The MSCI World equities index was up 3% in June (in GBP), predominantly driven by Information Technology, while performance across the other sectors was more mixed. Despite a 25bp rate cut by the ECB at the start of June, European equities lagged, weighed down by the announcement of a parliamentary election in France. Inflation readings continued to moderate both in Europe and in the US. US PPI and Core CPI readings for the month of May both came in below expectations, raising the odds that the Fed will begin to ease in Autumn. In the meantime, the weekly initial jobless claims trend continued to tick up, but remains below the peaks seen last August, and stands in contrast to a firming in the May JOLTS data. The US June employment report signalled some cooling in the labour market too, with the unemployment rate increasing slightly to 4.1% and a continued moderation in the annual increase in average hourly earnings. All in all, while the probability of a soft landing appears to be increasing, there is lingering uncertainty in the months to come, perpetuated by a fragile geopolitical landscape, elections and mixed growth trends across key global economies. 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 May, primarily due to our zero allocation to the Information Technology sector and a retreat in some of our Healthcare, Financials and
Consumer holdings. On a stock level, the top three absolute contributors to Fund performance in June were Transmedics, AbbVie and Booking. The primary detractors were GSK, Tandem Diabetes and Brunswick. Education and Wellbeing was the main detractor from performance. Stock weakness was concentrated in the Fitness and Nutrition subtheme, where Nike sold off by close to 20% on the back of a downbeat FY25 guide and concerns over the speed of turnaround and the product pipeline. Basic Fit saw some pressure due to its exposure to France. Topsports provided a disappointing trading update, which indicated consumer trends in China remain weaker than expected.
Healthcare had a mixed performance in June, weighed down by the Medical Devices subtheme. Another strong
month of performance in Transmedics was more than offset by weakness in Procept Biorobotics and Tandem Diabetes. In Pharmacy, strong performance in AbbVie and Eli Lilly shares was more than offset by a sharp selloff in GSK. It was announced on May 31 that the Delaware court would permit plaintiff expert testimony as part of the Zantac litigation. GSK views the decision as inconsistent with previous methods used by US courts to determine whether an expert testimony should be admissible at trials and has started the appeal process to overturn the ruling. An additional setback came with the news that the RSV vaccine will not be recommended for the 55-59 age cohort. Additionally, working group decided to show no preference amongst available vaccines, which include Moderna and Pfizer.
In Longevity Consumer, positive contribution from the Companionship subtheme was more than offset by weakness in Financial Planning and Life and Non-Life Insurance. Amundi shares derated sharply, despite earnings upgrades into Q2 results, on concerns over the risks associated with the French elections outcome. In Life Insurance, the Legal & General CMD failed to revive investor enthusiasm. The proposed buyback, while a positive, was counterbalanced by muted capital generation targets and only 2% dividend growth expected for 2024-27. Brunswick, part of the Travel & Leisure subtheme, was one of the top three detractors from overall June portfolio performance as high interest rates continue to delay the recovery in boat registrations, while concerns on dealer inventory are rising.
Later Living was the only positive contributor to performance in June, driven by the Health Insurance subtheme and gains in United Health and Humana. We expect the Q2 reporting season to help improve visibility on unit costs and utilisation rates.
Outlook
As we look ahead to 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.
