Tech Stocks Propel Global Equities in May

• Global equities delivered strong gains in May, driven by technology stocks, as semiconductor companies continued to report good earnings growth.
• Growing expectations that moderating inflation will enable major central banks to begin cutting interest rates later this year further supported share markets.
• The Portfolio returned 1.2% in May, while the benchmark returned 2%, as strong global equity returns were somewhat offset by the strength of the Australian dollar.

Top Holdings (alphabetically)

Alcon Inc

Switzerland

Health Care

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.

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.

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.

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 

Global equity markets rebounded in May following the April pull-back, resuming the growth trajectory of recent months.

Market gains were driven by technology stocks, predominantly those across the semiconductor ecosystem. Investor excitement for companies aligned to the adoption of AI applications continues to build upon strong company earnings growth.

The fortunes of technology shares are showing signs of dispersion, with semiconductor stocks rising 14% in May, while software edged up just 1%. Semiconductors have outperformed software by a staggering 44% over the year-to-date. Several enterprise software stocks underperformed in May as companies’ forward earnings guidance pushed back the timing of the monetisation of their generative AI initiatives.

Expectations that the Federal Reserve (Fed) would begin to reduce US interest rates later this year brought a weaker US dollar, relative to most of its major trading currencies.

Eurozone stocks outperformed the US (when adjusted for US dollar weakness) during May. Investors grew more confident that the European Central Bank would begin a series of interest rate cuts, which it did at its 6 June meeting. This came despite improvement in the region’s manufacturing sector and labour market resilience, which raises the prospect of a softish landing in the European economy.

Portfolio Commentary

The Portfolio underperformed the benchmark during May. Strong performance by the Portfolio’s holdings in health care and communication services, the overweight position in communications services and the underweight position in energy boosted relative returns. However, this was offset by weaker performance by the Portfolio’s holdings in information technology and financials, and the overweight position in health care, which detracted from relative returns.

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

The Portfolio’s strongest contributor to relative returns in May was the overweight position in US-based Vertex Pharmaceuticals, a biopharmaceutical group that develops drugs to treat Cystic Fibrosis. It outperformed after announcing first quarter revenue and earnings ahead of investor expectations. The company also provided positive updates on new products, including a gene editing therapy for sickle cell disease.

The Portfolio’s holding in US-based image-sharing and social media platform Pinterest also contributed to relative returns. It outperformed after announcing strong first quarter earnings results, with a 23% growth in revenue and an 12% increase in global monthly active users.

Swiss-American eyecare specialist Alcon is a market leader in both ophthalmic surgery solutions and contact lenses. It contributed to relative returns when it outperformed after announcing stronger than expected earnings-per-share and margins for the March quarter. The company also increased its projected revenue growth.

The zero-weighting in US-based developer of advanced semiconductors, Nvidia, detracted from relative returns. It outperformed after announcing stronger than expected March quarter earnings, as net income increased 262% year-on-year. The Portfolio’s zero-weighting in the stock reflects concern that its current market valuation appears to assume that semiconductor businesses will capture most of the value from AI innovation.

The Portfolio’s holdings in software-focussed companies such as Salesforce, Accenture and Globant also underperformed, detracting from relative returns. This reflected the negative market sentiment towards software businesses. However, Harding Loevner believes that these companies are well positioned to develop AI applications that benefit customers, delivering sustainable revenue and earnings growth over time.

The Portfolio established a position in US-based Atkore, a leading global manufacturer of pipes, tubing, electrical cables, cable-management systems and security-fencing products. Its market leadership in various electrical equipment markets creates opportunities to benefit from ongoing growth in the electrification, digitalisation and improvements in US infrastructure.

The Portfolio sold its position in US industrial conglomerate Ametek which designs and manufactures electronic instruments and electromechanical devices. This follows a period of strong outperformance..