October Report

• Equity markets rebounded strongly in October as company earnings showed resilience
• Investors are turning their attention to an eventual easing of the speed of interest rate increases as the global economy shows signs of slowing
• The Portfolio returned 3.7% in October, while the benchmark returned 7.8%

We have also included below our recent interview with Ray Vars, Investment Specialist from Harding Loevner.

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

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.

First Republic Bank

United States

Financials

First Republic Bank and its subsidiaries provide private banking, private business banking and private wealth management in urban, coastal markets in the U.S. First Republic delivers relationship-based service by providing a single point of contact for all of its services.

HDFC Bank Ltd

India

Financials

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

Microsoft

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.

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.

UnitedHealth Group Inc

United States

Health Care

UnitedHealth Group Incorporated owns and manages organized health systems. The Company provides employers products and resources to plan and administer employee benefit programs. UnitedHealth serves customers in the United States.

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 share markets rebounded in October as investors digested resilient company earnings reports. The market also contemplated the prospect of less aggressive central bank rate increases as US data showed signs of an economic slowdown. This followed the rapid series of rate hikes this year.

The MSCI World Total Return Index Net Dividends Reinvested Unhedged AUD Index returned 7.8%. Australian dollar weakness modestly boosted share price gains.

Emerging Markets was the only region in which equites declined during the period. This was impacted by weakness in China, where the share market fell almost 17%. This followed the five-yearly Communist Party Congress held in mid-October, where President Xi secured an unprecedented third term. The Party further centralised political and economic control and gave little indication of an early relaxation in the zero-Covid policy that has constrained economic growth.

In Europe, the extremely high price of natural gas eased somewhat when storage levels increased as the weather remained relatively mild. This should help ease medium-term inflationary pressures.

UK equity, fixed income and currency markets rebounded after the appointment of Jeremy Hunt as Chancellor of the Exchequer. This led to the swift reversal of his predecessor’s controversial plans for unfunded tax cuts and spending. His appointment was confirmed when Rishi Sunak took over as Prime Minister at the end of October.

Energy was the strongest performing sector during the month, while Communication Services declined modestly on concerns of weaker advertising spending as the economy slows.

Portfolio Comment

In late September the Portfolio increased its holding in the US technology-focussed banking group SVB Financial Group. The stock had underperformed the market upon concerns that start-up companies, which represent a sizable portion of SVB’s customer base, would fare poorly in the face of interest rate increases and a possible recession.

While the weakness in the company share price had left it attractively valued, the stock continued to underperform in October when the company released weaker earnings guidance. This highlighted the impossibility of identifying the low point of a stock cycle other than with hindsight.

However, the decision to increase the Portfolio’s exposure to the company reflects its focus on identifying high-quality, businesses that demonstrate the ability to grow sustainably over the long-term. The Portfolio seeks to invest in such opportunities when market valuation levels fail to reflect their strong business fundamentals, providing attractive investment opportunities.

US banking and wealth management group First Republic Bank underperformed the market after it announced disappointing net interest income margin guidance.

US-based social media technology group Meta Platforms significantly underperformed the market after the company reported weaker earnings. This was due to continued high levels of investment in Horizon Worlds, its social virtual reality business and Quest, its virtual reality headset unit. This supports its strategy of pivoting the business towards establishing a market leadership position in the metaverse.

US-based manufacturer of agricultural machinery John Deere and US industrial automation group Rockwell Automation both outperformed the market during October. The two industrial companies continue to benefit from the trend of shortening supply chains to increase manufacturing resilience, and industrial automation, which are gathering pace in the US.