July Report

Global equity markets continued to edge upwards in July upon further signs that inflation is slowing across the major developed economies. This is expected to allow the major central banks to ease interest rates later this year.

July also saw a broadening of share market returns. Growth stocks, especially big tech and pharmaceuticals, which have driven market returns over recent quarters, moved lower. However, a much wider group of stocks performed well during the month, with global value stocks outperforming growth by over 5.7%.

The Core Personal Consumption Expenditure (PCE) Price Index, the preferred inflation metric of the US Federal Reserve, fell to 2.5% in June from 2.6% in May, raising hopes of a September rate cut. The US consumer remains resilient, as retail sales grew faster than expected in June. However, the economy created fewer new jobs than the previous month and unemployment edged up to 4.1%.

In Europe, June retail sales decelerated by 0.3% year-on-year from a 0.1% expansion in the prior month. However, economic activity indicates the economy continues to expand, but at a slower pace.

China’s economy remains sluggish, with manufacturing activity again moving back into contraction. Consumer spending continues to weaken, while property-related issues remain a headwind.

The Fund underperformed in July. This was mainly due to the pivot in market sentiment towards value stocks and away from growth stocks (especially in information technology, healthcare and industrials) which have driven the Fund’s outperformance this year. The Fund’s overweight to information technology and communications services and its underweight to financials further detracted from relative returns.

The Fund continues to overweight information technology, communications services and consumer discretionary, while underweighting financials, energy and materials.

The Fund’s strongest contributor to relative returns was its overweight position in US-based science and technology group Danaher. It outperformed after reporting stronger than expected second quarter earnings results, driven by strong growth in its life sciences and diagnostic businesses.

US-based technology consultancy Gartner outperformed after reporting better than expected second quarter earnings. It announced improved contract value within its global technology sales and raised its full year earnings guidance.

US-based provider of corporate uniforms and related business services Cintas also outperformed. It reported better than expected second quarter earnings results as both revenue and profit margins exceeded analysts’ expectations and it revised full year earnings guidance upwards.

The Dutch supplier to manufacturers of advanced semiconductors ASML was the largest detractor from relative returns in July. Despite reporting better than expected new orders, its third quarter guidance was below investors’ expectations.

US-based pharmaceutical company Eli Lilly underperformed in July after two small competitors announced promising weight loss drug trial results. The Fund nonetheless maintains its positions in market leaders Eli Lily and Novo Nordisk, as it believes investors continue to underestimate the growth in the size of the global weight-loss market.

US-based Uber Technologies also underperformed during July after high frequency data was published which indicated a potential slowdown in bookings during the second quarter. Uber’s second quarter earnings results subsequently proved the data to be inaccurate, showing consistently strong ride hailing and food delivery booking trends as it continues to gain market share.

The Fund continued to rebuild its position in US-based technology group Apple, which is now a significant overweight position. This reflects improving global iPhone sales and expectations the launch of an AI-enabled iPhone later this year will spur a new upgrade cycle that delivers revenue growth above consensus forecasts.

The Fund established a new position in US-based Boston Scientific, a diversified medical device company which sells instruments primarily used in minimally invasive surgery and cardiovascular suites. Several new product launches are driving higher organic growth, which the Fund expects to be well ahead of current consensus expectations.

The Fund also established a new position in US-based Chipotle Mexican Grill which operates over 3,500 company owned fast casual restaurants, mainly in the US. Future international expansion should further drive earnings growth and margins.

The Fund exited its position in US health insurance group Elevance Health after the company reported disappointing quarterly earnings due to a higher than forecast medical loss ratio. This raises concerns it could persist, impacting future earnings results.

The Fund’s overall MSCI ESG rating was upgraded to an overall score of AA from A in July. This was helped by an upgrade to US-based enterprise software company ServiceNow’s ESG rating to AAA from AA. This reflected enhancements to the company’s social and governance risk mitigation programs. The company has an industry leading business ethics framework and talent management program. It mitigates corruption-related risks through its whistleblower protection provisions and a detailed anti-corruption policy.

Axiom engaged with US-based semiconductor developer Nvidia in July. It discussed its sourcing of renewable energy and the implementation of a human rights assessment framework to enhance supply chain transparency. The company advised that its new Blackwell chip is 25 times more energy efficient than previous generations of chips, thus reducing data centre energy use.

Axiom also engaged with US-based retail group Costco, which has expanded its ESG team, made progress on measuring Scope 3 emissions, expanded its mentorship program to supervisory staff and hired a Head of Information Privacy. Axiom encouraged Costco to provide more detail about its compensation framework and specifically the weighting of ESG metrics.