Global share markets strengthen

• Global share markets strengthened in January as falling inflation led to expectations that interest rates are now nearing the peak of the current cycle
• China stocks continued to rebound as its economy re-opened following the ending of Covid lockdowns, which supported emerging market shares more broadly
• The Portfolio returned 4.7% in January, while the benchmark returned 3.0%

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.

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.

Synopsys Inc

United States

Information Technology

Synopsys, Inc. supplies electronic design automation solutions to the global electronics market. The Company provides design technologies to creators of advanced integrated circuits, electronic systems, and systems on a chip. Synopsys also provides consulting services and support to its customers to streamline the overall design process and accelerate time to market.

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 

The MSCI World Total Return Index AUD increased 3.0% during January.

Global equity markets rose strongly over the month, spurred by declining global inflation. The December US consumer price index (CPI) fell to 6.5% year-on-year from 7.1% in the previous month. This led investors to expect that many central banks – including the US Federal Reserve – are now nearing the end of their current interest rate hiking cycles.

Stocks of growth companies underperformed the broader market last year when rising interest rates made them less attractive to investors. During January global growth stocks outperformed value by 5.3% in Australian dollar terms, with all global regions having delivered positive returns.

A relatively mild winter in Europe helped limit the impact of rising energy costs, which have now fallen back significantly. This has supported economic activity and company earnings. Meanwhile, the reopening of China following its strict COVID-19 lockdowns has supported emerging markets more broadly. The US dollar continued its recent decline against other currencies, boosting the relative returns of non-US companies and cash-flows.

Portfolio Comment

The Portfolio’s outperformance in January was due to astute stock picking. It benefitted from strong stock selection in health care, information technology, and consumer staples. The underweight positions in consumer staples, utilities, and energy also added to relative returns. However, the overweight position in health and the underweighting to consumer discretionary detracted from the relative performance over the month.

Large technology groups have announced large-scale redundancy programs over recent months. This follows management teams recognising that the high rates of revenue and earnings growth, which were experienced by many technology companies during the pandemic, could not be sustained over the long-term.

US enterprise software company ServiceNow has avoided this trend, reporting sustained high earnings growth, having expanded its relationships with existing customers. The company’s cloud-based solution helps improve and automate business workflows; its clients use ServiceNow’s software to lower costs and improve customer satisfaction. The Portfolio established a position in ServiceNow during the December quarter of 2022. This followed a sharp share price decline, which presented an opportunity to invest in this high-quality, durable-growth business at an attractive valuation level.

US-based biopharmaceutical group Vertex Pharmaceuticals focuses on developing drugs to treat Cystic Fibrosis (CF). It outperformed the market after it reported a rising total of CF patients globally, suggesting that the market for its drugs could expand.

The Portfolio benefitted from the strong performance of its US holdings, particularly its positions in US banks. US-based technology-focused bank SVB Financial Group outperformed the market after reporting a drop in its net income margin, which was less than some analysts had forecast. While the outlook remains uncertain, the company cited signs of an improvement in the venture capital environment, which is a key market for the bank.

UK shares underperformed the global market in January. Biotechnology company Abcam, which researches, develops, and manufactures antibodies and biological tools for the life science industry, reported disappointing revenue growth during 2022. The company highlighted Covid-19 outbreaks and lockdowns in China during the year which impacted revenue and also the roll-out of an enterprise resource planning system.