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NTA POST-TAX
NTA PRE-TAX
INVESTMENT PERFORMANCE1
DIVIDEND YIELD2
CONSECUTIVE QUARTERLY DIVIDENDS PAID
1. Investment performance since new mandate adopted 1 July 2017.
2. Dividend yield is based on current displayed share price and dividends declared over the
previous 12 months
3. Grossed up yield is based on current displayed share price, dividends declared over the
previous 12 months and the tax rate and franking percentage applicable for the most recently
declared dividend
SUMMARY
- 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%.
COMMENTARY
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.