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 delivered mixed results in July as a sharp rotation out of semiconductors and other AI-linked names weighed on the year’s strongest performers, while broader benchmarks held largely flat. Renewed US-Iran tensions lifted oil prices and pushed bond yields higher. A stronger Australian dollar detracted from unhedged returns, as foreign currency exposures translated into lower Australian dollar terms.
In the US, headline benchmarks were little changed, but beneath the surface, semiconductor and other artificial intelligence infrastructure stocks fell materially, marking the sector’s steepest monthly decline in years. Equal-weighted and value-oriented indices outperformed as capital rotated into cyclicals and defensives. Economic data remained resilient, with manufacturing and services surveys improving further and retail sales accelerating. Core inflation moderated, though the June payrolls print undershot expectations.
In Europe, equity markets held up relatively well as the value and cyclical rotation supported the region. Macroeconomic signals were mixed, with German factory orders and retail sales rebounding sharply while UK survey data slipped deeper into contractionary territory and retail spending decelerated. Regional inflation remained close to trend.
In China, equity markets reflected further softness in domestic growth signals, with manufacturing and services surveys slipping into contractionary territory and retail sales and property investment remaining weak. Export activity provided partial support, with industrial production accelerating on continued strength in overseas demand.
Portfolio Commentary
The Fund underperformed the benchmark in July. Information technology and industrials were the largest detracting sectors as strong year-to-date performers came under pressure, partly offset by consumer discretionary. Industrials and information technology remained the largest overweights, with financials and materials the largest non-exclusionary underweights.
Amazon was a leading contributor as strong quarterly results and easing capital expenditure concerns supported the shares, with AWS revenue growth accelerating materially and backlog expansion pointing to further acceleration. JPMorgan Chase also performed well as increased capital markets activity and improving spread-lending dynamics supported its industry-leading franchise.
Conversely, Taiwan Semiconductor Manufacturing was the largest detractor as the sectoral drawdown weighed on the shares, despite management raising 2026 revenue and capital expenditure targets. Fujikura, a Japanese fibre optic cable manufacturer, and ASML, a Dutch semiconductor equipment supplier, also detracted, both against a backdrop of raised guidance and unprecedented demand visibility from customers. The team views this as a middle-cycle correction largely run.
Over the month, sectoral weightings were broadly unchanged. The largest additions were to Kioxia, a Japanese memory chip manufacturer, Keyence, a Japanese provider of machine vision systems, and ASML, reflecting the drawdown, strong results, and expanded capacity commentary, respectively. The largest reductions were to Alphabet, AstraZeneca, and Apple. Alphabet was trimmed on capital spending concerns and slowing advertising growth, though Google Cloud growth accelerated meaningfully. AstraZeneca continued to fund reallocation into Johnson & Johnson and the new Roche position within health care. Apple was reduced further on memory pricing concerns and elevated valuation.
CSX, a US East Coast railroad operator, was initiated on the strength of industrial activity supporting intermodal freight and new management driving operational efficiencies. Roche, a Swiss therapeutics provider, was added following approval of Giredestrant, its oral treatment for HER2-negative breast cancer. Unilever was initiated on accelerating personal and home care growth under new management, trading at a discount to staples peers. Sphere Entertainment, operator of the eponymous Las Vegas venue, offers accelerating monetisation and new licensing deals not reflected in consensus. Meta Platforms was exited as its lack of direct infrastructure monetisation sharpens the AI return-on-investment debate versus peers. Live Nation was exited on continued state-level regulatory scrutiny, with capital rotating into Sphere to preserve live entertainment exposure.
Underlying portfolio dynamics continued to improve. Forward earnings revisions accelerated to +4.8% month over month, well ahead of the benchmark’s +0.9% and the widest gap in recent months, driven by upgrades to hyperscaler cloud infrastructure holdings. Aggregate earnings growth eased on risk management actions but remains well ahead of the benchmark. Valuation compressed to its most attractive level relative to earnings growth in recent memory. The team views the forward landscape as increasingly attractive.
On ESG, no portfolio holding received an MSCI rating change during July. The team engaged with Alphabet following its 2025 Sustainability Report and welcomed progress on infrastructure efficiency, grid modernisation, and carbon-free power sourcing. Engagement with Amazon following its own report was less encouraging, with the absence of data centre-related electricity disclosure a material gap, and the team will press for improved disclosure and quantifiable emissions targets.