, paused the launch of its pulse field ablation catheter due to adverse neurological events. This further cements Boston Scientific as the leader in the field.

The largest detractor from relative returns in January was the Fund’s overweight exposure to the US-based Nvidia, which develops advanced semiconductors. This followed the release of a new AI model by China-based start-up DeepSeek that delivers performance comparable to that of ChatGPT’s model o1. DeepSeek’s claims to have been developed much faster and cheaply using older chips are being treated cautiously. However, it has raised concerns that more efficient AI models may impact the demand for advanced computing power and, hence, the fastest semiconductors. While all four hyperscalers have since raised their AI capital expenditure, guidance which will continue to benefit Nvidia, the Fund reduced its position in the stock.

The Fund’s holding in US-based enterprise software business ServiceNow detracted from relative returns in January. It underperformed after the company reported strong fourth quarter earnings results, but its 2025 guidance was slightly disappointing. Axiom views the profit guidance as too conservative and expects the company to exceed this throughout the current year.

Apple also underperformed after reporting slightly disappointing earnings results following weak iPhone and wearable device sales; Apple revenue was also generally weaker across Greater China.

The Fund reduced its exposure to information technology by 5% in January despite a positive view of AI opportunities. Positions in Nvidia and semiconductor manufacturer TSMC were reduced in light of elevated market risk following the DeepSeek announcement. Apple was also reduced, given the limited upside risk to earnings growth.

Realised funds were reinvested into ServiceNow, which should benefit from rising IT budgets, French luxury goods group Hermès International, which is well positioned for growing demand for luxury goods and US-based entertainment group Live Nation, whose strong concert programme should deliver faster earnings growth than investors currently expect.

The Fund established a position in US-based Morgan Stanley, which is a leading global financial services firm providing investment banking, wealth management, and institutional securities to corporations, governments, and individuals. Its strong position in capital markets will enable it to capitalise on the expected rebound in corporate activity and deliver earnings growth well ahead of consensus expectations.

The Fund also invested in US-based Intuitive Surgical, a leading medical technology company specializing in robotic-assisted surgical devices. It is best known for its da Vinci Surgical System, which enhances precision and control in minimally invasive procedures. The company generates revenue through system sales, recurring instrument and service fees.