Global Leaders Equity Fund | Q4 2025

The largest absolute contributors to performance in the fourth quarter were companies reporting positive third-quarter news. Alphabet rose almost 30% (in USD terms), supported by continued strength across its core Search and YouTube franchises, improving Google Cloud profitability, and the successful rollout of its latest Tensor Processing Unit (TPU), which reinforced confidence in its AI capabilities. Thermo Fisher and Haleon both exceeded analysts’ expectations on organic revenue growth and benefited from a broad Health Care sector rally as regulatory and pricing risk perceptions eased following the Trump-Pfizer agreement. S&P Global raised full-year revenue guidance following sustained strength across its core business areas, while Coca-Cola reported strong organic growth for the quarter and further progress toward the near-completion of its well-received refranchising programme.

Performance (%)
Fund | Index* | Excess Return
Month: 0.04 | 1.04 | -1.01
Last three months: -3.51 | 3.29 | -6.80
Year to date: -0.75 | 22.34 | -23.08
Since inception**: 5.99 | 10.58 | -4.59

*Index: MSCI ACWI TR USD (R Class)
**Since inception: 3 September 2013

On the downside, the fourth quarter saw a continuation of the indiscriminate punishment of a diverse range of data-rich and software-enabled business models that has been underway since August, driven by heightened concerns around advanced AI, including generative AI (GenAI) and agentic AI disruption. This resulted in a de-rating across several differentiated, high-quality holdings including RELX, SAP and ADP.

As discussed in prior commentaries, these businesses are already integrating AI into their proprietary datasets and deeply embedded workflows and, as such, we believe they are far more likely to benefit from the technology than be displaced by it. For example, RELX’s third-quarter results highlighted growing uptake of AI-enabled platforms such as Lexis+ AI, which is supporting revenue growth across its analytics franchise. SAP’s recent results showed strong cloud and ERP adoption, which management emphasised is expanding the addressable base for AI-led upsell and embedded AI functionality.

AJ Gallagher and Microsoft also detracted in the quarter as both stocks pulled back following strong runs earlier in the year. Stock selection appears as a relative detractor in the fourth quarter, partly due to AI disruption concerns which weighed on several of the fund’s overweight subgroups, most notably within Information Technology, Financials and Industrials.

Within Information Technology, the fund’s preferred Software group declined 8% (in USD terms), while investor preference for AI infrastructure exposure saw the Hardware and Semis subsectors both rise 6%. In Financials, balance-sheet-light areas held by the fund, including Payments (-2%), Insurance Brokers (-9%) and Exchanges and Data Providers (-1%), lagged a 10% gain in Banks, which the fund does not own. A similar pattern was evident in Industrials, where the fund is skewed to capital-light Professional Services, an industry which returned -9% versus a flat overall sector.

Outside these areas, Zoetis’ share price fall meant the fund lagged the very strong Health Care sector, while AutoZone was a drag within Consumer Discretionary, partially offset by strong performance in Communication Services due to Alphabet.

For 2025 overall, the largest contributors to absolute performance were the cloud hyperscalers Alphabet, following its very strong fourth quarter, and Microsoft, where the absolute impact was boosted by the large position size. Oracle’s success with its OCI business also contributed positively ahead of our sale in the third quarter, an exit driven by the sharp shift in its business model, reduced free cash flow and stretched valuation. The stock is down over 40% since its peak.

In Consumer Staples, L’Oréal had a particularly strong year, significantly outperforming peers as organic growth reaccelerated, backed by improving trends in Asia and resilient demand in Europe. Investor confidence was further boosted by evidence that ongoing digital investments are enhancing execution. Visa also had a decent year as resilient consumer spending and growth in high-margin cross-border volumes supported steady revenue and earnings momentum.

Accenture was the largest absolute detractor in 2025. Share price weakness over the year reflects a continuation of sub-trend industry growth, the demand hit from U.S. government cost-cutting initiatives, and concerns about Advanced AI’s potential deflationary pressure on industry profit pools, which led to our exit in the fourth quarter.

In Health Care, UnitedHealth cut and then abandoned its 2025 earnings guidance, while Becton Dickinson disappointed on its full year 2025 growth. We exited both positions in the second quarter. Shares in animal health player Zoetis struggled due to near-term pressures related to its osteoarthritis treatment and investor fears surrounding increased competition, although we continue to view the company as an industry leader with a defensive revenue profile and an attractive pipeline.

Constellation Brands also detracted before our exit in the first quarter, reflecting uncertainty over its Mexico-based brewing operations in an increasingly complex tariff environment and the impact of U.S. immigration policies on its customer base.

Relative performance for 2025 reflects both the persistence of narrow market leadership among cyclical and AI-infrastructure-exposed segments and the broad-based de-rating of a diverse range of quality business models, impacting names even where underlying fundamentals remained intact.

In Information Technology, Software (+9% in USD terms), where the fund is significantly overweight, delivered a decent positive return for the year but materially lagged the exceptional gains in Hardware and Semis (both approximately +40%). These are areas the fund has typically avoided due to high operating leverage, capital intensity and cyclical end-demand.

A similar dynamic was evident in Financials and Industrials, where the more resilient Payments, Insurance Brokers and Professional Services segments were negative, while lower-quality, highly cyclical areas including Banks and Aerospace & Defense delivered unusually elevated returns in excess of 50%.

Index concentration further impacted relative performance as a small number of stocks accounted for a disproportionate share of benchmark performance, most notably Nvidia, Broadcom, JP Morgan and Meta, which the fund has not owned due to its quality and valuation discipline.

Outside these dynamics, Health Care weakness was due to stock-specific issues, although we remain supportive of the long-term case for high-quality names in specific subsectors such as Life Science, Animal and Consumer Health. Communication Services, meanwhile, saw relative outperformance. Sector allocation for the year was modestly supportive.

Market review

Global equity markets delivered solid gains in the fourth quarter, bringing to a close a year characterised by persistent narrow leadership and pronounced dispersion across sectors and investment styles. The MSCI World Index rose 3.29% in U.S. dollars during Q4 and 22.34% for the year.

Health Care (+11%) led during the quarter, driven by a rebound in Pharmaceuticals (+19%). However, ongoing concerns around U.S. policy risk weighed on the overall sector for much of 2025, leaving it behind the index for the year (+15%), along with Consumer Staples (+9%).

Communication Services (+5%) also performed well in Q4 and was the strongest sector for the year (+32%), supported by continued strength in Alphabet and Meta. Information Technology was more subdued in Q4 (+1%), though the sector still outperformed the MSCI World Index for the year (+24%), largely due to outsized AI-driven gains in Semis (+45%).

Financials (+29%), Materials (+26%) and Industrials (+25%) also performed strongly in 2025, although returns within these sectors were uneven. Cyclical areas such as Banks (+52%), Metals & Mining (+65%) and Aerospace & Defense (+52%) accounted for much of the upside.

Weak oil prices meant Energy lagged, returning 2% in Q4 and 13% for 2025. Geographically, the U.S. mildly underperformed both in the fourth quarter and over the year, allowing most international markets to outperform in USD terms, helped by the weakness of the dollar.

European markets delivered particularly strong returns, with Spain and Italy among the standouts at +82% and +56%, respectively. Switzerland and the UK also delivered strong returns, while Japan performed broadly in line over the year in USD terms but ahead in local currency terms. Asia ex-Japan was mixed.

Fund activity

During the fourth quarter we made one new purchase and two final sales. We initiated a position in Ferrari, a high-quality luxury auto franchise with consistent earnings growth, pricing power and exceptional returns on capital. Despite operating in a cyclical and capital-intensive industry, Ferrari benefits from a resilient business model supported by recurring demand, a two-year order book and industry-leading gross margins of around 50%.

The shares derated on modest medium-term growth guidance during the quarter, providing an attractive entry point into a franchise that has compounded earnings at approximately 20% per annum since IPO, with strong revenue visibility and limited China exposure.

We sold our position in Accenture due to growing uncertainty around the net impact of GenAI on industry profit pools. While Accenture is well positioned to support enterprise AI adoption, the pace, scale and economics of that adoption remain unclear. Given the widening range of potential outcomes and reduced relative conviction versus alternative opportunities in the fund, we chose to redeploy capital into higher-conviction names.

We also exited FactSet following a reassessment of its quality profile amid emerging structural risks to data aggregation businesses. We see greater clarity and defensibility in other financial services names that should offer better insulation from advanced AI-related risks and more reliable long-term earnings visibility.

During the quarter we added to several positions where we saw attractive valuation opportunities following short-term dislocations, including Uber, AutoZone, Intercontinental Exchange and Experian. Reductions were largely valuation driven and included ADP, Roper Technologies, Booking Holdings and Haleon.

Looking back over the year as a whole, 2025 saw higher fund turnover than is typical for the strategy, reflecting sharp valuation dispersion, AI-driven narrative shifts and stock-specific developments. New positions during the year included Ferrari, Synopsys, MSCI and Uber.

We also added to Microsoft and Alphabet after DeepSeek-related concerns, as well as Booking Holdings, SAP, S&P Global, ADP, RELX, AJ Gallagher, AutoZone, Haleon and Zoetis where conviction remained high and valuations became attractive.

On the other side, we exited positions where the medium-term outlook had become less compelling, improving the overall quality and resilience of the fund. We also sold Oracle, which returned 40% since our purchase in the first quarter.

Valuation discipline remained central to position sizing and capital allocation decisions. We trimmed SAP, Booking Holdings, Abbott Laboratories and AutoZone following strong results, and reduced Microsoft, Alphabet, L’Oréal and Visa as earnings momentum drove share price strength. We also scaled back Aon, ADP and Thermo Fisher on valuation grounds.

Outlook: Quality ‘on sale’

After three consecutive boom years, with the MSCI World Index rising 24% in 2023, 19% in 2024 and 21% in 2025, global equity markets enter 2026 at a pivotal juncture. The market remains caught between optimism that AI will transform corporate profitability and concerns that expectations may be unrealistically high.

Against a backdrop of uncertainty around AI adoption, growth, inflation, trade policy, government debt and geopolitics, the MSCI World Index continues to trade at around 20x forward earnings and the S&P 500 at 22x. These valuations imply far greater certainty than appears warranted.

Quality as an investment style has underperformed the broader market to an extent not seen since the dot-com era. Historically, such periods have often been followed by meaningful relative outperformance by quality stocks.

We believe many of the companies we own are being double-discounted: not only because they are viewed as “quality” businesses, but also because investors perceive them as vulnerable to Advanced AI disruption. This has affected software businesses, professional services firms and information services companies.

In our view, the market is failing to differentiate adequately between business models. We believe companies such as MSCI, S&P Global, RELX and Experian are likely to be beneficiaries rather than victims of AI adoption. While we continue to reassess our holdings’ competitive advantages, we remain confident in their long-term resilience.

The fund also maintains exposure to select AI beneficiaries, primarily hyperscalers with attractive growth prospects and reasonable valuations. Where we have semiconductor exposure, we favour businesses that occupy critical bottlenecks in the value chain and are not entirely dependent on generative AI expectations.

These positions are balanced by traditional defensive holdings in high-quality consumer and health care businesses. Overall, the fund remains focused on companies capable of sustained earnings growth, supported by pricing power and recurring revenues.

Fund holdings demonstrate significantly higher profitability than the broader market, with pre-tax ROOCE above 70% versus 24% for the index, and gross margins close to 60% versus 33%.

Historically, investors paid a premium for this resilience. Today the opposite is true. The fund is expected to grow faster than the market over the next two years, yet trades at a significant free cash flow discount to the market, a level not seen in the past decade.

We believe this represents a rare opportunity. While performance has been impacted by sentiment and valuation pressure, the underlying businesses continue to deliver resilient earnings growth and strong fundamentals. As fundamentals reassert themselves over time, we believe the current valuation disconnect presents a compelling long-term opportunity.

Disclaimer:

Effective 03 October 2024, Morgan Stanley was appointed as the sub-investment manager of the fund and Ashburton Fund Managers (Pty) Ltd as the investment manager. Therefore, the performance figures from 03 October 2024 to date reflect this change. Prior 03 October 2024, the investment manager was Ashburton Jersey Limited. Consequently, the performance figures prior to 03 October 2024 reflect the previous arrangement. 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). The funds are authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). 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 charges, may be viewed at the Fund’s representative office in South Africa: Ashburton Management Company (RF) Proprietary Limited (“Ashburton CIS”), of the same address. Ashburton CIS is an approved collective investment schemes manager regulated by the Financial Sector Conduct Authority and a full member of the Association of Saving and Investments South Africa. In the event a potential investor requires material risks disclosures for the foreign securities included in a fund, the manager will upon request provide such potential investor with a document, outlining potential constraints on liquidity & repatriation of funds; Macroeconomics risk; Political risk; Foreign Exchange risk; Tax risk; Settlement risk; and Potential limitations on the availability of market information. The value of participatory interests and the income from them may go down as well as up and is not guaranteed. Past performance is not necessarily a guide to the future performance. Where an investment involves exposure to a currency other than that in which it is denominated, changes in rates of exchange may cause the value of the investment to go up or down. CIS funds are traded at ruling prices and can engage in borrowing and scrip lending. A full detailed schedule of fees, charges and commissions is available from Ashburton on request and incentives may be paid and if so, would be included in the overall costs. The manager does not provide any guarantee either with respect to the capital or the return of a fund. The manager has a right to close the fund to new investors in order to manage the fund more efficiently in accordance with its mandate. This document does not constitute an offer or solicitation to any person in any jurisdiction in which Ashburton Fund Managers (Pty) Limited is not authorised or permitted to communicate with potential investors, or to anyone who would be an unlawful recipient. The original recipient is solely responsible for any actions in further distribution of this document and should be satisfied in doing so that there is no breach of local legislation or regulations. This is a marketing communication. The Management
company has the right to terminate the arrangements made for Marketing. Additional information about this product, including brochures, prices, application forms, Prospectus, KIID and annual or half-yearly reports, can be obtained from the Manager, free of charge, and from the website: www.ashburtoninvestments.com.2 Merchant Place, 1 Fredman Drive, Sandton 2196, South Africa. Telephone: +27 -0 11 282 8800/8401