The MSCI World equities index was up 0.9% in January (in GBP) with Information Technology, Communication Services and Healthcare posting the strongest gains, while Materials and Real Estate recorded the largest declines. The goldilocks scenario continued to play out and, although the global growth is set to moderate, US consumer remains resilient according to the final domestic sales data. In the meantime inflation remains steady but elevated, labour markets are still tight and looser policy response is unlikely to materialise in the first half of 2024. 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 underperformed its global benchmark in January, as performance was held back by our zero allocation to the Technology and Communication services sectors, and due to pockets of weakness among some of our core holdings. On a stock level, the top three absolute contributors to Fund performance in January were Axonics, Medicover and GSK. The primary detractors were Adtalem, Brunswick and Humana.
Healthcare was the main contributor to performance with strong gains in the Pharmacy subtheme and continued advance in Medical Devices. On a stock level, Axonics and GSK drove the largest contribution to return while Conmed was the main detractor. Axonics rallied following a takeout bid by Boston Scientific with the deal expected to close in the first half of 2024. GSK reported a strong end to 2024 and upgraded guidance with a healthy pipeline setting ahead. On the other hand, Conmed posted a disappointing Q4, which was affected by supply disruption in orthopaedics, with derating exacerbated by market concerns over competitive dynamics for its Airseal franchise after Intuitive Surgical’s announcement of a pending robot upgrade.
In Later Living a solid month for Care Services was more than offset by underperformance in Humana, part of the Health Insurance subtheme. The company provided a disappointing guidance for 2024 reflecting higher cost run rate as inpatient an non-inpatient utilization has accelerated towards the end of last year pressuring margins. Longevity consumer performance was weighed down by Travel & Leisure and Companionship subthemes.
Brunswick was the main detractor from performance, as several competitors and retailers in the marine space posted weak Q4 updates. The company has since reported Q4 results and provided guidance for 2024 which, despite coming below expectations, was taken positively as the valuation already reflects trough earnings. Pets at Home quarterly update failed to revive the stock as discretionary retail remained pressured. We added to the position as valuation reached a more compelling level, with the vet business an important driver of profitability which doesn’t seem to be fully appreciated by the market. In Financial Planning performance was scattered but mostly resilient with strongest performance from ICP, which delivered a positive AUM update. Prudential was the weakest performer, reflecting subdued sentiment for China exposed stocks.
In Education & Wellbeing Hygiene & Personal Care subtheme was the strongest contributor to performance, driven by Reckitt Benckiser. The main detractor from performance was the Fitness & Nutrition subtheme which suffered from a pullback in 2023 top performer lululemon, and Topsports on concerns over the health of the Chinese consumer. The Education subtheme had a tough month as a short seller report on Adtalem Education caused a sizeable derating in the shares. We partially de-risked our position and held a call with the company which, in addition to its upbeat Q2 report, provided some reassurance around the sustainability of Adtalem’s business model.
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.
