April Report

• Global equity markets fell in April, reversing some of the strong gains of the March quarter.
• Inflation remains persistent across the major economies, which reduced investor expectations of early cuts in interest rates, hitting share prices.
• The Fund returned -4.2% in April, while the benchmark returned -2.8%.

Our investment process – Porter’s Five Forces Video Series
A Framework for Competitive Strategy Analysis

The investment team at Harding Loevner, managing the Pengana Harding Loevner International Fund, specialise in identifying and investing in high-quality growth companies. Their approach involves analysing industries through the renowned Five Forces framework developed by Harvard University professor Michael Porter.

In each installment of this six-part video series, Harding Loevner delves into a specific aspect of Porter’s framework, discussing its application in understanding industries and the companies within them.

To gain insight into their methodology, we invite you to watch the series overview below, demonstrating how the team utilize Michael Porter’s Five Forces framework for industry analysis.

For access to the entire series, please visit our dedicated page here.

Top Holdings (alphabetically)

Alcon Inc

Switzerland

Health Care

Alcon, Inc. engages in the development, manufacture, and marketing of market surgical equipment and devices, pharmaceutical eye drops, and consumer vision care products to treat eye diseases and disorders. It operates through the following segments: Surgical and Vision Care. The Surgical segment offers implantable products, consumables and equipment for use in surgical procedures to address cataracts, vitreoretinal conditions, refractive errors, and glaucoma. The Vision Care segment comprises daily disposable, reusable and color-enhancing contact lenses, as well as portfolio of ocular health products, including over-the-counter products for dry eye, contact lens care, and ocular allergies, as well as ocular vitamins and redness relievers. The company was founded by Mr. Robert Alexander and Mr. William Conner on 1945 and is headquartered in Geneva, Switzerland.

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.

Danaher Corp

United States

Health Care

Danaher Corporation designs, manufactures, and markets professional, medical, industrial and commercial products, and services in the sectors of test and measurement, environmental, life sciences, dental, and industrial technologies.

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 fell back in April. This reversed some of the gains delivered in the first quarter of 2024, as signs of sticky inflation dimmed hopes that US interest rates would be cut in the near term.

Japan was the strongest performing major share market in the March quarter, but was much weaker in April. This coincided with a further decline in the value of the Japanese yen, despite efforts by its central bank to slow the depreciation of its currency.

Conversely, China – one of the weakest global share markets in the first three months of the year – bounced back in April. This was despite corporate earnings being generally disappointing and investor expectations of significant government stimulus remaining unfulfilled.

All sectors were weaker in April except for energy and utilities, which tend to be relatively more defensive during periods of share market volatility. Interest rate sensitive sectors such as real estate and information technology – which had made strong gains in the first quarter – were especially weak in April.

The most expensively valued stocks relative to earnings were hit hardest, while faster-growing and higher-quality stocks (higher profits and lower risk) also lagged the broader market.

Portfolio Commentary

The Fund underperformed the benchmark during April. Growth stocks underperformed value as rising interest rate expectations pushed up longer-term bond yields and therefore equity discount rates.

Strong performance by the Fund’s holdings in industrials, overweight positions in communications services and industrials, and underweight positions in information technology and real estate boosted relative returns. However, this was offset by weaker performance by the Fund’s holdings in healthcare and information technology and the zero weighting to utilities, which detracted from relative returns.

The Fund 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.

Several mega-tech companies including Google-owner Alphabet, Facebook-owner Meta Platforms and Microsoft announced their first quarter earnings and spending plans to build their AI capabilities. While all reported strong earnings, investor reaction to each was more varied.

Alphabet and Microsoft outperformed upon their earnings announcements. This was despite reporting large increases in capital investment over the March quarter, which surged above US$12 billion and US$14 billion, respectively. In contrast, Meta’s plans to spend US$8-10 billion quarterly this year was viewed as excessive by some investors and its share price underperformed sharply.

Some investors may yet to be convinced that Meta will earn a high return on its capital outlay. However, the company should be able to apply AI tools to its unparalleled dataset which flows from over three billion daily active users on its core platforms. This should enable it to improve both the engagement levels on its social media applications and the effectiveness of its digital advertising sales. It may also provide a path to monetising additional services including the metaverse. The Fund continues to hold significant overweight positions in all three stocks, with the largest overweight in Meta.

The strongest contributor to relative returns during April was the overweight position in US technology group Alphabet. It outperformed after announcing a 15.4% year-on-year increase in revenue and a 61.5% jump in earnings per share. This pushed its market valuation above the US$2 trillion threshold.

France-based digital automation and energy management group Schneider Electric also outperformed in April. Its alignment to the long-term secular growth trends of digitisation, decarbonisation and manufacturing reshoring outweighed broader investor concerns regarding interest rates.

The Fund’s holding in Japan-based Chugai Pharmaceutical detracted from relative returns during April. It underperformed after reporting a steep year-on-year decline in revenue, which was driven by price cuts in Japan and lower sales of Ronapreve, its COVID-19 drug.

US-based multinational professional services group Accenture underperformed after it revised down its financial year 2024 earnings guidance. This was due to slowing demand for its services, reflecting customers’ concerns about the economic outlook.