September Report

• Global share markets continued to weaken during September as long-term bond yields increased and the economy slowed.
• Growth stocks underperformed the broader market and interest rate sensitive stocks such as information technology and real estate were particularly weak.
• The Portfolio returned -4.9% in September, while the benchmark returned -4.0%.

Top Holdings (alphabetically)

Alphabet Inc

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.

AMETEK Inc

United States

Industrials

AMETEK, Inc. is a global manufacturer of electronic instruments and electromechanical devices. The Company manufactures advanced instruments for process, aerospace, power, and industrial markets and is a supplier of electrical interconnects, specialty metals, technical motors and systems, and floor care and specialty motors.

Deere & Co

United States

Industrials

Deere & Company manufactures and distributes a range of agricultural, construction, forestry, and commercial and consumer equipment. The Company supplies replacement parts for its own products and for those of other manufacturers. Deere also provides product and parts financing services. Deere and Company extends its services and products worldwide.

Meta Platforms Inc

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 Corp

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.

Rockwell Automation Inc

United States

Industrials

Rockwell Automation, Inc. produces industrial automation products. The Company offers products such as control systems, motor control devices, sensors, and industrial control panels. Rockwell Automation markets its products worldwide.

Schneider Electric SE

United States

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.

Vertex Pharmaceuticals Inc

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 

The global equity market sell-off which began in August continued through September. The US share market performed particularly poorly after continued strong economic data led the Federal Reserve to declare that it may need to keep interest rates higher for longer.

This pushed up ten-year US Treasury yields to levels not seen since 2007, denting the appeal of equities. The sectors most sensitive to rising interest rates, such as information technology and real estate, underperformed the most.

Japan’s stock market declined nearly 2% but was the strongest-performing region. The Tokyo Stock Exchange’s January drive to reform capital allocation at companies with lowly valued shares continued to capture investor and management attention.

Meanwhile, hints from the new Bank of Japan Governor Kazuo Ueda that the country’s two-decade-long zero interest rate policy may soon be at an end further fuelled market sentiment.

Portfolio Commentary

The surge in long-term global bond yields last month drove an equity market switch out of growth stocks – which are more sensitive to changes in yields – and into value stocks. This led global growth stocks to underperform value by around 2.7% during September. The Portfolio underperformed its benchmark but by a smaller margin of 0.9%.

Despite the increasing political and regulatory challenges, the immense size and growth potential of China’s economy makes it a critical market for many global businesses.

L’Oréal’s operations in China have been robust over the past two years, as its consumer products revenue has grown three times as fast as the overall mainland China market. Strategic brand introductions and gradual expansion into lower-tier cities have boosted its luxury unit, which now has a larger share of China’s market than its two largest competitors combined. L’Oréal’s local management team has also been agile in reacting to changing market conditions.

When China reopened from COVID-19 lockdowns at the start of the year, the company cut its social media marketing spending. It had found that its strategy wasn’t as effective as it had hoped in what was proving to be a difficult market. However, it subsequently stepped-up media spending decisively when demand accelerated in the second quarter of this year.

L’Oréal’s flagship brand has also enjoyed success on TikTok and is leveraging its expertise to boost the performance of other brands, in both China as well as in adjacent Southeast Asian markets.

Hong Kong-based insurer AIA Group declined as negative investor sentiment in China impacted the broader share market. AIA also reported a slower than anticipated rebound in new business margins following the easing of pandemic-era restrictions.

Stock performance was positive within the consumer staples sector. The Portfolio’s holdings in US-based retail company Costco and UK-based consumer health company Haleon both contributed to relative returns.

Stock performance in the Portfolio’s European holdings detracted from relative performance, particularly French luxury goods company Kering which owns Gucci and other leading brands. Share prices of luxury goods companies broadly declined as investors grew concerned that demand from Chinese, US, and European consumers may slow in 2024.