Global share markets continued to make gains

• Global share markets continued to make gains during January as corporate earnings announcements held up reasonably well, although expectations that interest rate cuts could be delayed have constrained market sentiment.
• Australian dollar weakness boosted returns when expressed in AUD terms.
• The Portfolio returned 4.1% in January, while the benchmark returned 4.5%.

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.

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.

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.

Netflix Inc

United States

Communication Services

Netflix, Inc. engages in providing entertainment services. It also offers activities for leisure time, entertainment video, video gaming, and other sources of entertainment. It operates through the United States and International geographic segments. The company was founded by Marc Randolph and Wilmot Reed Hastings on August 29, 1997 and is headquartered in Los Gatos, CA.

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.

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 again delivered positive returns during January. Investors grew increasingly concerned that stubborn inflationary pressures would bring a delay in anticipated US interest rate cuts by the Federal Reserve. However, the US outperformed other international markets thanks in part to relatively stronger quarterly earnings releases.

The Information Technology (IT) sector delivered the strongest returns in January, while Materials fell on concerns about declining demand due to China’s weak property market.

Japanese stocks posted a 5% gain in local currency terms while emerging market valuation levels fell by a similar amount, weighed down by the near 11% decline in China’s share market. China continues to grapple with a weak economic outlook, a troubled property sector and geopolitical tensions.

Strong performance in the IT and communications services sectors ensured that growth stocks continued to outperform value during the month. This was reflected in the fastest-growing 20% of stocks in the MSCI ACWI Index outperforming the slowest-growing 20% by 6.0%.

Portfolio Comment

The Portfolio slightly underperformed the benchmark during January. Strong performance by the Portfolio’s holdings in IT, consumer discretionary and communication services, underweight positions in materials and utilities, and overweight positions in health care, communications services and consumer discretionary boosted relative returns. Weaker performance by the Portfolio’s holdings in industrials, financials and health care were the main detractors from relative returns.

The Portfolio is focussed on identifying great companies through bottom-up analysis and continues to identify exciting opportunities in health care, industrials and communications services, in which it maintains overweight positions.

Some December quarter corporate earnings reports showed a slowdown in profit growth. These reflected the more challenging macroeconomic environment across North America and Europe. However, some companies managed to deliver strong earnings growth, particularly those companies that are poised to benefit from innovation in artificial intelligence.

US-based multinational technology group  Meta Platforms, which owns Facebook, reported a surge in revenues and operating margins during the December quarter. The company also announced it would pay its first quarterly dividend, which helped the stock outperform strongly.

US-based international streaming and production company Netflix outperformed after the company reported strong subscriber and revenue growth. This followed the company’s crack down on password sharing and the introduction of advertisement-supported plans which have increased its total addressable market.

Netherlands-based ASML supplies manufacturers of advanced semiconductors and is Europe’s largest technology company. It outperformed in January after reporting strong demand for its extreme ultraviolet lithography (EUV) equipment, demonstrating its insulation from the volatile chip cycle.

The Portfolio has long maintained a zero weighting to US-based global automotive and clean energy company Tesla. This reflects concerns about corporate governance and management behaviour. The stock underperformed in January after announcing lower-than-expected earnings.

US-based industrial automation company Rockwell Automation underperformed in January following a drop in operating margins caused by supply chain issues and customers’ high inventory levels.

The Portfolio’s financial holdings in emerging markets detracted from relative returns. India-based HDFC Bank underperformed after the company reported that loan growth exceeded deposit growth in the most recent quarter. Meanwhile, Hong Kong-based pan-Asian life insurance group AIA Group underperformed as broader negative sentiment in China’s equity market impacted valuation levels, despite the company reporting an ongoing rebound in new business growth.

China-based WuXi AppTec, the world’s largest contract drug developer and manufacturer, underperformed sharply during January. This followed a US House Select Committee introducing the Biosecure Act that would restrict US medical providers funded by the Federal Government from trading with biotech companies with links to China’s military. WuXi AppTec was one of several companies named in the bill, but denies any military links. The legislation is currently delayed in the Senate.