Monthly Report

1. Global stocks delivered their strongest monthly gains in July for almost two years, partially reversing the market falls seen during the first half of 2022.
2. Information Technology was the best-performing sector, and the US was the best-performing region. This reflected strong investor interest in fast-growing businesses and the potential slowdown in the pace of US Federal Reserve interest rate increases.
3. In July, the Portfolio returned 7.6%, outperforming the MSCI All Country World Total Return Index by 1.2%.

Top Holdings (alphabetically)

Alphabet Inc

United States

Communication Services

Alphabet Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

Amazon

United States

Consumer Discretionary

Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.

AMETEK Inc

United States

Industrials

AMETEK, Inc. is a global manufacturer of electronic instruments and electromechanical devices. The Company manufactures advanced instruments for process, aerospace, power, and industrial markets and is a supplier of electrical interconnects, specialty metals, technical motors and systems, and floor care and specialty motors.

Deere & Co

United States

Industrials

Deere & Company manufactures and distributes a range of agricultural, construction, forestry, and commercial and consumer equipment. The Company supplies replacement parts for its own products and for those of other manufacturers. Deere also provides product and parts financing services. Deere and Company extends its services and products worldwide.

First Republic Bank

United States

Financials

First Republic Bank and its subsidiaries provide private banking, private business banking and private wealth management in urban, coastal markets in the U.S. First Republic delivers relationship-based service by providing a single point of contact for all of its services.

Microsoft

United States

Information Technology

Microsoft Corporation develops, manufactures, licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops video game consoles and digital music entertainment devices.

Schneider Electric SE

France

Industrials

Schneider Electric SE manufactures electrical power products. The Company offers car chargers, home security goods, light switches, access control, sensors, valves, circuit breakers, cables, accessories, signaling devices, fuse, motor starters, and voltage transformers. Schneider Electric serves customers worldwide.

SVB Financial Group

United States

Financials

SVB Financial Group is the holding company for Silicon Valley Bank. The Bank is a commercial bank that serves emerging growth and middle-market growth companies in targeted niches, focusing on the technology and life sciences industries. Silicon Valley operates offices throughout the Silicon Valley and other areas of California, as well as in other states.

UnitedHealth Group Inc

United States

Health Care

UnitedHealth Group Incorporated owns and manages organized health systems. The Company provides employers products and resources to plan and administer employee benefit programs. UnitedHealth serves customers in the United States.

Vertex Pharmaceuticals Inc

United States

Health Care

Vertex Pharmaceuticals Incorporated discovers, develops, and commercializes pharmaceutical products. The Company develops drugs for the treatment of cystic fibrosis, cancer, inflammatory bowel, autoimmune disease, and neurological disorders. Vertex Pharmaceuticals serves healthcare sector worldwide.

Market Review 

Global stocks delivered their strongest monthly gains in July for almost two years, partially reversing the market falls seen during the first half of 2022. Investors responded positively to company earnings reports and forward guidance, much of which was better than had been expected.

The slowing economic environment was reflected in second quarter corporate earnings results, but many businesses are still reporting resilient demand.

The US Federal Reserve hiked interest rates by 0.75% to 2.50% at its July meeting. However, it also acknowledged the slowdown in economic growth and suggested it may slow the pace of further rate increases.

This more positive commentary coincided with the release of strong earnings results from many technology companies. This sent share prices of growth stocks – which had fallen steeply in value over the first half of 2022 – soaring.

Commodity prices generally fell as fears of a slowdown increased. The one notable exception was natural gas, whose price rose nearly 50% in July as heat waves across the northern hemisphere led to a spike in demand.

Information Technology was the best-performing sector, and the US was the best performing region. This reflected strong investor interest in fast-growing businesses and the potential slowdown in the pace of Federal Reserve interest rate increases.

Communication Services, Health Care, and Materials were the worst-performing sectors in July. Emerging Markets was the worst-performing region, dragged down by Chinese stocks which were impacted by a rapidly deteriorating real estate market. Declining home sales led to stalled development projects, property developer defaults, and frustrated homeowners threatening to stop paying mortgages on unfinished homes.

Portfolio Commentary

In this challenging environment for growth stocks, we are especially focused on distinguishing between the short-term performance of stocks and the long-term performance of companies.

A good example is Netflix, which has been through a challenging period of short-term performance due to declining subscriber growth. However, Netflix’s most recent earnings report offers reasons to be optimistic about the company’s long-term prospects.

Netflix announced it lost vastly fewer subscribers than expected in the most recent quarter and guided for a return to growth next quarter. The company also plans to spend less on content, resulting in an estimated $1 billion in additional free cash flow this year. Although challenges remain, Netflix shares appear to offer sustainable growth at a reasonable price.

The portfolio’s recent additions in the Industrials sector were among the best-performing stocks. French energy systems manufacturer Schneider Electric and US-based industrial automation solutions company Rockwell Automation rebounded from earlier declines, aided by better-than-expected earnings reports.

Synopsys, a key provider of software used to design computer chips, saw its share price increase. The company offers its products mainly on a non-cancellable subscription basis, which helps isolate it from cyclical downturns.

Many Emerging Markets companies outside China performed well; India’s HDFC Bank outperformed after the company reported strong new deposit and fee income growth.

Chinese property management company Country Garden Services underperformed in July on concerns that the rapidly deteriorating Chinese real estate market would lead to slower earnings growth. However, Country Garden retains a capital light, net cash balance sheet, and continues to service tens of thousands of residents across its contracted properties. Industry risks and slowing growth are now fully reflected in the company’s market valuation. Wider restructuring across the broader Chinese real estate industry is expected to bring a return to stronger earnings growth.

Upcoming fully franked quarterly dividend

In line with PIA’s objective to provide shareholders with capital growth from investing in an ethically screened and actively managed portfolio of global businesses, as well as to provide shareholders with regular, reliable and fully franked dividends, the Board has declared a fourth quarterly dividend of 1.35 cents per share, fully franked at a tax rate of 25%.
The dividend will be paid on 15 September 2022 to shareholders who are on the PIA register on 1 September 2022.