The MSCI World equities index was up 2.3% in May (in GBP), driven by Information Technology, Communication
Services and Utilities and with positive momentum across the major regions. A rally in Nvidia shares accounted
for nearly a third of this move. Energy and Consumer Discretionary were the only two sectors to see declines. Despite global inflation remaining stickier than predicted, most central banks are beginning to guide towards rate cuts later in the year, but the rate of easing may be less dramatic than rate hikes through H123. 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 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 outperformed its global benchmark in May, helped by strong stock selection in Healthcare, Consumer Discretionary and Financials, and this was despite our zero allocation to Information Technology. On a stock level, the top three absolute contributors to Fund performance in May were Transmedics, Procept Biorobotics and Tandem Diabetes. The primary detractors were Exact Sciences, lululemon and Carlyle Group.
Healthcare was the main contributor to performance in May driven by continued strength in Medical Devices, with Pharmacy and Drug Development & Manufacturing also positive but more mixed. Our tactical increase to the Transmedics position on weakness in March continued to play out well and it was again the main contributor to overall portfolio performance. We took an opportunity to lock in some profits. Tandem Diabetes was another strong contributor, delivering a beat and raise Q1 report which highlighted positive product adoption momentum.
AstraZeneca, part of the Pharmacy subtheme and our largest holding, held a Capital Markets Day, laying out a broad pipeline opportunity set and setting a path to delivering HSD revenue CAGR in European Pharma. Longevity Consumer delivered strong performance in May, with positive momentum across all four subthemes. Financial Planning was the main contributor, driven by ongoing strength in ICG and a catchup in UBS after its Q1 report, which reassured on the sustained pace of Credit Suisse integration. ICG reported a solid end to fiscal FY24 and laid out new 4-year growth and margin targets. Management continues to execute well on the scale up and scale out strategy, while highlighting that the Private Markets landscape is increasingly bifurcated with smaller players or those highly geared to LBO trends facing greater challenges. Booking, part of the Travel & Leisure subtheme, posted another great quarter, with solid market share gains and profitability. The company guided to some slowdown in Q2, bur reaffirmed full year guidance; we continue to see the company as a longterm structural winner.
Education & Wellbeing was the main detractor from performance, weighed down by Screening (Exact Sciences)
and Fitness & Nutrition (lululemon). Ulta Beauty’s Q1 report confirmed a deceleration in growth. The stock has failed to see any rerating thus far despite what remains a very compelling valuation and generally confident management commentary. We believe the increased competition in Beauty is unsurprising, given the category’s
long-term attractiveness, but this does not on its own warrant a discounted valuation. Ulta is on track to lap easier comparisons in the second half of the year and should see some additional support from the new product and brand launch pipeline. On a stock level, Adtalem, part of the Education subtheme, was the main contributor to positive performance. The company delivered a solid Q3 beat and lifted guidance. While the short seller report published earlier this year remains an overhang, shares continue to offer compelling value coupled with a credible opportunity to grow by addressing structural skill shortages in medical personnel.
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 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.
