The MSCI World equities index was up 0.2% in September (in GBP). Fading concerns over the slowing US economy drove a rotation out of the defensives and into cyclicals. On a sector basis, Consumer Discretionary, Communication Services, and Materials led the gains, while Healthcare was the weakest performer. By region, the positive surprise came out of China, following the Politburo’s announcement of plans for new macro and fiscal stimulus aimed at reviving the sluggish domestic economy. Outside of China, the ECB and the Fed, both cut interest rates, with the Fed asserting that its decisive 50 basis point cut was a “recalibration of the policy”.
This was contrary to some market observer interpretations that the cut was a response to the slowing economy.
While the labour market has certainly cooled, it is not translating into broader weakness, widespread layoffs or lower capex spending. Real income is finally on a positive path, supporting purchasing power, and the back-to school season is off to a good start. We maintain our cautiously optimistic view and don’t expect a hard landing for the US economy, but we remain mindful of the near-term uncertainty given the upcoming US elections and the ongoing conflict in the Middle East, which may cause near term shifts in sentiment as well as hold implications for inflation. 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 September, with most of the underperformance attributable to our overweight allocation to Healthcare. Even though our Healthcare holdings fared better than the sector, some profit taking among our largest holdings weighed on performance.
On a stock level, the top three absolute contributors to Fund performance in September were Exact Sciences, Ulta Beauty and Booking. The primary detractors were AstraZeneca, GSK and Icon. Education & Wellbeing was the main contributor to performance, with all subthemes contributing positively and most of our holdings up. Exact Sciences, part of the Screening subtheme, maintained its lead after releasing some positive data on its blood-based test. Ulta Beauty, part of the Aesthetics & Vision subtheme, continued to re-rate off the mid-year lows and on the easing concerns about the state of the US consumer. Topsports, part of the Fitness & Nutrition subtheme, was another meaningful contributor to performance. A broad improvement in sentiment on China exposed names supported a rerating in the shares despite the company guiding the market down on top line growth earlier in the month.
Longevity Consumer subtheme delivered a strong month, with Financial Planning and Travel & Leisure both posting solid gains. Booking, part of the Travel & Leisure subtheme, continued to reach new highs. Carlyle and ICG were the main contributors to performance in Financial Planning with the latter’s gains also reflecting a September update on its latest fund close, which materially exceeded expectations.
Healthcare performance was weak across the board, but the most meaningful negative contribution came from AstraZeneca, GSK and ICON. Profit taking across the sector, concerns about China exposure and ongoing uncertainty surrounding the US election outcome weighed on the sector’s performance. AstraZeneca reached a
new high at the end of August but disappointing data on a key cancer drug and news of a probe by the Chinese government into illegal drug import activities by a few of its current and former employees drove the share price weakness in September.
Outlook
As we look ahead to the remainder of 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.
