After a calm start, July saw increased equity market volatility though by month end the FTSE All World Index climbed 0.8%. Elevated inflation statistics were again ahead of consensus expectations. Technology and more traditionally defensive sectors such as healthcare performed better than more cyclical sectors such as energy and consumer discretionary. However, China’s credit impulse became worse, which combined with continued negative regulatory concerns and heightened fears over further spread of COVID-19, saw weak performance from Chinese exposed equities.
Stock selection was favourable for the month particularly within financials, IT and industrials. The portfolio’s top performers for the month were BAE +11.1%, Microsoft +5.2%, J&J +4.5%. With the worst performers being CK Hutchison -6.2%, BP -7.6% and Samsung -3.8%.
Many of the portfolio’s holdings reported earnings in July. BAE’s results were considerably ahead of forecast with the electronic systems division contributing to higher margins. Management indicated higher confidence in future cash flow generation and announced an unexpected $500 million share buyback program. CK Hutchison shares declined throughout the month in advance of earnings at the start of August (which were received more positively by the market).
Our expectation is that higher quality stocks, such as those held in the portfolio, will perform more favourably in the more volatile market ahead.
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