The MSCI World equities index was down 2.8% in April (in GBP), reversing March gains, driven by declines in Information Technology, Real Estate and Healthcare. Energy and Utilities were the only two sectors to record gains. The earnings season progressed broadly as expected with no major shifts in previously communicated outlooks from corporates and the pull back in equities instead reflecting persistently sticky inflation data which continued to drive treasury yields up. Employment data released in early May pointed to a cooling labour market and slower wage growth, with the lowest gain in nonfarm payrolls in six months and a small tick up in unemployment. While we see the likelihood of a hard landing as low, there is lingering uncertainty in the months to come, perpetuated by a fragile geopolitical landscape, upcoming elections and mixed growth trends across key global economies. We believe 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 April, helped by strong stock selection in Healthcare and Staples and our zero allocation to Information Technology. On a stock level, the top three absolute contributors to Fund performance in April were Transmedics, AstraZeneca and Medicover. The primary detractors were Ulta Beauty, Brunswick and Exact Sciences.
Healthcare was the only positive contributor to performance in April as strong gains in Medical Devices and Pharmacy subthemes were only partially offset by a pullback in Drug Development and Manufacturing. Our tactical increase to the Transmedics position on weakness in March played out well and it was the main contributor to subtheme and overall portfolio performance. The company reported a Q1 beat, supported by strong trends in Services and Disposables, and raised full year guidance. AstraZeneca, part of the Pharmacy subtheme and our largest holding, also made a strong contribution to April performance. The company reported strong Q1 results, and momentum remains constructive as the company is due to provide a deep dive into the development pipeline at its upcoming May Investor Day.
Longevity Consumer performance was supported by the Companionship subtheme, where Pets At Home rerated from its recent lows. Travel & Leisure was the main detractor from performance. Brunswick reported results in line with expectations and maintained its full year guidance, but sentiment was weighed down by the company’s cautious Q2 guide as well as disappointing results from a US boating retailer. While the prolonged high interest rate environment does pose a challenge, we see Brunswick as well positioned in the premium boat segment with an additional optionality from expanding the Freedom Boat Club membership program. In Financial Planning, Amundi was the main contributor to performance, as Q1 results prompted small positive upgrades to earnings on the back of solid AUM flows and equity market strength. UBS was the main detractor from performance but has since reported a reassuring first quarter, showing steady progress in Credit Suisse integration and a solid performance in Investment Bank and Wealth Management.
In Later Living, Medicover rerated on the back of its Q1 report more than offsetting weakness in Humana and CVS Health. The company delivered strong Q1 revenue growth which drove better operational efficiency contributing to a margin and earnings beat. We see attractive value in the shares based on the sizeable opportunity to continue to improve margins and expand presence in high growth regions such as India.
Education & Wellbeing was the main detractor from performance, weighed down by Aesthetics and Vision subtheme. Ulta Beauty’s comments pointing to slower Q1 sales trends alarmed investors when the company presented at a broker investor conference in early April. We believe Ulta is facing increased competition in the Beauty category and current trends in consumer shopping preferences may lead some temporary share losses. However, Ulta’s historically low valuation on realistic earnings forecasts appears to more than factor in this risk. Strategic Education, part of the Education subtheme, was the main contributor to performance. The company delivered impressive growth and strong margin improvement in Q1 and noted that enrolment trends remained healthy, particularly in employer-affiliated programmes.
Outlook
As we look ahead to 2024, we remain focused on the reality that populations around the world are ageing and the social implications around this demographic transformation continues to create significant opportunities for companies that provide products and services that 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.
