Technology (in)digestion
June saw Milford funds continue to deliver steadily positive returns. Global share markets saw modest volatility but notable rotation within the technology sector. New Zealand bonds outperformed an otherwise steady global bond market.
Semiconductor and memory stocks paused after a strong run over the past three months. Meanwhile, larger technology companies came under pressure amid concerns about the returns being generated from vast AI infrastructure investment. This weighed on holdings such as Amazon (-11.9%) and Google (-6.1%), although we remain confident in their position as key long-term AI beneficiaries.
Not all technology was weak however, with Taiwan Semiconductor Manufacturing Company (+14.4%) continuing to deliver strong returns. The pause in AI-driven momentum saw investors rotate into non-technology areas of the market — a shift that benefited several of our holdings. Bank of America (+11.0%) and Aramark (+6.6%) were notable outperformers, and a takeover offer for UK property company Segro delivered a 21.1% return. Falling oil prices also broadened share market gains beyond the technology sector, helping New Zealand (+2.9%) and other nontechnology markets outperform their United States (US) counterparts.
Bond markets were steady, though New Zealand bonds continued to outperform US equivalents, extending a trend we have been positioned for through our overweight in New Zealand bonds. The New Zealand dollar fell 5.2% against the US dollar, providing a meaningful tailwind for our diversified funds through their increased US dollar exposure.
Looking ahead, the global economic backdrop remains solid, and broad earnings growth continues to provide a constructive foundation for shares. We remain alert to bubble-like characteristics of the AI theme in markets. July will bring quarterly earnings reports from major companies — a critical test, as earnings have been the primary driver of share market strength this year. Markets will be particularly focused on what technology companies say about AI investment returns and the trajectory of their own earnings growth. Positive surprises could reignite momentum in the AI trade; disappointments could amplify the rotation we saw in June. We are positioned to navigate both outcomes, maintaining exposure to key AI winners while continuing to find value in the broader market opportunities that this period of rotation is revealing.
