Global share markets continued to perform

• Global share markets continued to perform strongly in February, setting new highs in the US, Europe, and Japan.
• Equity gains were driven by growth stocks, many of which reported stronger than expected quarterly earnings, especially technology businesses benefitting from AI innovation.
• The Portfolio returned 6.6% in February, outperforming the benchmark which returned 5.8%.

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 made strong gains across all major regions and sectors during February. The US performed particularly strongly, with the S&P 500 market index closing above 5,000 for the first time.

Emerging Markets also fared well as China stock prices rebounded upon the prospect of increased consumer spending during the lunar new year. Meanwhile, South Korea also delivered strong share market returns as its financial regulator launched a major initiative to improve corporate governance. In contrast, valuation levels in Europe outside the eurozone were little changed in aggregate.

Share market gains were led by strong performance in the consumer discretionary, information technology, and industrial sectors. Index heavyweights such as NVIDIA, Microsoft, and Amazon.com – which announced strong earnings growth – boosted returns in the information technology and consumer discretionary sectors.

Utilities were the only sector to deliver a negative return in US dollar terms during February. Growth stocks comfortably outperformed value, with the fastest growing 20% of companies beating the slowest by over 7.0%.

Financial stocks performed well over the month, but New York Community Bank announced it had identified material weaknesses in internal controls related to how it monitors and assesses risk in its loan books. The company’s shares plummeted, suggesting the turmoil which has impacted some US regional banks may not have yet run its course.

Portfolio Commentary

The Portfolio outperformed the benchmark during February. Strong performance by its holdings in communication services and financials, the overweight position in industrials and underweight positions in utilities, consumer discretionary, materials and energy boosted relative returns. Weaker performance by the Portfolio’s holdings in consumer discretionary, the overweight position in health care, and the underweight in consumer discretionary were the main detractors of relative returns.

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

The strongest contributor to relative returns during February was the overweight position in US-based technology group Meta Platforms which owns Facebook. The company reported its best quarterly sales growth in more than two years and announced its first-ever dividend. This follows its significant investment in AI tools which have improved the targeting of its digital advertisements, increasing their value to enterprise customers.

France-based digital automation and energy management group Schneider Electric was another major contributor to relative returns. It reported record revenue and free cash flow in 2023, which exceeded investor expectations.

The Portfolio’s holding in Japanese entertainment and consumer electronics company Sony was the largest detractor from relative returns in February. The stock underperformed after the company reported lower hardware sales of its PlayStation console and lower margins in its gaming business. Sony expects margins to improve next year and its long-term growth prospects remain positive.

The Portfolio sold its holding in US-based semiconductor developer NVIDIA in early February. Following the surge in stock price throughout 2023 and so far this year, the current market valuation now appears much less attractive. It reflects scant possibility of either a slowdown in the growth rate of artificial intelligence (AI) infrastructure spending or a shift in spending to its competitors. The mega-tech groups, which are NVIDIA’s biggest customers, continue to aggressively develop their own processors that could potentially impact NVIDIA’s sales.

However, NVIDIA outperformed strongly in February after announcing stronger than expected December quarter revenues and earnings. The Portfolio’s underweight position detracted from its relative returns during the month.

Harding Loevner believes generative AI will have a disruptive—and even profound—impact on businesses and employees across the global economy. Many of the Portfolio’s holdings are well positioned to benefit from this structural growth trend. However, few businesses are better placed than US technology group Microsoft to deliver next-generation solutions at immense scale. Accordingly, the Portfolio increased its position in the stock during February.