The MSCI World equities index was broadly flat in April (-0.1% in GBP). On the macroeconomic front, Q1 US real GDP surprised to the downside on slower inventory growth. The Eurozone avoided a recession with mixed trends in the largest economies as Italy and Spain accelerated while Germany stagnated.
Visibility remains low with core CPI readings still elevated in a historic context, increasingly mixed job data, ongoing stress in the US regional banking system, signs of tightening lending standards and a recovery in China failing to come through in full force for now. Despite this uncertain environment both the US Federal Reserve and ECB continued to raise policy rates with 25bps hikes announced in early May.
Portfolio positioning and performance
The Pacific Longevity & Social Change strategy increased 1.5% in April (in GBP), outperforming its global benchmark with positive contributions from all of our key sectors and strong alpha delivery across Staples and Consumer Discretionary. On a stock level, the top three absolute contributors to Fund performance in March were Conmed, Humana and EssilorLuxottica. The primary detractors were Catalent, Icon PLC and Columbia Sportswear.
Looking at the Longevity & Social Change performance by theme, Longevity Consumer was the top contributor boosted by a strong month in Life & Non-Life Insurance where Prudential and Allianz were the top contributors. Prudential published a strong trading update in April, noting a recovery in new business volumes in Hong Kong which reassured investors. Other sub-themes also delivered positive results led by Companionship (Pets At Home) while Financial Planning and Travel & Leisure also maintained positive momentum with the strongest performance from Intermediate Capital and Brunswick.
In Education & Wellbeing, Hygiene & Personal Care reflected a recovery in Staples with gains driven by Haleon and Reckitt Benckiser both of which reported revenue beats driven by still solid pricing gains and better than expected volumes. Aesthetics and Vision performance was driven by a strong rerating in EssilorLuxottica, which reported a solid Q1 sales update with broad based strength across product categories and regions. The company also hosted a confident analyst day with an update on efficiency initiatives progress.
As we had anticipated, Later Living caught up on performance post the CMS announcements which came at the very end of March, which were then underscored by strong quarterly updates. Performance was led by
Humana, followed by United Health and HCA Healthcare.
The Healthcare theme was broadly flat in April as strong performance in Medical Devices and Pharmacy was offset by a weak month in Drug Development & Manufacturing. Catalent was the main driver of weakness as it reported operational/productivity challenges at three of its facilities. In the meantime Icon Plc and Thermo Fisher derated on the back of investor fears about possible SMID-cap biotech funding weakness affecting the scope and volume of new trials. On the positive side Conmed and Hologic led performance in Medical Devices, while AstraZeneca and Eli Lilly drove gains in Pharmacy.
Outlook
As we move through 2023, troubles in the Banking sector add to the ongoing challenges of persistent inflation, tight labour markets and higher costs of financing. Despite this backdrop, Q1 reporting season was largely positive, with many companies in our portfolio meeting and exceeding expectations. We remain confident in our resilient and defensive portfolio positioning across the Longevity universe and believe the outlook for the Longevity & Social Change universe remains robust. Across the globe, populations continue to age, and this creates opportunities for companies that provide products and services which cater to changing consumption patterns driven by shifts in demography. We remain focused on identifying high quality companies with proven operating models and strong innovation characteristics that have exposure to the durable and resilient growth offered by the Longevity and Social Change theme.
