Artificial Enthusiasm
July proved to be a whirlwind month, with large swings in stocks, bonds and currencies. Pleasingly, our funds fared well, delivering strong gains across the board and building on the solid returns delivered over the past year.
Investor enthusiasm around artificial intelligence is starting to wane, as investors seek certainty on the revenue opportunities to justify the significant investments companies are making. Shifting sentiment around this theme, coupled with the sheer size of technology companies, means share price swings for these companies is causing increased volatility for global share benchmarks. Global shares finished the month modestly higher, but this masked some large divergences under the surface. Our healthcare picks performed well in July, aided by stronger earnings, defensive qualities and improving chances of Democratic party victory in the US election. Hospital operator HCA Healthcare added 13.0% and life sciences company Avantor rallied 26.2%. We have continued to heavily invest in UK stocks; they are cheap, underappreciated and should benefit from falling UK interest rates. NatWest Group was up 18.1% whilst recent addition National Grid rallied 11.7%.
New Zealand’s economy is deteriorating and the RBNZ signaled optimism last month that falling inflation would allow them to reduce interest rates. This sparked a sharp rally in domestic bonds and shares, whilst the NZ dollar fell.
Our funds had been positioned well for this, with increased exposure to NZ bonds and shares and lower exposure to the Kiwi dollar. Australian shares were also a strong performer last month, with the ASX 200 index up over 4%.
Central banks around the world are slowly cutting interest rates, as inflation has fallen sufficiently close to their targets. Weaker growth could be met with faster or larger cuts to cushion economies, but there is considerable uncertainty about how much growth this might stimulate. A “soft landing” (an economic slowdown without a recession) remains the most likely path ahead, but risks remain in both directions and outcomes diverge for different economies. This continues to be a fertile backdrop for active investment management, affording plenty of opportunities to express views across asset classes and stock selection.
