The MSCI World equities index was up 2% in October (in GBP). On a sector basis, Information Technology, Consumer Discretionary, and Communication Services led the gains, while Healthcare, Staples and Materials were the weakest performers. A recovery seen in Chinese equities in September lost momentum as the announced stimulus measures failed to meet expectations while the company’s reporting season confirmed a broad weakness in the domestic economy. The earnings season has been mixed, and though most companies beat or met earnings expectations, growth slowed sequentially, and we saw some outsized moves in both directions, likely exacerbated by the looming US elections. A swifter election outcome than predicted by some pollsters alleviated some market uncertainty and got rapidly priced in on the days following the election. Our expectation for a soft landing for the US economy does not change, but we are mindful of the uncertainty which comes with a Republican sweep. Market expectations for inflation have gone up, yields have widened. This poses a tricky set up for equities, calling for a measured approach to stock picking. 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 underperformed its global benchmark in October, with all the underperformance attributable to our overweight allocation to Healthcare. This was exacerbated by some outsized underperformance by several of our Healthcare holdings, which reversed some of the alpha generated in prior months. On a stock level, the top three absolute positive contributors to Fund performance in October were Carlyle Group, Procept Biorobotics and Booking.
The primary detractors were Transmedics, Icon and Philips. Longevity Consumer was the main contributor to positive performance, with Financial Planning and Travel & Leisure both posting solid gains. Carlyle, was again, the main contributor to performance in Financial Planning as the shares rerated. We locked in some profits after the company reported a broadly in line third quarter in early November, with strength in Credit and Solutions offsetting a slower quarter in Private Equity. Intermediate Capital Group was the main detractor from the performance in the Longevity theme, giving up some of the prior months’ gains. The widening of gilt yields after the UK government budget announcement was likely a technical reason for this underperformance and we continued to opportunistically build our position into the upcoming semi-annual report. Booking, part of the Travel & Leisure subtheme, delivered a strong Q3 report reaffirming the company is a best-in-class operator in a resilient Travel & Leisure space.
Healthcare was the main detractor from fund performance in October with a wide dispersion of returns across the portfolio. Transmedics and Icon were the main detractors, while Procept Biorobotics and Abbvie were the main contributors. Transmedics reported a slightly weaker than expected Q3 on revenues and traded off sharply as the market became concerned that lower revenues and profitability were a product of intensifying competition rather than subdued transplant market volumes and the company’s scheduled servicing of the logistics fleet. We remain convinced that Transmedics’ offering in the transplant technology and logistics space remains unmatched and opportunistically increased our position. Procept Biorobotics, on the other hand, delivered a beat and raise quarter, with encouraging updates on the new Hydros system as well as the optimistic set up in the Prostate Cancer application.
Education & Wellbeing made a small positive contribution to performance led by Education and Screening subthemes. Adtalem Education reported a strong Q3 and raised guidance on the back of accelerating enrolment trends. Lululemon, part of the Fitness & Nutrition subtheme also contributed positively. Following a broad improvement in market sentiment towards China exposed names in September, this reversed over the past month. Like many China consumer focussed names, Topsports erased the gains seen in September and was the main detractor from the theme’s performance. The company reported results that were broadly in line with expectations but confirmed that the consumer environment in China remained challenged, with more work to do on destocking in the fitness channel in the coming months.
Outlook
As we look ahead to the remainder 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.
