November Report

• The Portfolio returned 3.6% in November, while the benchmark returned 5.2%.
• Global share markets were led by a strong rally in US shares following the presidential election, which raised investor hopes of pro-growth policies.
• A stronger US dollar and the prospect of higher US trade tariffs constrained returns in non-US markets.

Top Holdings (alphabetically)

Accenture Plc Class A

Ireland

Information Technology

Alphabet Inc. Class A

United States

Communication Services

Amazon.com, Inc.

United States

Consumer Discretionary

Deere & Company

United States

Industrials

Meta Platforms Inc Class A

United States

Communication Services

Microsoft Corporation

United States

Information Technology

Netflix, Inc.

United States

Communication Services

Schneider Electric SE

France

Industrials

UnitedHealth Group Incorporated

United States

Health Care

Vertex Pharmaceuticals Incorporated

United States

Health Care

Market Review 

Global equities made strong gains in November, led by the US, where the S&P500 reached a new record high. This was driven by the decisive outcome of the US election which saw Republicans take control of the White House and both houses of congress, raising hopes of pro-growth policies.

A stronger US dollar weighed on non-US stocks, particularly emerging markets (EMs), which was the weakest region. Markets were also subdued in Europe, Japan and China, upon fears that the new US administration could impose higher tariffs that would impact their global exporters’ earnings growth.

Shares of lower-quality firms, which tend to benefit from stimulatory policy and lower regulation, outperformed those of higher-quality businesses. Quality refers to factors such as higher profits, lower volatility, stronger balance sheets and faster earnings growth. During November, the lowest 20% of stocks in the global market ranked by quality outperformed the top 20% by over 3.0%.

The strongest performing sectors during November were consumer discretionary, financials and information technology. Financials outperformed upon expectations of banking deregulation in the US after the new administration takes office. Meanwhile, materials, health care and utilities underperformed during the month. Health care underperformed following President-elect Trump’s nomination of vaccine-sceptic Robert F. Kennedy Jr. as US Secretary of Health and Human Services.

Portfolio Commentary

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

Strong stock performance in consumer discretionary and communications services, and an underweight position in materials boosted relative returns in November. This was offset by an overweight position in health care, an underweight in financials and weaker stock performance in both sectors.

Throughout much of this year, semiconductor stocks strongly outperformed software stocks, which languished. This was driven by strong demand for the most advanced chips that power the large language models which support the development of artificial intelligence (AI) applications.

The wide discount at which the market values the software businesses which have been developing the AI applications that promise to grow labour productivity and hence corporate earnings, appears unsustainable. Harding Loevner believes that eventually businesses must succeed in monetising AI applications to sustain the massive chip and infrastructure investment.

Therefore, the Portfolio’s exposure to businesses along the semiconductor value chain was reduced and the overweight exposure to software and services increased. In November, semiconductor stocks (other than NVIDIA) underperformed, while software stocks soared upon signs that AI applications are now delivering revenue growth. US-based enterprise software company ServiceNow which focusses on business-process automation reported that ‘Now Assist’ is its fastest-growing product ever. It also announced a software tool to integrate external data into the company’s AI models.

Japan-based personal electronics and entertainment giant Sony outperformed upon strong revenue and earnings growth in the September quarter. This was boosted by the shift to subscriptions in its game division and strength in its image-sensor business.

Netherlands-based payments processing business Adyen underperformed in November upon weakness in the broader European stock market. Investor sentiment was also impacted by the company’s lower-than-expected growth in transaction volumes. Harding Loevner remains optimistic about its business pipeline and growth prospects for next year, and the stock began to recover at the end of the month.

The Portfolio’s underweight exposure to the underperforming emerging markets supported relative returns in the wake of the US election. However, weakness in European stocks – in which the Portfolio maintains an overweight position – detracted from relative returns in November.

The Portfolio did not establish any new positions or exit any existing ones in November.