May Report

Market Review

Global equity markets were stronger in May, with the MSCI World Index rising 4.5% as investor sentiment recovered further after the volatility seen earlier in the year. The rally was again led by the US, where enthusiasm around Artificial Intelligence (“AI”) remained the dominant theme. Strong results from AI-linked companies helped reinforce confidence that investment in chips, servers, software, and data centre infrastructure remains a powerful driver of corporate earnings. However, leadership remained concentrated in a relatively narrow group of large technology and semiconductor companies, while many other areas of the market saw more modest gains.

Inflation expectations were also an important influence during the month. Concerns around inflation, government borrowing and the outlook for interest rates kept yields elevated. This contributed to a more challenging environment for interest rate-sensitive sectors, although exuberance outweighed this for the sectors related to AI.

May also saw important developments in sustainability policy. In Europe, proposed changes to reporting standards and deforestation rules aimed to reduce complexity while preserving expectations around transparency and supply chain traceability. In the US, the SEC’s move to rescind climate disclosure rules highlighted growing regional divergence, while the ISSB’s work on nature-related disclosures showed that biodiversity, water, and land-use risks are moving closer to mainstream financial reporting.

Fund Review

The Fund delivered a positive return over the month of 3.1%.

Infineon Technologies, in the Resource Efficiency theme, was the strongest single positive contributor to performance. The company develops semiconductors that improve energy efficiency across industrial, automotive and digital infrastructure applications. Shares performed strongly after management highlighted growing demand from data centre customers and improving conditions in automotive and industrial markets. The stock also benefited from broadening investor enthusiasm for companies exposed to the build-out of AI infrastructure, where efficient power management is becoming increasingly important.

First Solar, in the Cleaner Energy theme, also contributed positively. The company manufactures utility-scale solar modules and remains one of the largest domestic solar producers in the US. Reassuring results and reaffirmed guidance supported the shares, while growing recognition of the substantial electricity requirements associated with AI and data centre growth reinforced the importance of new power generation capacity.

Agilent Technologies, in the Health theme, was another strong contributor. The company provides analytical instruments and laboratory technologies used in pharmaceutical research, diagnostics and environmental testing. Strong results, improving margins and an upgraded outlook reinforced confidence in the company’s ability to deliver sustainable growth despite a mixed economic backdrop.

On the weaker side, Verra Mobility, in the Safety theme, was the largest detractor. The company provides technology solutions that support road safety and traffic management. Shares fell heavily following the loss of a significant customer contract, creating uncertainty around the business model in one of its three divisions.

Xylem, in the Water Management theme, also detracted despite delivering solid results. The company continues to benefit from long-term demand for water infrastructure and efficiency solutions, but investors focused on softer order trends and questions around future growth, outweighing otherwise encouraging operational performance.

Outlook

The challenges addressed by the companies in the portfolio continue to grow in both scale and urgency. Around the world, rising energy demand, ageing populations, resource constraints and increasing pressure on infrastructure are creating a need for more efficient, resilient and sustainable systems.

Recent developments in AI provide a useful example. While attention has focused on advances in computing power and software, the rapid expansion of digital infrastructure is also increasing demand for electricity, power management, cooling and resource efficiency. Meeting these needs will require significant investment across energy, industrial and infrastructure systems, creating opportunities for many of the businesses held within the strategy.

The same pattern can be seen across healthcare, where growing demand and workforce shortages are driving the adoption of technologies that improve productivity, diagnostics and patient outcomes. In water management, increasing pressure on ageing infrastructure and water resources continues to support investment in efficiency, monitoring, and treatment solutions. Across industries, businesses are seeking ways to improve productivity while reducing costs and resource use.

While policy priorities continue to evolve, the underlying direction of travel remains clear. Energy systems must become cleaner and more resilient, healthcare systems more effective, and critical infrastructure more efficient. We continue to find attractive opportunities in companies providing those solutions. Their products and services address real-world needs, are supported by powerful structural drivers, and, in our view, are well positioned to deliver sustainable growth over the years ahead.