Global share markets continued to perform strongly

• Global share markets continued to perform strongly during December as the world economy remained resilient and expectations grew that interest. rates will start to fall in 2024 across most major developed economies.
• Australian dollar strength detracted from returns.
• The Portfolio returned 2.3% after fees and expenses in December, outperforming the benchmark which returned 1.9%.

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.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.

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.

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.

Rockwell Automation Inc

United States

Industrials

Rockwell Automation, Inc. produces industrial automation products. The Company offers products such as control systems, motor control devices, sensors, and industrial control panels. Rockwell Automation markets its products worldwide.

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 market performance remained strong in local currency terms during December. Signs that inflation is continuing to ease gave rise to growing investor optimism that the major central banks will begin cutting interest rates in 2024. Expectations that the US Federal Reserve will begin to reduce interest rates ahead of other major central banks pushed the US dollar lower against many of its key trading partners’ currencies in December.

All sectors strengthened during December, except energy which was impacted by lower oil prices. All major markets delivered positive equity returns except China, where economic weakness reflecting cautious consumers and high debt levels impacted performance.

Inflation has fallen significantly across the major economies, lower bond yields are bringing down borrowing costs and implied volatility in the share markets is back down to pre-pandemic levels. This is an attractive environment for long-term investing in global equity markets.

Portfolio Comment

The Portfolio again outperformed the benchmark during December as higher quality stocks (those delivering higher returns with stronger balance sheets) continued to drive share market returns.

The Portfolio’s overweight position in industrials, underweight in energy, and strong relative stock performance in health care and communications services boosted relative returns. Weaker stock performance in financials and information technology were the main detractors from relative returns.

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

During the second half of 2023, the Portfolio built up a position in Germany’s leading online real estate portal Scout24, connecting buyers, renters, sellers, and landlords. The company has taken advantage of the ongoing digitalisation of the real estate market to expand its range of services, generating leads for real estate agents and mortgage lenders. Scout24 is developing an increasingly valuable brand that is expected to deliver sustainable revenue growth.

US-based biotechnology firm Vertex Pharmaceuticals outperformed after the company announced positive results from the phase 2 trial of VX-548. It is an experimental drug for the treatment of pain and numbness in legs and feet caused by nerve damage from diabetes. It has a similar effectiveness but a better safety record than the current market leader Lycra and is taken once daily (instead of three times). The patient population is two million in the US alone and represents a US$10 billion opportunity, which can extend to a further US$5 billion if a phase 2 trial for lower back pain is successful.

The holding in US-based semiconductor and infrastructure developer Broadcom contributed to relative returns in December. It announced strong revenue and earnings growth in 2023 upon increased AI-driven demand with stable core semiconductor revenues. The company also published improved guidance for 2024 as its recently acquired VMWare business and rising demand for ASIC (application-specific integrated circuits) chips drive revenue growth. While the stock has performed strongly it continues to generate strong cash flow and has attractive AI-related earnings potential.

US-based fixed income trading platform Tradeweb and derivatives exchange CME Group both detracted from relative returns during December. Some investors took profits following a period of outperformance upon elevated average daily trading volumes, fearing these may fall as interest rate volatility subsides. Tradeweb remains well positioned to benefit from the shift to electronic trading in fixed income markets. CME maintains scale and network advantages that deliver strong profitability and create a strong barrier to entry.

China biotechnology company WuXi AppTec detracted from relative returns after the company published a full-year profit warning. It cited slowing growth in the demand for vaccines and a pullback in funding by foreign investors (especially in the US) which negatively impacted China’s biotechnology sector. The stock remains a compelling investment with its contract research and manufacturing expected to grow earnings. It is well positioned for the growth in GLP-1 weight loss drugs across several products and is a key supplier for Eli Lilly’s diabetes drug Mounjaro which has now been approved for weight loss.