July Report

Market review

Global equities delivered mixed returns in July, with style factor rotations creating headwinds for relative performance ahead of late-July earnings releases. Second-quarter results were broadly ahead of expectations, and estimate revisions continued to track above the broader benchmark.

Inflation trends moderated globally. In the US, core PCE inflation was stable at 2.8% year-on-year in June, while consumer spending remained firm, with retail sales ex-autos up 4.6%. The US dollar strengthened 3% over the month as the Federal Reserve’s July meeting was interpreted as hawkish, reducing expectations for near-term rate cuts. In early August, weaker US employment data reversed sentiment, lifting the probability of two potential rate cuts totalling 50 basis points.

Europe showed further improvement, with industrial production up 3.7% year-on-year and services activity outpacing manufacturing. China’s retail sales growth slowed to 4.8%, partially offset by stronger industrial production, while the property sector remained weak. Commodity markets were volatile, with geopolitical tensions offset by increased trade clarity following several bilateral agreements.

Portfolio Commentary

The Fund’s relative performance benefited from holdings in information technology and industrials, while communication services detracted.

• Fujikura, initiated in June, rallied after strong competitor results and improving sentiment towards generative AI infrastructure, supported by its hyperscale data centre investment.
• Nvidia gained on rising wafer demand forecasts and expectations for earnings ahead of consensus.
• Microsoft advanced following a strong quarterly update, with Azure cloud revenue growth accelerating to 39% year-on-year, above guidance and consensus, alongside positive commentary on AI-related demand.

Conversely

• Netflix and Spotify declined despite reporting solid results. Netflix delivered revenue and profit ahead of consensus, while Spotify posted strong subscriber growth but guided to softer advertising and margins. Profits were taken on Spotify early in the month as valuations became extended, with further reductions after results.
• SAP fell following cautious management commentary on contract momentum, which Axiom views as conservative given improved trade conditions post-announcement.

Key portfolio activity included

• Increasing exposure to Broadcom and Nvidia to capitalise on strengthening AI and infrastructure demand. We also increased our weighting to Siemens Energy, which continues to grow ahead of expectations with contract terms increasingly favourable.
• Initiating a position in Oracle, which is emerging as a leading cloud infrastructure provider and partnering with generative AI firms like OpenAI to capture market share in AI-focused cloud workloads.
• Exiting Ameriprise Financial, Chipotle Mexican Grill, Keyence, and Unilever to redeploy into higher-conviction growth ideas.
• Reducing Tradeweb, as improved trade clarity and lower volatility slowed activity in its core fixed income markets.

Two positions, Novartis and Prologis, recently received ESG rating upgrades from MSCI, principally due to Board changes and resulting improvements in governance.

Axiom continues to focus on dynamic growth companies with strong operating fundamentals, particularly in information technology and communication services, the Fund’s largest overweight sectors, while maintaining underweights in financials and consumer staples.