Tencent Holdings Ltd. provides value-added services, online advertising services, and fintech and business services. It operates through the following segments: Value-Added Services, FinTech and Business Services, Online Advertising, and Others. The Value-Added Services segment is involved in online and mobile games, community value-added services, and applications across various Internet and mobile platforms. The FinTech and Business Services segment offers fintech and cloud services, which include commissions from payment, wealth management and other services. The Online Advertising segment refers to the display based and performance-based advertisements. The Other segment is composed of trademark licensing, software development services, software sales, and other services. The company was founded by Yi Dan Chen, Hua Teng Ma, Chen Ye Xu, Li Qing Zeng, and Zhi Dong Zhang on November 11, 1998, and is headquartered in Shenzhen, China.
COMMENTARY
Market Commentary
Global equity markets delivered mixed performance in February as investors continued to assess the economic implications of accelerating investment in artificial intelligence and the durability of global growth. While several international markets advanced during the month, weakness in the US weighed on broader benchmark returns.
Japan was the strongest-performing major market, supported by improving corporate fundamentals, ongoing governance reforms and sustained investor interest in Japanese equities. Emerging Markets also performed well, led by South Korea, where memory chip manufacturers extended their strong momentum amid continued demand for AI-related infrastructure and data centre capacity.
In contrast, the US lagged behind global markets. Weakness was concentrated in software and services companies as investors grew increasingly concerned that rising capital expenditure associated with artificial intelligence development could pressure margins and weigh on near-term profitability. These concerns contributed to continued volatility across segments of the technology sector that had previously benefited from strong enthusiasm around AI-driven growth.
At the sector level, Materials performed strongly, supported by rising gold prices during the month. Communication Services lagged as investors reassessed the profitability outlook for companies, increasing their investment in artificial intelligence capabilities.
Portfolio Commentary
The Fund declined 1.14% in February, underperforming the benchmark, which fell 0.43%, as individual stock movements were the primary drivers of relative performance. Weakness among several technology-related holdings weighed on performance, offsetting positive contributions from holdings in Financials and Health Care.
In Emerging Markets, shares of Tencent, the Chinese internet and digital services platform, declined alongside other Chinese technology companies following speculation that authorities could increase value-added taxes on internet businesses. Within Consumer Discretionary, Booking Holdings, the global online travel booking platform, also lagged as investors expressed concern that advances in artificial intelligence could alter how consumers search for and plan travel, potentially affecting the competitive position of established booking intermediaries.
These headwinds were partly offset by strong contributions elsewhere in the portfolio. Tradeweb Markets, the US-based electronic trading platform for fixed income, derivatives and ETFs, rose after reporting strong fourth-quarter revenue growth and a sharp increase in trading volumes across its platforms in January. In Health Care, Chugai Pharmaceutical, the Japanese biotechnology company majority-owned by Roche, performed strongly after reporting solid growth in revenue and operating profit, supported by royalty income from its haemophilia and dermatology treatments.
Toward the end of February, tensions in the Middle East escalated sharply. While geopolitical developments are difficult to forecast, the team evaluates such events through the lens of the businesses held in the portfolio rather than attempting to predict near-term outcomes. The portfolio has limited exposure to companies tied directly to defence or fossil fuel production. If global growth expectations were to weaken, some of the portfolio’s most highly valued companies linked to the artificial intelligence value chain could face pressure. Industrial and electronic equipment companies held in the portfolio, including Amphenol, Schneider Electric and Atlas Copco, may benefit over time from reconstruction and infrastructure demand.
During the month, the Fund initiated a new position in Reinsurance Group of America, a global provider of life and health reinsurance. The company operates in a specialised segment of the insurance market offering stable growth and higher barriers to entry than traditional property and casualty markets. With operations in more than 25 countries and strong underwriting capabilities, the company is well positioned to expand internationally.