Morgan Stanley operates as a global financial services company. The firm provides investment banking products and services to its clients and customers including corporations, governments, financial institutions, and individuals. It operates through the following segments: Institutional Securities, Wealth Management, and Investment Management. The Institutional Services segment provides financial advisory, capital-raising services, and related financing services on behalf of institutional investors. The Wealth Management segment offers brokerage and investment advisory services covering various types of investments, including equities, options, futures, foreign currencies, precious metals, fixed-income securities, mutual funds, structured products, alternative investments, unit investment trusts, managed futures, separately managed accounts, and mutual fund asset allocation programs. The Investment Management segment provides equity, fixed income, alternative investments, real estate, and merchant banking strategies. The company was founded by Harold Stanley and Henry S. Morgan in 1924 and is headquartered in New York, NY.
COMMENTARY
Market Review
Global equity markets rebounded in April as easing geopolitical tensions drove a broad recovery in risk appetite across regions and sectors. Generative AI exposed names led the advance, supported by strengthening evidence of accelerating enterprise and consumer adoption and improving returns on investment. A stronger Australian dollar detracted from unhedged returns, as foreign currency exposures translated into relatively lower Australian dollar terms.
In the US, equities advanced as the easing in geopolitical risk drew investors back into growth and technology names. Activity indicators remained resilient, with manufacturing new orders improving and employment trends firming, though inflation pressures intensified as energy costs fed through to industry survey prices paid. Nationwide gasoline prices reached their highest levels since 2022. Communication services and technology stocks were notably strong, supported by upbeat earnings from large platform names and continued momentum in datacenter related demand.
In Europe, the recovery was more uneven, given the region’s heavy dependence on commodity imports. Business surveys and consumer confidence deteriorated further, with German business expectations weakening and UK manufacturing order trends softening. Inflation continued to accelerate on commodity pressures, weighing on the consumer and on activity-sensitive sectors.
In China, equity markets reflected continued divergence between external and domestic drivers. Export activity and industrial production remained firm, while domestic conditions lagged, given ongoing weakness in property investment, declining sales, and subdued consumer activity.
Portfolio Commentary
The Fund outperformed the benchmark in April. Industrials and communication services were the largest contributing sectors, while health care and real estate were modest detractors. The portfolio’s largest overweights remained industrials and information technology, with financials and consumer staples the largest non-exclusionary underweights.
Siemens Energy, the German provider of gas turbines and grid infrastructure, was the leading contributor following strong results and a raised full-year outlook for revenue, margins, and free cash flow, with turbine orders running well ahead of expectations. Fujikura, the Japanese manufacturer of optical fibre and connector products, also performed strongly as industry data and peer earnings supported the thesis, with demand running well ahead of supply. Alphabet rounded out the leading contributors on a strong earnings report, with search growth accelerating and cloud revenue ahead of consensus on recent large customer deal signings.
Conversely, AstraZeneca lagged as health care broadly underperformed during the market rebound, given its defensive characteristics, although management commentary on upcoming trial results remained encouraging. TJX Companies and Hershey also underperformed as high US gasoline prices weighed on consumer sentiment, though both retain limited demand elasticity and incoming retail sales data continues to indicate upside.
The Fund initiated four new positions aligned with structural growth themes. Johnson & Johnson was added on accelerating growth in oncology and immunology and a strengthening pipeline. Advantest, the Japanese leader in semiconductor testing alongside Teradyne, was initiated given the duopolistic industry structure and lengthening testing requirements from Generative AI server ecosystems. ABB, the Swiss leader in building electrification and automation, was added on accelerating order trends linked to global datacenter investment. United Therapeutics, the US-based biopharmaceutical company focused on rare cardiopulmonary conditions, was initiated following positive trial results in idiopathic pulmonary fibrosis. These were funded alongside exits of UCB, Danaher, Intuitive Surgical, and Heidelberg Materials.
The portfolio’s underlying fundamentals remain compelling. Forward earnings revisions accelerated to 4.8% month over month, well ahead of the benchmark’s 2.6%, with 88% of holdings receiving upgrades, a recent relative high. Earnings growth accelerated further and continues to run ahead of the index, while valuation remains attractive relative to the improving growth trajectory.
On ESG, MSCI made no rating changes to portfolio holdings in April. The team followed up with AstraZeneca on Scope 3 emissions tracking and human capital practices, and met with Mitsubishi Estate on the incorporation of quantifiable environmental and employee engagement targets into executive compensation.