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 equities were broadly unchanged in November, finishing slightly lower over the month. Market leadership shifted notably, as investors rotated away from Information Technology towards more defensive sectors that had lagged for much of the year.
Health Care was the strongest-performing sector, rising almost 8% as concerns around valuations in growth stocks prompted a move into more defensive areas. In contrast, Information Technology declined nearly 5% after having risen more than 30% year-to-date through October, with renewed scrutiny on the valuation of AI-related semiconductor and hardware companies, even following strong earnings from NVIDIA.
Weakness in Information Technology weighed on Emerging Markets, particularly in Asia. South Korean equities declined, while Taiwan also moved lower, reflecting their heavy exposure to semiconductor manufacturing and related supply chains. The United States continued to lag other major markets on a year-to-date basis, despite having risen nearly 18%. European equities remained strong over the year, supported by gains in banks and defence stocks.
Portfolio Commentary
The Fund was flat in November, slightly ahead of the benchmark’s -0.2% decline, supported by performance from its overweight position in Health Care. Dispersion within the sector however remained elevated, reinforcing the importance of stock selection.
In Europe, shares of Roche, the Swiss pharmaceutical company, rose after interim results showed that its breast cancer treatment kept early-stage patients cancer-free for longer than the current standard of care. The outcome reinforced confidence in the company’s oncology pipeline and its longer-term growth prospects.
In Japan, Chugai Pharmaceutical rose sharply after partner Eli Lilly received a priority review voucher from the US Food and Drug Administration for its oral GLP-1 drug, allowing for earlier-than-expected approval next year. Chugai’s strong performance this year contrasts with Novo Nordisk, whose shares have declined significantly, and the portfolio’s lack of exposure supported relative results.
During the month, the Fund exited its position in ServiceNow, a US-based business-process automation company. While the team continues to view ServiceNow as a high-quality business, its shares were trading above the team’s estimate of fair value. Given the valuation and the downside risk, should expectations for AI-related revenues fail to materialise, the decision reflects the team’s disciplined approach to capital allocation.
Within Information Technology, the portfolio’s underweight position in NVIDIA contributed positively as the stock declined amid concerns around an AI-related valuation correction and increased competition, including from portfolio holding Alphabet, whose shares rose strongly during the month.
In Industrials, Schneider Electric detracted after the company highlighted a challenging pricing environment in China and currency-related margin pressures.
Style effects also influenced relative returns during the month. The cheapest companies in the index outperformed the most expensive by a wide margin, which created a headwind for the portfolio given its focus on high-quality businesses trading at above-average valuations.
The Fund remains focused on such companies with durable competitive advantages, strong balance sheets and sustainable growth drivers, consistent with the team’s disciplined, bottom-up investment approach.