Morgan Stanley operates as a global financial services company. The firm provides investment banking products and services to its clients and customers including corporations, governments, financial institutions, and individuals. It operates through the following segments: Institutional Securities, Wealth Management, and Investment Management. The Institutional Services segment provides financial advisory, capital-raising services, and related financing services on behalf of institutional investors. The Wealth Management segment offers brokerage and investment advisory services covering various types of investments, including equities, options, futures, foreign currencies, precious metals, fixed-income securities, mutual funds, structured products, alternative investments, unit investment trusts, managed futures, separately managed accounts, and mutual fund asset allocation programs. The Investment Management segment provides equity, fixed income, alternative investments, real estate, and merchant banking strategies. The company was founded by Harold Stanley and Henry S. Morgan in 1924 and is headquartered in New York, NY.
COMMENTARY
Market Review
Global equity markets declined modestly in February as increased volatility led to uneven performance across sectors and regions. While economic data remained broadly resilient, investor sentiment was unsettled by concerns around capital expenditure trends among large technology companies and persistent uncertainty around the global growth outlook. The Fund’s currency hedge proved beneficial during the month, as the US dollar weakened relative to the Australian dollar.
In the US, economic conditions remained constructive. Manufacturing activity continued to expand, supported by strong new orders and stable production trends. Industrial production accelerated, while housing data improved from low levels. Labour market conditions were also firmer than expected, with payroll growth exceeding forecasts and the unemployment rate easing modestly as participation improved. Inflation remained contained, with core consumer price inflation moderating slightly as shelter-related components continued to ease.
Conditions in Europe remained mixed but showed signs of gradual improvement. German manufacturing surveys pointed to modest expansion, although retail sales growth slowed during the month. Growth across the region continues to diverge, with southern European economies such as Spain and Italy showing stronger momentum than northern Europe, particularly Germany.
China’s economy remained uneven. Export-related activity continued to hold up, while domestic demand stayed weak amid ongoing property market softness and subdued consumer confidence. Inflation remained negligible, which should allow policymakers to continue targeted stimulus measures aimed at supporting household demand and broader economic stability.
Portfolio Commentary
The Fund underperformed the benchmark in February. At the sector level, stock selection within information technology and industrials contributed positively, while consumer discretionary holdings detracted. Sector positioning was broadly unchanged, with the largest overweights in information technology and industrials, and the largest underweights in financials and consumer staples.
Samsung Electronics, a global semiconductor manufacturer, was one of the strongest contributors as fundamentals in semiconductor memory markets continued to improve. Supply and demand dynamics in DRAM and NAND remain favourable as hyperscale data centre investment rises. Siemens Energy also performed strongly as turbine demand continues to exceed expectations. Rising electricity demand driven by data centre development is supporting strong order inflows and improving visibility for future earnings.
Fujikura, a supplier of optical cables for high-performance data transmission, also contributed positively. The company is well positioned as computing platforms adopt optical transmission technology to meet growing data requirements.
Among detractors, Amazon declined despite continued strong operating performance. Amazon Web Services growth was robust, and the retail franchise expanded, but management’s guidance for higher capital expenditure weighed on investor sentiment. Morgan Stanley also detracted as the financial sector weakened amid concerns around private credit markets. Alphabet declined following a strong early-year performance as investors focused on elevated capital expenditure requirements across large technology platforms.
At the stock level, the largest additions were to AstraZeneca, JPMorgan Chase and Societe Generale. The Fund increased its position in AstraZeneca, given its strong research pipeline and upcoming product catalysts. The position in JPMorgan Chase was increased following modest share price weakness after conservative guidance on lending growth and net interest margins. Exposure to Societe Generale was also increased as profitability in its French retail banking franchise continues to improve.
Position reductions during the month included UCB, Meta Platforms and Microsoft. The Fund reduced UCB following strong share price performance and narrowing upside relative to consensus forecasts. Exposure to Meta Platforms was lowered due to rising capital expenditure requirements associated with large language model development. The position in Microsoft was also reduced as part of an ongoing effort to moderate software exposure.
The Fund initiated positions in Hershey and Mitsubishi Estate, while several smaller residual positions were exited to redeploy capital toward higher conviction opportunities. There were no MSCI ESG rating changes during the month, and no direct ESG engagements were conducted.