October Report

• Global share markets again moved lower during October as longer-term bond yields increased further and the economy continued to slow.
• Quality growth stocks outperformed the broader market, as the technology sector made gains, while consumer spending showed signs of moderating further.
• The Fund returned -0.2% in October, while the benchmark returned -1.1%.

We are pleased to include a recording of the investor update for the year to 30 June that was presented to shareholders at our recent AGM.

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.com Inc

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.

CME Group Inc

United States

Financials

CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange, and commodities. The Company brings together buyers and sellers of derivatives products on its trading floors, electronic trading platform, and through privately negotiated transactions that it clears.

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.

Meta Platforms Inc

United States

Communication Services

Meta Platforms, Inc. operates as a social technology company. The Company builds applications and technologies that help people connect, find communities, and grow businesses. Meta Platform is also involved in advertisements, augmented, and virtual reality.

Microsoft Corp

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.

Thermo Fisher Scientific Inc

United States

Health Care

Thermo Fisher Scientific, Inc. manufactures scientific instruments, consumables, and chemicals. The Company offers analytical instruments, laboratory equipment, software, services, consumables, reagents, chemicals, and supplies to pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions, and government agencies.

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 global equity market fell for a third consecutive month as inflation remained ‘sticky’ across major developed economies. Rising prospects of ‘higher-for-longer’ interest rates brought an increase in longer-term bond yields, which impacted most share prices. The outbreak of hostilities in the Middle East raised the level of geo-political risk and also oil prices. This dampened risk appetite, which led to gold having its best month since March.

The fall in share markets affected most sectors of the economy, although defensive sectors such as utilities and consumer discretionary provided some protection. Information technology outperformed upon stronger earnings reports by some companies in the sector. However, the more cyclical industrial companies were dragged down by the underperformance of large multinational capital goods companies.

China underperformed within the Emerging Markets universe, as factory orders shrank upon weaker global goods demand and slower construction activity.

Growth stocks outperformed value during October. Investors became more concerned about the impact of weaker consumer spending on corporate earnings growth and energy stocks weakened upon lower oil prices.

The Fund’s focus on high-quality stocks contributed to relative returns during October. The most-expensively-valued stocks relative to earnings outperformed, as the market’s highest-priced quintile declined by 3% less than the cheapest quintile.

Both these dynamics helped the Fund outperform the benchmark during the month.

Portfolio Comment

Strong stock performance in consumer discretionary, financials, and information technology contributed to relative returns. Weak stock performance and overweight positions in industrials and health care were the main detractors.

The underperformance of capital goods companies in October was perhaps a sign that global business sentiment is beginning to deteriorate. While it is impossible to accurately predict the future state of the economy, the Fund’s capital goods holdings are well placed to weather a range of challenging business environments that could materialise.

The Fund is significantly overweight in the capital goods industry, with investments in diverse high-quality businesses that possess strong competitive advantages. Moreover, they stand to benefit from the energy transition and changes in industrial policies (e.g. onshoring) and technologies (e.g. automation).

The Fund’s holdings include France-based digital automation and energy management group Schneider Electric the global leader in industrial electrification, John Deere the US-based expert in precision agriculture, and US-based Ametek, which produces ultra-precision instruments that monitor emission and power outputs.

Strong stock performance in the financials sector contributed to relative returns during October. Holdings in US financial exchanges CME Group and Tradeweb outperformed as rising market volatility led to higher trading volumes in bond and commodity markets.

The Fund’s lack of exposure to US-based global automotive and clean energy company Tesla also contributed to relative returns. During the month, CEO Elon Musk cautioned investors that interest rates were putting pressure on the company to raise prices, which could hamper demand.

Weak stock performance in the healthcare sector detracted from relative returns. Danish biotechnology company Genmab which specialises in developing cancer treatments underperformed on fears of greater-than-anticipated operating expenses. Meanwhile, life sciences tools company Thermo Fisher Scientific reported a decline in year-on-year organic growth, citing continued weakness in China and falling demand for COVID-19 testing.