July Report

Global equities delivered mixed results in July, reflecting shifting investor sentiment and pronounced regional divergences.

• United States: The S&P 500 and Nasdaq extended gains, fuelled by strong corporate earnings and continued enthusiasm for technology and AI. Economic data remained supportive, with inflation trending lower and consumer demand resilient. However, political uncertainty and fiscal debates added volatility. Small and mid-caps lagged large-cap tech leaders.
• Europe: Equities weakened. The Stoxx600 fell, pressured by sector rotation away from industrials and volatility from euro weakness. Northern Europe struggled with manufacturing softness and geopolitical uncertainty, while Southern Europe fared better on consumer strength. UK equities also declined on persistent inflation concerns and subdued consumer sentiment.
• Asia-Pacific: Performance was mixed. Taiwan and South Korea advanced on semiconductor strength, while Chinese equities gained on policy stimulus. Japan retreated on yen weakness, and India posted notable losses amid tariff uncertainty and capital outflows.
• Sectors: Technology outperformed globally, supported by strong earnings. Financials were also strong. Energy and Materials lagged on weaker commodity demand, while Consumer Discretionary underperformed, especially in Europe and the UK.

The macro backdrop suggested moderating inflation in developed markets, but policy uncertainty, shifting central bank signals, and volatile currency markets shaped investor behaviour. For global small companies, these crosscurrents weighed most heavily on Europe and industrials, while creating opportunities in selected technology and financial names.

Fund Review

After a strong prior quarter, the Fund underperformed broadly in July. Although there were some names that moved on specific news, the weakness was broadly spread across holdings, with quality stocks under pressure. Gains achieved earlier in the year were partly reversed, despite solid fundamentals across the portfolio.

We remain confident in the outlook. The performance challenges were evident across sectors and geographies, with multiple compressions creating compelling opportunities in quality companies that we believe are trading at highly attractive valuations relative to their long-term prospects. We are confident that this positions the Fund for renewed outperformance when markets refocus on fundamentals and long-term drivers.

Top Contributors

• Topicus (Canada): Benefited from strong momentum in IT and software, particularly mid-cap firms with recurring revenues. Its acquisition-driven vertical market strategy continues to deliver, and the stock rallied alongside global tech leaders.
• TechnoPro (Japan): Surged on takeover speculation and the subsequent announcement of Blackstone’s $3.5bn tender offer. With over 28,000 engineers serving diverse industries, TechnoPro’s valuation reflected a significant premium and underscored investor confidence in its business model.

Key Detractors

• Bytes Technology Group (UK): The largest detractor following a profit warning and reduced guidance at its AGM. Management cited deferred customer buying, salesforce restructuring, and changes to Microsoft’s enterprise incentives. Forecasts shifted from strong growth to flat profit expectations, prompting a 25% sell-off. Management expects normalised growth in the second half.

New Positions

• Victory Capital Management (US): A $301bn asset manager operating a multi-boutique model with global scale. Its acquisition of Amundi’s US business expanded its reach and accelerated growth in ETFs and solutions. Known for disciplined operations and shareholder alignment, Victory offers strong organic and acquisitive growth prospects.
• ISS A/S (Denmark): A global leader in workplace and facility services under its OneISS strategy that emphasises global scale advantages while maintaining local market expertise. Focused on profitable contracts, strong retention, and operational excellence, ISS has scope for further cost efficiencies and margin gains. Its capital-light model supports robust free cash flow, funding technology investment, dividends, and buybacks.

Outlook

While July was challenging, the Fund remains anchored in high-quality businesses that are well-positioned to benefit from improving fundamentals over the medium term. Market volatility has created opportunities to add exposure to companies with strong models and attractive valuations. We continue to expect these holdings to deliver superior returns as conditions normalise.