July saw many companies report earnings, with aggregate average sales and earnings growth of 4.6% and 11.0%, respectively, for all companies reporting globally. This was broadly in line with sales expectations and 6.2% ahead of third-party analyst forecasts of earnings. The earnings increase and positive surprises were most prevalent in the technology sector; however, share prices in the sector generally declined in part due to question marks over future level of growth and the sustainability of profit margins. Overall, the Bloomberg World Index gained 1.6%, while the Ashburton Global Equity Growth Portfolio declined 2.8%. Smith & Nephew shares rallied 16.5% in the run up to results due on 1 August. A 25-year market share study by JP Morgan indicated the firm has been gradually increasing their market share in orthopaedics, which perhaps surprised some healthcare investors.

Enphase (15.4%) reported that it had reached the end of its destocking cycle, which was taken positively by the market, and sell-through trends have improved slightly in the US and Europe, especially in the battery space. Enphase will see abenefit from lower interest rates, as many consumers finance their residential solar systems and the cost/reward benefits improve greatly at lower interest rates.

On 19^th July a software update from CrowdStrike led to a historic outage of Microsoft systems, affecting numerous industries worldwide resulting in a share price decline of 31.1%. CrowdStrike is a high-quality cyber security company which we believe has many years of growth ahead of it, however, due to potential litigation, uncertainty on the repercussions of the outage and generally negative sentiment over the shorter term we made the decision to exit the position for the moment. 

AMD’s share price was weaker in the month (-10.9%) after fears of more stringent US trade restrictions with China and comments by Trump that implied he was not concerned about protecting Taiwan, where AMD chips are manufactured. However, the stock performed better toward the end of the month after reporting strong second-quarter earnings. AMD’s data centre business grew 115%, driven by the ramp-up of Instinct MI300 GPU shipments and a sharp double-digit increase in EPYC CPU sales. The company also increased its guide on datacentre revenue to exceed USD 4.5 billion up from the USD 4 billion guide in April.

Recent weaker-than-expected employment numbers sparked fears of a US recession as the Sahm Recession Indicator was triggered. The indicator signals the start of a recession when the three-month moving average of the US unemployment rate is at least 0.5% higher than the 12-month low. Although this indicator has historically been reliable, we do not believe the US will go into recession, as the rise in unemployment figures was partly due to an increased participation ratio as more people move from ‘not working and not looking’ to ‘actively looking’ and employment growth was also positive. US Policymakers held interest rates at current levels in August; however, Federal Reserve Chair Jerome Powell signalled that September rate cuts were on the table. We, therefore, believe the global outlook for growth is positive and continue to look for opportunities especially in the broader market where certain sectors have not participated in higher markets year to date.

Disclaimer:

Waystone Management Company (Lux) S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF) (ref A00000395 & S00000734), Waystone Management Company (Lux) S.A. is a company located in Luxembourg, L-1273 Luxembourg at 19, Rue de Bitbourg. This document is Issued by Ashburton Fund Managers (Pty) Limited (The Investment Manager) (Reg number 2002/013187/07), which has its registered office at 3 Merchant Place, 1 Fredman Drive, Sandton, 2196, South Africa and is an authorised financial services provider (FSP number 40169), registered with the Financial Sector Conduct Authority (FSCA). In South Africa, the Fund(s) is/are approved for promotion under section 65 of the Collective Investment Schemes Control Act 2002. The Fund Prospectus, and further information including pricing and changes, may be viewed at the Fund’s representative office in South Africa: Ashburton Management Company (RF) Proprietary Limited (“Ashburton CIS”), of the same address.

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