The MSCI World equities index was up 5% in November (in GBP) as most regions and sectors posted a recovery after two months of broad-based weakness. Information Technology, Real Estate and Industrials saw the strongest gains, while Energy was the only sector to record a decline. Healthcare remained among the weaker performers, up only 1.4%, with Staples roughly flat, while both Consumer Discretionary and Financials had a solid month. The soft landing scenario for the global economy continues to play out with inflation moderating and yields narrowing. Consumer sentiment however is mixed, GDP growth looks set to slow and some of the buoyant employment data is normalising. Twelve-month forward earnings expectations remain near all-time highs and should the consumer weaken further earnings may be at risk. In this complex environment, we believe the Longevity portfolio offers a balanced defensive stance and well placed to benefit from long term demographics trends.
Portfolio positioning and performance
The Pacific Longevity & Social Change strategy performed broadly in line with its global benchmark in November, despite our zero allocation to Tech and helped by our strong stock selection in Healthcare, Financials and Consumer Discretionary. On a stock level, the top three absolute contributors to Fund performance in November were Transmedics, Carlyle and Procept Biorobotics. The primary detractors were Humana, Julius Baer and AstraZeneca.
Healthcare performance was driven by a strong rebound in the Medical Devices subtheme, which benefited from a broad recovery in SMID-cap names. On a stock level it was Transmedics (+94% in GBP) that drove the largest contribution to return. The company reported a strong Q3 results with a solid performance across all transplant organ categories. Importantly, the market was reassured by the company executing on its Aviation capacity buildout in line with previously communicated targets. Pharmacy was the weakest subtheme in Healthcare, with only Eli Lilly up on the month.
In Longevity consumer all subthemes contributed positively to performance with Financial Planning in the lead driven by a rebound in Carlyle and another month of solid performance from ICP. The latter reported a solid H1 with a resilient result in Investment Company driving a round of earnings upgrades. Julius Baer was the main detractor as concerns over its Signa exposure and a disappointing trading update drove a derating to near historic lows on P/E. While the Signa situation continues to evolve we see value in the Baer shares as its capital position is strong enough to absorb a worst case Signa scenario and expectations on underlying earnings have adjusted sufficiently. Pets At Home, part of the Companionship subtheme, reported a broadly in line H1, with strong Vets business more than compensating for some short term inefficiency in the retail business. We believe the market still does not fully appreciate the importance of the Vets business, and this will continue to rerate the name in the long run as its contribution to earnings grows.
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. Ulta has since rerated further after reporting solid Q3 results forecasts and reassuring on its growth and margin algorithm despite ongoing pressure from shrink and competition in prestige makeup.
Funeral Services was the strongest contributor to the Later Living performance. However this was offset by a weak quarter for Health Insurance. Humana was the main detractor from performance as the name derated on news of a potential combination with Cigna.
Outlook
Conditions into the year-end remain uncertain and attention is gradually shifting to the outlook for 2024, which most corporates are not ready to provide much comfort on. A cooling consumer, prolonged monetary policy drag and geopolitical stress, adds to concerns. 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.
