June Report

Market Review 

Global equity markets continued to move higher during June as inflationary pressures receded and hopes rose that the Federal Reserve will begin to reduce US interest rates later this year.

Market gains were driven by continued strength in the technology sector, as investors continued to focus on the earnings growth in business models aligned to the adoption of generative AI. Emerging Markets also performed well, boosted by expectations of lower US interest rates.

However, recent election results have introduced new volatility into both developed and emerging markets. Far-right parties made significant gains in the European Union’s parliamentary elections and saw their support rise in France and Germany.

In another anti-incumbent outcome, the centre-left Labour party, under more moderate leadership, secured a large majority in the UK Parliament, ending 14-years of Conservative government.

Indian equity markets fell sharply after Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) failed to secure a majority in that country’s elections. The market reaction proved short-lived, however, as it recovered to reach new highs by month-end.

In Mexico, Claudia Sheinbaum’s decisive victory over Xóchitl Gálvez led to a larger drop in Mexican stock prices, as investors braced for more populist policies.

Portfolio Commentary

The Portfolio is focussed on identifying great companies through bottom-up analysis and continues to find exciting opportunities in communications services, health care and industrials, in which it maintains overweight positions.

Growth investing is predicated on exposure to continuous waves of innovation, which can often lead to long periods of outperformance by well positioned stocks. The challenge for investors is to identify in advance the small number of companies which typically capture most of such wealth creation. The economic environment is changing continuously, which means today’s winners must constantly evolve to maintain their competitive advantage.

Company-specific risk is managed through a portfolio of approximately 50 high-quality companies, diversified across regions, industries and sectors. Our investment process identifies companies which can deliver sustained high profitability from their alignment to waves of innovation. These demonstrate financial strength, strong management teams and a sustainable competitive advantage.

This approach helped the Portfolio outperform the benchmark in June. Strong performance by the Portfolio’s holdings in information technology, consumer discretionary and communications services, and underweight positions in the weaker financials, materials and utilities sectors boosted relative returns. The underweight position in the high-performing technology sector and the overweight position in the underperforming industrials sector detracted from relative returns.

The Portfolio’s largest contributor to relative returns was its overweight position in US-based content creation and publishing software company Adobe. It outperformed after reporting record revenue for the second fiscal quarter of 2024, helped by strong sales and earnings growth. The company also raised its guidance for the remainder of 2024.

Shares in US-based e-commerce and cloud computing company Amazon rose sharply after electric vehicle maker Rivian Automotive (in which Amazon owns a 16% stake) announced it would form a joint venture with Volkswagen.

US-based Repligen, a manufacturer of advanced bioprocessing technologies used to make biologic drugs, detracted from relative returns after the company did not reiterate its earlier forward guidance. It also announced that CEO Tony Hunt would be stepping down.

The Portfolio’s holding in Denmark-based cancer drug manufacturer Genmab detracted from relative returns when it underperformed upon investor concerns regarding increasing costs.

The Portfolio exited its position in US-based sportswear manufacturer Nike due to rising competition from On Holding and HOKA. This has diminished the Portfolio Manager’s confidence that Nike will be able to turn around the company’s lagging sales trajectory.

Meanwhile, the Portfolio increased its position in US cloud-based software-as-a-service provider Salesforce, which provides customer relationship management and marketing automation software. It is attractively valued given the growth opportunities brought by its investment in generative AI capabilities.