The more defensive sectors outperformed the market

• Global equity markets fell in September upon expectations of higher for longer interest rates after the US Federal Reserve increased rates by 0.75%
• The more defensive Health Care, Consumer Staples, and Materials sectors outperformed the market, while interest rate-sensitive sectors such as Real Estate and Communication Services underperformed
• In September the Portfolio returned -3.6%, in line with the MSCI All Country World Total Return Index.

We recently held a Portfolio and Investment Update webinar, along with Q&A for shareholders, which is available below for your review.

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.

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.

L'Oreal SA

France

Consumer Staples

L'Oreal manufactures cosmetics. The Company offers mascara, lip gloss, foundation, eyeshadow, primer, nail polish, lipstick, face powder, blusher, and concealer, as well as skin, hair, and body care products. L'Oreal serves customers worldwide.

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 equity markets fell in September upon higher inflation data and expectations that interest rates would rise further and remain elevated for longer than had been previously expected.

The US Federal Reserve raised interest rates by a further 0.75% and acknowledged that it would continue to raise rates some way beyond the current level. All the major central banks, except for the Bank of Japan, followed with comparable hikes during September.

Interest rate increases and high energy prices weighed heavily on the economic outlook. This led the Organisation for Economic Co-operation and Development (OECD) to further slash its global GDP growth forecast for next year.

Russia’s decision to suspend indefinitely its exports of natural gas to Europe increased expectations of recession across the continent. Additionally, the stronger US dollar exacerbated the inflationary impact of higher imported energy prices (which are denominated in US dollars). This makes it more difficult for debtor countries and companies to service US dollar-denominated debts.

Emerging Markets were the weakest performing region as China’s severe property slowdown and COVID-19 lockdowns impacted returns. Japan also underperformed as the Bank of Japan’s reluctance to raise interest rates caused the yen to rapidly depreciate against the higher-yielding US dollar. Both the US and Europe outperformed (although share markets declined significantly in absolute terms).

The UK announced an aggressive fiscal stimulus package of tax cuts and spending to subsidise high energy prices. This will be financed by increased government borrowing. The news sent gilt (UK sovereign bond) prices tumbling, causing sterling to fall to a record low against the US dollar.

Real Estate was the worst performing sector due to high debt levels, rising financing costs and weaker economic conditions. Communication Services also underperformed due to rising interest rates and concerns over a slowdown in advertising spending. Health Care, Consumer Staples, and Materials delivered smaller declines than the overall market.

Portfolio Comment

Rockwell Automation, a US-based industrial automation company, underperformed at the start of the year. Rising input costs and component shortages prevented it from fulfilling its overflowing order books.

Uncertainty arising from the COVID-19 lockdowns in China and the war in Ukraine prompted the company to warn in May that it expected profits would be lower over the rest of the year. Despite these challenges, the business outlook remains strong.

New orders continue to increase, despite the company raising prices at the end of 2021. It also reported stronger earnings results despite ongoing supply chain issues. Rockwell has been accumulating inventory and redesigning certain products to mitigate the risk of supply chain disruption. The company’s revenues are expected to grow as its resilience improves and supply chain shortages recede.

Polish video game developer CD Projekt strongly outperformed the market during September. The success of its Netflix anime series Cyberpunk: Edgerunners helped to renew interest in the company’s Cyberpunk 2077 video game.

Chinese pharmaceutical research and development services platform WuXi Biologics underperformed the market along with other Chinese pharmaceutical companies. This followed an executive order by the US Administration that is intended to accelerate development of biotechnology and biomanufacturing in the US. This rekindled concerns that Chinese companies might find themselves cut off from the lucrative US market.