August Report

Market Review

Global equity markets advanced across the board in August, with gains recorded in every major region. US equities modestly outperformed international developed markets but trailed Emerging Markets, where South Korean and Taiwanese technology hardware companies rallied on continued optimism around AI infrastructure spending. A weaker US dollar also amplified returns for dollar-denominated Emerging Markets indices.

Materials was the standout sector, lifted by a sharp rise in gold prices. Investor demand for the metal reflected growing concern that the US Federal Reserve may not act decisively to curb inflation, alongside renewed debate around fiscal sustainability and the durability of the US dollar. Canadian equities benefited from the strength in Materials given the market’s heavy resource weighting.

Utilities was the weakest sector, pressured by a rise in government bond yields that reached their highest levels in decades in some markets. The move weighed on rate-sensitive parts of the market and reflected persistent inflation concerns and expectations that policy rates may stay higher for longer than previously anticipated.

Portfolio Commentary

The Portfolio returned 0.9% in August, outperforming the MSCI All Country World Total Return Index (net, AUD), which advanced 0.5%. Positive contributions from Information Technology and Energy supported relative performance, while the absence of exposure to the strongly performing Materials sector detracted.

The Portfolio has maintained a small exposure to software and services companies over the past year, with the team believing that the sharp sell-off in the industry on concerns about AI-related disruption was likely underestimating the competitive advantages and long-term growth potential of its holdings. Those concerns appeared to abate in August, with software and services rising over 13% to become the strongest-performing industry in the market. Adobe, the US-based creative software and digital media company, outperformed after reporting that its AI-related annual recurring revenue had surpassed USD 500 million. Accenture, the global professional services and consulting firm, also rose as investors reassessed the potential for AI-related consulting and services to support the company’s growth.

The sharp fall and subsequent recovery in the industry serves as a reminder of the difficulty of forecasting short-term market movements and reinforces the value of maintaining a diversified portfolio of high-quality businesses with attractive long-term prospects.

During the month, the Portfolio initiated a new position in SK hynix, the South Korean manufacturer of high bandwidth memory (HBM) chips, taking advantage of a pullback in the company’s share price to establish an attractive entry point. SK hynix made an early strategic commitment to HBM, investing ahead of the demand curve in both the technology and the customer partnerships required to co-develop memory chip solutions. That investment has enabled the company to emerge since 2023 as a global leader in HBM and a key supplier to NVIDIA and TSMC. Strong demand and rising prices for AI-related equipment have strengthened SK hynix’s financial position, and the team expects that this demand, combined with disciplined capacity management, leading R&D, and operational excellence, will support structurally higher long-term returns.

Turning to attribution, Samsung Electronics, the South Korean semiconductor and memory chip manufacturer, and Lenovo, the Chinese personal computer and enterprise infrastructure provider, were both key contributors within Information Technology. Lenovo in particular reported growth and margins well ahead of market expectations, with revenues from server and storage hardware more than doubling. In Energy, SLB rose sharply after announcing the acquisition of Kelvion, a thermal management specialist that will strengthen SLB’s growing data centre business.