The MSCI World equities index was up 0.4% in August (in GBP). A sharp selloff across the major regions and indexes in the first week of August was followed by a rapid recovery over the remainder of the month. On a sector basis, weakness in Information Technology and Consumer Discretionary was offset by strength in Healthcare and Financials. The surge in volatility in early August paused a July rotation into the small and midcap space as concerns over labour market weakness, a potential US recession and the unwinding of the Yen carry trade were exacerbated by seasonally thin trading volumes. We continue to see a soft-landing scenario as the most probable outcome at present with the broadly positive Q2 earnings season supportive of this view. Corporate balance sheets are solid, important segments of the consumer remain resilient, and the correction in employment data is not broad based. There is some lingering uncertainty in the months to come, perpetuated by a fragile geopolitical landscape and bifurcating consumer, which we continue to monitor closely. We believe the Longevity portfolio offers a balanced defensive stance and remains well placed to benefit from long-term demographic trends.
Portfolio positioning and performance
The Pacific Longevity & Social Change strategy outperformed its global benchmark in August, with most of the outperformance attributable to a solid month for our Healthcare portfolio holdings and our overweight in Healthcare. On a stock level, the top three absolute contributors to Fund performance in August were Exact Sciences, Procept Biorobotics and Transmedics. The primary detractors were Carlyle, Strategic Education and Intermediate Capital Group.
Healthcare was the main contributor to performance led by the Medical Devices and Pharmacy subthemes. Procept Biorobotics, part of the Medical Devices Subtheme, climbed on the news that the FDA cleared its next-generation robotic system with the launch planned as early as the third quarter. Transmedics reported a strong Q2, beating already high expectations and raising guidance with encouraging commentary on an acceleration in heart transplant volumes. GSK and AstraZeneca were strong contributors to performance in Pharmacy. GSK saw a boost from the news around the Zantac proceedings, welcoming the decision by the Delaware Supreme court to review the prior decision by the Superior court to allow the introduction of plaintiffs’ expert evidence at trial.
Education & Wellbeing performance reflected a strong month in Screening and Hygiene & Personal Care. Exact Sciences, part of the Screening subtheme, delivered a strong Q2 beat, driven by margin, and reiterated full year guidance which put some prior market concerns to rest. The company expects to share some key pipeline results in the second half of the year which could prove to be an important catalyst for the shares. Haleon, part of the Hygiene & Personal Care subtheme, reported a reassuring Q2 on volumes, and posted a margin beat, which drove an increase in the full year guide. Haleon’s visibility amongst the investor community is improving whilst the shares remain at a discount to category peers. Despite delivering a strong quarter, Strategic Education was the main detractor from performance within Education & Wellbeing as the company’s increased investment guidance implied a small downgrade to the projected full year margin increase.
Longevity Consumer was a small detractor from overall performance driven by the Financial Planning subtheme. A sharp derating in Carlyle more than offset positive performance across most of our other Financial Planning holdings. Carlyle reported a reassuring Q2, with an acceleration in fund raising and solid fee-related earnings supported by good cost control. However, the shares failed to maintain the strong performance seen in July due to concerns over the pace of realization activity amid the elevated market volatility. Booking, part of the Travel & Leisure subtheme, rerated following the underperformance seen in July and the initial negative reaction to its Q2 results in early August as macro concerns eased on the back of stronger than expected personal consumption data in the US.
Outlook
As we look ahead to the rest of 2024, we remain focused on the reality that populations around the world are ageing. The social implications around this demographic transformation continue to create significant opportunities for companies that provide products and services which meet the changing consumption patterns driven by this phenomenon. Our Longevity and Social Change strategy is focused on identifying high-quality businesses which have such exposure and can deliver sustainable returns over the long term.
