The MSCI World equities index was up 4% in December (in GBP) with Real Estate, Industrials and Financials posting the strongest gains, while Energy was once again the only sector to record a decline. Healthcare and Staples continued to lag the market while Consumer Discretionary performed in line. Inflation moderated further in the US and Europe and yields contracted as market participants factored in a higher likelihood of rate cuts by the Fed and the ECB. The soft-landing scenario for the global economy continues to play out but tailwinds to growth are fading. Consumer sentiment is mixed, excess savings are depleting, PMIs are in contraction zone, employment data is normalising and yet twelve-month forward earnings expectations remain near all-time highs. Conflicts in the Middle-East and Ukraine present risks to growth and commodity prices. In this complex environment, we believe the Longevity portfolio offers a balanced defensive stance and is well placed to benefit from long term demographic trends.
Portfolio positioning and performance
The Pacific Longevity & Social Change strategy outperformed its global benchmark in December, helped by our strong stock selection across Healthcare, Financials and Consumer Discretionary. On a stock level, the top three absolute contributors to Fund performance in December were Brunswick, Carlyle and Ulta Beauty. The primary detractors were Humana, United Health and Haleon.
Longevity consumer was the main contributor to performance with all subthemes posting gains, led by Financial Planning which benefitted from a continued rerating in Carlyle and ICG as well as a bounce in Legal & General. Legal & General released a number of updates highlighting solid momentum in its Retail Annuity sales as well as Americas Insurance business. Travel & Leisure subtheme also performed strongly with both Brunswick and Booking delivering sizeable relative gains. Pets At Home, part of the Companionship subtheme, was the main laggard.
Healthcare performance was driven by an ongoing rebound in the Medical Devices subtheme. On a stock level, Tandem Diabetes and Axonics drove the largest contribution to return. Pharmacy was the weakest subtheme in Healthcare, with Eli Lilly the main laggard.
In Education & Wellbeing Ulta Beauty, part of the Aesthetics & Vision subtheme, and lululemon, part of the Fitness & Nutrition subtheme, were the two strongest contributors to performance, supported by solid Q3 updates. Nike on the other hand, was among the main laggards, as the company downgraded its full year revenue outlook with fiscal Q2 results, citing weaker than anticipated demand in China and EMEA. The company initiated a restructuring plan aimed at reducing its workforce which will incur restructuring charges in the remainder of the year.
Later Living was the weakest performer in December as strength in Service Corp International, part of the Funeral Services subtheme, was offset by weakness in Health Insurance, with Humana and United Health both finishing the month in negative territory. Humana’s prior derating on the news of a potential combination with Cigna failed to reverse after merger plans were quelled.
Outlook
A cooling consumer, prolonged monetary policy drag and geopolitical stress, give cause for concern as we look ahead to 2024. On the positive side, employment remains strong and inventory restocking is yet to materialise, which could provide a short-term boost to manufacturing. Against this mixed backdrop, 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.
