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PORTFOLIO RETURN
(20 YEARS)
DIVIDEND YIELD1
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1. Dividend yield is based on current displayed share price, and the most recently declared dividend, annualised
2. Grossed up yield is based on current displayed share price, the most recently declared dividend, annualised, and the tax rate and franking percentage applicable for the most recently declared dividend
SUMMARY
- 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.
COMMENTARY
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..