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 began 2026 with mixed performance and notable divergence across regions and sectors, reflecting uneven economic momentum and shifting investor expectations. While headline returns were relatively contained, underlying dispersion was pronounced. Emerging Markets were the standout, rising strongly on the back of South Korean memory chip manufacturers, which extended their late-2025 rally amid surging demand for AI-related memory. A weaker US dollar provided an additional tailwind to EM performance during the month.
In contrast, the US lagged the broader global market, despite the S&P 500 reaching a record high late in January. Returns were weighed down by weakness in Information Technology, particularly within software and services, where concerns around the disruptive potential of artificial intelligence unsettled investors. The sharp sell-off in parts of the software industry reflected a reassessment of traditional business models and the potential for AI to alter competitive dynamics.
At a sector level, Energy and Materials were the strongest performers, supported by rising energy and commodity prices. This strength contrasted with softness in software-related segments of the market and contributed to the significant performance dispersion observed across industries and regions during the period.
Portfolio Commentary
The Fund declined 2.3% in January, modestly underperforming the benchmark, in a month marked by sharp divergence within Information Technology and strong gains across select Emerging Markets. Relative returns were driven primarily by stock-specific effects rather than broad style or factor movements.
Software and services companies fell sharply during the month as investors questioned whether artificial intelligence could disrupt traditional software business models. The market reaction reflected concerns that generative AI tools may reduce pricing power, compress margins or weaken customer lock-in across segments of the industry.
While the team recognises AI as a transformative innovation with potentially far-reaching consequences, it does not assume widespread obsolescence. Instead, analysis is focused on how AI may reshape competitive dynamics within individual industries. The portfolio’s software holdings, including Accenture, Adobe, Microsoft, and SAP, the German enterprise resource planning software provider, are characterised by strong network effects, high switching costs and proprietary data. In the team’s view, these attributes position such companies to incorporate AI in ways that reinforce rather than erode their competitive advantages over time.
In Emerging Markets, the absence of two South Korean memory chip manufacturers, Samsung Electronics and SK hynix, detracted from relative returns. Both companies benefited from strong AI-related demand and continued momentum in memory pricing. Within Consumer Discretionary, Sony declined amid concerns that rising memory prices could pressure margins in its PlayStation console business, while Booking Holdings, the global online travel booking platform, lagged on fears that AI-enabled travel search tools could disrupt established booking channels.
Offsetting some of these headwinds, the portfolio generated positive relative contributions within Information Technology. ASML, the Dutch manufacturer of advanced semiconductor lithography equipment, reported higher-than-expected bookings and improved its 2026 outlook, reinforcing confidence in demand for cutting-edge chipmaking tools. Delta Electronics, the Taiwanese provider of power management and industrial automation solutions, benefited from sustained AI-related infrastructure investment. The portfolio’s lack of exposure to Apple further supported relative returns within the sector.
There were no new purchases or sales during the month. The portfolio remains focused on high-quality businesses with durable competitive advantages, strong balance sheets and long-term structural growth drivers, consistent with the team’s disciplined, bottom-up investment approach.