January Report

• The Fund returned 3.4% while the benchmark delivered 2.6% in January, with strong gains in information technology and communications services, led by Meta Platforms and Vertex Pharmaceuticals; it also benefitted from an underweight semiconductor exposure.
• Global equities rebounded in January despite a semiconductor sell-off triggered by DeepSeek AI’s announcement and threats of higher US tariffs; falling inflation and strong US earnings lifted markets, though a weaker USD detracted from AUD returns.
• The Fund added a new position in AMETEK, a US-based industrial group, as part of its portfolio adjustments.

Top Holdings (alphabetically)

Accenture Plc Class A

United States

Information Technology

Accenture PLC provides management and technology consulting services and solutions. The Company delivers a range of specialized capabilities and solutions to clients across all industries on a worldwide basis. Accenture operates a network of businesses provides consulting, technology, outsourcing, and alliances.

Alphabet Inc. Class A

United States

Communication Services

Alphabet Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

Amazon.com, Inc.

United States

Consumer Discretionary

Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.

Meta Platforms Inc Class A

United States

Communication Services

Meta Platforms, Inc. operates as a social technology company. The Company builds applications and technologies that help people connect, find communities, and grow businesses. Meta Platform is also involved in advertisements, augmented, and virtual reality.

Microsoft Corporation

United States

Information Technology

Microsoft Corporation develops, manufactures, licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops video game consoles and digital music entertainment devices.

Netflix, Inc.

United States

Communication Services

Netflix, Inc. engages in providing entertainment services. It also offers activities for leisure time, entertainment video, video gaming, and other sources of entertainment. It operates through the United States and International geographic segments. The company was founded by Marc Randolph and Wilmot Reed Hastings on August 29, 1997 and is headquartered in Los Gatos, CA.

Schneider Electric SE

France

Industrials

Schneider Electric SE manufactures electrical power products. The Company offers car chargers, home security goods, light switches, access control, sensors, valves, circuit breakers, cables, accessories, signaling devices, fuse, motor starters, and voltage transformers. Schneider Electric serves customers worldwide.

Thermo Fisher Scientific Inc.

United States

Health Care

Thermo Fisher Scientific, Inc. manufactures scientific instruments, consumables, and chemicals. The Company offers analytical instruments, laboratory equipment, software, services, consumables, reagents, chemicals, and supplies to pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions, and government agencies.

UnitedHealth Group Incorporated

United States

Health Care

UnitedHealth Group Incorporated owns and manages organized health systems. The Company provides employers products and resources to plan and administer employee benefit programs. UnitedHealth serves customers in the United States.

Vertex Pharmaceuticals Incorporated

United States

Health Care

Vertex Pharmaceuticals Incorporated discovers, develops, and commercializes pharmaceutical products. The Company develops drugs for the treatment of cystic fibrosis, cancer, inflammatory bowel, autoimmune disease, and neurological disorders. Vertex Pharmaceuticals serves healthcare sector worldwide.

Market Review 

Global equity markets bounced back in January, following the pull-back at the end of last year. This reflected falling inflation, enabling central banks in the Eurozone, Canada and Sweden to ease interest rates by a further 0.25%. This raised hopes of further interest rate cuts and a soft landing this year.

The US economy remained robust as unexpectedly strong jobs growth helped push December unemployment down to just 4.1%. Meanwhile, retail sales, existing home sales and industrial production all strengthened. Moreover, share prices were further boosted when the US December quarter corporate earnings season got off to a reasonably good start.

However, tech-heavy US markets underperformed global equities in January upon news of the DeepSeek artificial intelligence (AI) model. This appeared to have been created much faster and more cheaply than comparable western models. This challenged investors’ assumptions about the demand growth for advanced computing capacity and, hence, the fastest semiconductors. This led to AI infrastructure and semiconductor stocks underperforming following DeepSeek’s release in late January.

Information Technology accounts for over 30% of the US market, but less than 14% of the global investment universe, leading to the US market underperforming in January.

The prospect of higher US import tariffs and the possibility of an escalation into a trade war added to equity market volatility. Auto makers (none held in the Fund) were especially impacted.

Greater efficiency in the training of AI models risks reducing the growth rate of demand for computing power, the pace of investment in AI infrastructure and the demand for advanced semiconductors. However, the history of technological advances shows that better performance and lower costs typically lead to wider adoption and faster volume growth over time.

Among the likely beneficiaries of cheaper, more efficient AI are the software providers building applications using these models. Increased demand for AI-powered software also helps the cloud-services companies that provide computing power and data storage. However, the commoditisation of large language models may negatively affect the creators of these models, particularly those that have eschewed open-source technology.

The AI ecosystem is still evolving, and further advances in the technology are expected. Innovation is always disruptive, but DeepSeek’s breakthrough seems to be positive for the AI industry overall.

Portfolio Commentary

The Fund returned 3.4% in January, while the benchmark delivered 2.6%. Strong stock performance in information technology (IT) and communications services and an overweight position in communications services drove relative returns. This was partially offset by weaker stock performance and the underweight position in the financial sector.

The strong stock performance in IT was driven by the underweight to semiconductor and technology hardware industries, which underperformed. The overweight holding in software underperformed, but by less than the other IT sub-sectors.

The most significant contributor to relative returns in January was the overweight position in US-based multinational technology group and Facebook-owner Meta Platforms. It outperformed after announcing stronger than expected December quarter revenue, earnings and user numbers. This reflects its previous investment in AI, bringing improved user engagement and early monetisation.

The Fund’s holding in US-based biopharmaceutical group Vertex Pharmaceuticals also outperformed. This followed reports that the US Food and Drug Administration had approved the company’s non-opioid (and importantly, non-addictive) pain relief drug, Journavx.

The Fund’s holdings in US-based Tradeweb, which builds and operates electronic over-the-counter (OTC) marketplaces for institutional, wholesale and retail investors, underperformed in January. This was because of concerns that the growth of its fixed income business might be slowing over the near-term.

India-based bank HDFC also underperformed, as liquidity in India’s banking system remains constrained. This has increased competition for customer deposits and led to concerns that margins are narrowing.

The Fund established a new position in the US-based industrial group AMETEK, which holds a portfolio of high-quality, niche businesses that generate strong cash flows. The company has two main business units: electronic instruments (e.g. analytical instruments, aerospace, and power and industrials) and electromechanical devices (e.g. motors and systems, and engineered materials). Harding Loevner is confident that the company can continue to deliver growth and profitability over the long term through acquisitions, international expansion and a shift in manufacturing to low-cost regions.