Tencent Holdings Ltd. provides value-added services, online advertising services, and fintech and business services. It operates through the following segments: Value-Added Services, FinTech and Business Services, Online Advertising, and Others. The Value-Added Services segment is involved in online and mobile games, community value-added services, and applications across various Internet and mobile platforms. The FinTech and Business Services segment offers fintech and cloud services, which include commissions from payment, wealth management and other services. The Online Advertising segment refers to the display based and performance-based advertisements. The Other segment is composed of trademark licensing, software development services, software sales, and other services. The company was founded by Yi Dan Chen, Hua Teng Ma, Chen Ye Xu, Li Qing Zeng, and Zhi Dong Zhang on November 11, 1998, and is headquartered in Shenzhen, China.
COMMENTARY
Market Review
Global equity markets sold off sharply in March as a regional conflict in the Middle East sent shockwaves through commodity and financial markets. US and Israeli airstrikes at the end of February triggered a rapid escalation that closed the Strait of Hormuz, one of the world’s most critical oil transit routes, and severely disrupted energy supply chains. Oil prices surged, lifting Energy to the only positive sector performance during the month.
The spike in energy costs weighed heavily on the broader market. Materials, Industrials, Real Estate, and Consumer sectors all declined as investors priced in the prospect of compressed corporate margins and weaker consumer spending. Higher input costs posed a particular challenge for capital-intensive industries, while consumer-facing businesses faced the dual headwind of rising costs and potential demand destruction.
Regional performance diverged notably. US equities recorded the smallest decline among major regions, while Emerging Markets fared worst, dragged lower by heavy selling in Taiwan and South Korea. Shares of companies across the AI semiconductor supply chain fell as the conflict threatened to disrupt supplies of key manufacturing materials such as helium. The concentration of advanced chip fabrication in the region left these markets particularly exposed to the disruption, amplifying broader concerns around supply chain resilience at a time when demand for AI-related hardware remained elevated.
Portfolio Commentary
The conflict in the Middle East brings two important considerations into focus for the portfolio: the value of diversification and the importance of investing in financially strong companies. With the path of the war and its economic consequences still uncertain, a pressing question is which businesses are positioned to withstand a broad range of outcomes.
Rising raw materials costs, weaker consumer demand, and tighter financial conditions would not affect all companies equally. Financial strength, one dimension of business quality, helps determine which can absorb those pressures while continuing to invest and grow. Companies that fund operations through internally generated cash flow, rather than relying on accommodative credit markets, are better placed in such environments. Those with durable competitive advantages tend to gain share from weaker rivals over time, particularly during periods of disruption. Conservative leverage preserves flexibility to pursue opportunities such as acquisitions and maintains a margin of safety if conditions deteriorate.
Whenever the world appears to change, it can create the expectation that the portfolio should change with it. The purpose of active portfolio management, however, is not to react to every event as it occurs. It is to position the portfolio for long-term structural change, whether that be the world’s evolving infrastructure needs or the type of economic disruption that might stem from a prolonged energy shock.
One such company purchased during the month is nVent Electric, a US-based business specialising in the design, manufacture, and installation of high-performance electrical connection and enclosure products. The company holds the leading position in enclosures in North America and is a global leader in a wide variety of other electrical products, including surge protection systems. nVent has increasingly focused on large-scale, high-growth areas including data centres, utilities, and industrial electrification. The company generates strong free cash flow, and its growing exposure to AI-driven data centre demand through liquid cooling solutions provides an additional source of growth.
Turning to attribution, Samsung Electronics, the South Korean semiconductor and memory chip manufacturer, was the largest detractor as shares fell on concerns that the conflict would disrupt supplies of manufacturing materials. In contrast, Diploma, a UK-based global distributor of specialised technical products and services, was a positive contributor after the company raised its 2026 guidance on the back of strong demand at its Peerless aerospace unit.
In Healthcare, Chugai Pharmaceutical, the Japanese biopharmaceutical company, declined after its parent company, Roche, stopped clinical development of its drug candidate emugrobart for two muscle diseases. While disappointing, the position reflects the portfolio’s broader exposure to Chugai’s deep pipeline and strong competitive position within the Japanese healthcare market.