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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
- PIA rose 3.8% in May, trailing the MSCI World Total Return Index (Net Dividends Reinvested AUD), which rose 4.5%, as global equities advanced on the continued strength of the AI-driven Information Technology sector.
- The month brought a generally positive backdrop for equity investors. All major regions advanced, led by a sharp rally in South Korean memory chip manufacturers. Information Technology returned more than three times the broad index, while Energy weakened as oil prices fell on US-Iran talks.
- ASML, the Dutch supplier of semiconductor equipment, and Samsung Electronics contributed to performance, though the absence of Micron and SK Hynix detracted. The portfolio initiated a new position in Kubota, the Japanese supplier of tractors and farming equipment.
COMMENTARY
Market Review
Global equity markets advanced strongly in May, rising around 5%, with US equities narrowly ahead of their international counterparts. All major regions delivered positive returns, supported by continued momentum in the artificial intelligence buildout and easing geopolitical tensions in the Middle East.
Information Technology was the standout sector by some margin, returning more than three times the broad market, as investor enthusiasm for AI-related businesses persisted. The recovery extended beyond hardware, with even the previously weaker software and services industry posting a sharp rebound, rising close to 16%. Energy moved in the opposite direction as oil prices declined on improving prospects for a US-Iran agreement and expectations that the Strait of Hormuz would soon reopen, reversing some of the gains the sector had captured during the earlier conflict.
Regional performance was led by Emerging Markets, which rose nearly 10% as South Korea surged by more than a third on the strength of its memory chip manufacturers. With advanced semiconductor production heavily concentrated in the region, these markets stood to benefit directly from continued demand for AI hardware.
Portfolio Commentary
The defining feature of May for the portfolio was the unusually narrow nature of market leadership. A small cohort of stocks, the majority of them in Information Technology, drove most of the gains. The portfolio held several of these leaders, though the absence of others, particularly memory chip makers Micron and SK Hynix, weighed on relative performance.
Among individual holdings, ASML, the Dutch supplier of equipment to the semiconductor industry, and Samsung Electronics, the South Korean semiconductor and memory chip manufacturer, both contributed positively as the broader AI hardware cycle continued to support demand for advanced chips and the equipment used to produce them.
Several financial holdings weakened despite reporting positive results. Reinsurance Group of America, the global life and health reinsurer, and Progressive, the US auto insurer, both declined, as did Tradeweb Markets, the US-based electronic trading platform. In Communication Services, Netflix declined for a third consecutive month after issuing softer second-quarter guidance than the market had anticipated. On the positive side, HEICO, the US-based aircraft parts manufacturer, reported strong revenue growth, with its business proving resilient through the recent Middle East conflict.
During the month, the portfolio initiated a position in Kubota, one of the leading global suppliers of tractors and farming equipment. The company’s competitive advantage lies in its superior technology, with lightweight and efficient designs, combined with an extensive dealer and service network across the US and Asia. The share price had been weighed down by US tariffs and slowing US growth, and Kubota has since committed to a turnaround plan focused on growing free cash flow and reinvesting in higher-growth areas of the business, including construction machinery.
Periods of narrow market leadership, while uncomfortable in the short term, are not unusual. The investment approach continues to focus on businesses with durable competitive advantages and the financial strength to navigate a range of economic conditions.