Global Leaders Equity Fund | Q3 2025

18 November 2025

In September, the Fund returned -2.01%, while the MSCI World Index returned +3.62%. The Fund returned -3.43% for the third quarter (Q3) versus +7.62% for the index, while for the year-to- date (YTD), the Fund has delivered +2.86% versus +18.44%.

The current environment has been challenging for our quality investing philosophy. It is important to remember that Global Brands is focused on owning the world’s most resilient companies and has historically offered lower volatility of earnings growth than the index over the long term. This resilient profile is currently at variance to a market lead by artificial intelligence (AI) conviction, high expectations generally and seemingly little concern for absolute risk. We have high conviction in the quality of the earnings streams of the companies we own, and their resilience should the market regime change.

Among the largest contributors to absolute performance* during Q3 were the cloud hyperscalers, Alphabet and Microsoft, which have benefitted from accelerating enterprise demand for AI infrastructure and significant increases in cloud-related revenue,  solid earnings from their cash generative dominant platforms, and in addition in the case of Alphabet, improving advertising trends  supporting strong revenue growth in its Search and YouTube  segments plus the favourable resolution of a key anti-monopoly regulatory case in the U.S. Elsewhere, Thermo Fisher rallied  double digits after a challenged first half, as investor sentiment refocused on encouraging indications for their pipeline following  management’s adjustment to near-term organic growth targets.  AutoZone also rerated following strong fourth quarter results which saw resilient top-line growth and an expanding domestic and international footprint, while LVMH contributed positively ahead of its sale from the fund in July.

Q3 was a strong quarter for the index overall, however the market’s nervousness about generative AI (GenAI) disruption in the latter half applied a broad-brush concern to a wide range of data rich businesses, without regard to important distinctions in industries and their underlying companies. This was demonstrated in Software where there are concerns that GenAI tools, notably cheap coding and agents, could weaken companies’ moats, as well as data rich pockets of Financials (e.g., Exchanges and Data Providers) and Industrials (e.g., Professional Services) due to fears that GenAI may be able to replicate companies’ proprietary data.  These concerns impacted the share price of a range of differentiated models with multi-layered defences against disruption, specifically SAP, FactSet, Roper Technologies and 

RELX, which were among the largest absolute detractors*. Our view is that the Fund’s software companies, such as SAP and Roper, are so much more than just coding. Both are deeply entrenched in customer workflows, are backed by the technical complexity of their multi-year buildout and stand to gain from GenAI through enhancing their existing services: SAP through embedding GenAI in its core cloud and enterprise products, with GenAI helping accelerate the lucrative transition to the cloud, and Roper by adding GenAI into its vertical software platforms.  Similarly, GenAI should benefit RELX, which is already monetising AI within its legal business. As such, we remain confident in these companies’ compounding ability. The other notable detractor in Q3 was Accenture. The shares have been challenged this year due to cyclical headwinds and GenAI uncertainty. Fourth quarter results announced late in September were decent, with better- than-expected organic growth and a meaningful uptick in AI bookings, however 2026 guidance remained below historic norms.  Encouragingly, management offered some reassurance on the pricing impact of GenAI, which they expect to be “expansionary” 

rather than “deflationary”, although this is something we continue to monitor. Given the uncertainty, we have reduced the Accenture position.

In terms of relative performance, the impact of GenAI disruption fears is apparent when looking at stock selection and subsector performance. In Information Technology, our preferred Software and Services subsector was up just +2% (in U.S dollar [USD] terms) in Q3 while Semis delivered a massive +17% and Hardware an even higher +22%.

In Financials, the Payments industry fell 5% and the Exchanges and Data Providers dropped 7%, while Banks (not held in the Fund) returned double digits. In Industrials, we are skewed to Professional Services (-7%) which significantly lagged Capital Goods (+7%). Sector allocation was also negative, primarily due to the overweight to consumer Staples as the sector lagged the index amid the market’s strong rally.

The impact of the Fund’s subsector exposure is also evident in the YTD performance. Since the mid-April lows, the market has been led by cyclical industries within sectors which the Fund has either minimal or no exposure to, such as Semis, Banks, and Capital Goods, while those areas we do favour, described above, have significantly lagged the market. Although we would expect to trail the index to some extent in a strong up market given our defensive return profile, the Fund’s sector mix, coupled with some stock specific mistakes most notably within Health Care, have impacted the degree of the relative underperformance.

We have been decisive about taking action where our investment thesis has been challenged and have high conviction in the ability of the current Fund to compound at double digits over time through the combination of high single digit earnings per share (EPS) growth and dividends, backed by strong top-line growth.

Market review

Global equity markets posted another quarter of solid gains in Q3, with investor confidence helped by more-resilient-than-expected U.S. economic data and ongoing optimism around AI. The MSCI World Index returned +3.62% in U.S. dollars (USD) in September and +7.62% in Q3. Looking at the performance pattern by sector: 

Information Technology was the clear leader in both the month (+7%) and quarter (+12%), although the mix of strong demand for AI infrastructure and the GenAI fears described above meant gains were skewed to the growthy Semis (+17%) and Hardware (++22%) subsectors rather than Software and Services (+2%). Communication Services also outpaced the market on both the month (+5%) and quarter view (+11%), largely thanks to Alphabet which delivered nearly 40% as the company avoided a forced 

break-up ruling in U.S. federal court. For Q3 overall, there were pockets of strength outside the AI skewed leaders: Consumer Discretionary had a better quarter (+8%), propped up by strong demand for Autos (+28%), while Industrials saw gains of +5%, helped by the Capital Goods area (+7%), despite Professional Services (-7%) being distinctly weak. Similarly, within Financials (+5% overall), Banks (+11%) were far stronger than Payments (-5%) and the Exchanges and Data Providers (-7%), again due to GenAI fears. More generally, investor preference for growthier segments over companies with modest and predictable cashflows hurt Consumer Staples (-2%) in particular, while Health Care (+3%) was slightly stronger, if still lagging the MSCI World.

Looking at geographies, the U.S. outperformed MSCI World Index in the month (+4%) and quarter (+8%), though it still lags YTD. Asia had a weaker September but strong overall Q3, with Hong Kong and Singapore both up ~10%. Japan was also ahead in USD forQ3, its dollar returns propped up by yen weakness and corporate 

reform momentum. Meanwhile, with the exception of Italy (+8% USD and local), European markets – France, Germany, the U.K., and Switzerland – lagged the index during the quarter.

Fund activity

During the third quarter, we took advantage of the indiscriminate sell-off of data rich businesses and resultant opportunities to add new high-quality names to the fund within segments with attractive growth tailwinds and to existing names where we retain conviction and believe selling was overdone. Where conviction was reduced or uncertainty remained, we reduced, and in some cases exited, positions.

We initiated three new positions in the quarter, Synopsys, MSCI, and Uber, and made four final sales: CDW, Jack Henry, Oracle, and LVMH.

We initiated a position in MSCI, a high-quality compounder that delivers mission-critical investment products, data and analytics to global financial institutions.

MSCI is known for its high retention rates (above 95%), strong recurring revenue (75%), and robust cash generation.1 The share price pullback early in the quarter offered an attractive entry point for a company we believe can offer steady margin expansion and earnings growth, fuelled by ongoing revenue increases and operating leverage.

We added Synopsys to the fund, a market leader in electronic design automation software (EDA) holding 35% share, with revenues linked to semiconductor research and development budgets that tend to be more resilient than the broader semiconductor cycle. We took advantage of the recent share price weakness, which had corrected by 30%, to build a position. The share price fall was due to issues in their relatively small intellectual property segment (20% of revenues) linked to U.S. export restrictions and Intel. We believe the company’s long-term outlook remains supported by structural demand, robust momentum in EDA (50% of revenues) and integration benefits from the Ansys acquisition (30% of revenues). We also initiated a position in Uber, recognising its multi-year transformation into a profitable, capital-light business with robust network effects, strong financial performance, and expanding margins. Uber’s most recent results saw bookings, revenues, adjusted EBITDA and free cash flow all increasing. With a ROOCE exceeding 100% and expanding margins, we believe Uber is well positioned for sustainable value creation.3 Recent weakness provided an attractive entry point to invest in a scalable, cash generative franchise with growing returns on capital.

Turning to the sells, early in the quarter we exited our position in LVMH. While LVMH retains a unique brand fund, the outlook remains unclear due to limited visibility regarding the recovery in luxury spending and the uncertainty surrounding the leadership transition. We also exited Jack Henry and CDW due to increased uncertainty surrounding their medium-term outlooks on account of evolving competitive environments, taking the valuation opportunity to upgrade to higher quality ideas.

Finally on the sells, we exited our position in Oracle during the quarter following an impressive 40% plus return since purchase.  Our initial investment was based on optimism around Oracle Cloud Infrastructure (OCI) establishing a profitable niche amongst the hyperscalers.

The quarter saw accelerating revenue estimates on its GenAI infrastructure business, most notably with the $300 billion GenAI infrastructure deal with OpenAI. This sharp shift in business model, and resultant collapse in free cash flow given the required investment, made us nervous, along with the increasingly stretched valuation, so we remained disciplined and sold the position.

As usual, the additions and reductions during Q3 were mainly driven by valuation and stock moves We trimmed a number of strong performers where we felt there was valuation risk, including L’Oréal, Alphabet and Booking Holdings. We also reduced 

Microsoft and Visa to optimise position sizes.

We recycled this capital into names where we saw valuation opportunity, such as Procter & Gamble and Abbott Laboratories, along with the new purchases. We switched some of our Aon holdings into AJ Gallagher, given relative price moves, while also mildly reducing our exposure to the industry. During September, we also added selectively to names where we felt the market’s indiscriminate selling was overdone, such as ADP, SAP and RELX, while reducing exposure to names where uncertainty on their medium-term outlook has increased, such as Accenture.

Outlook

The Tug of War

We spoke last quarter about the sharp reversal in market direction and leadership following the market through post the “Liberation Day” tariff announcements in early-April. Q3 saw a continuation of that upward trajectory, with global equity markets returning +7%, taking YTD MSCI World Index performance to an impressive +17%, despite numerous remaining uncertainties in terms of policy and geopolitics. The MSCI World Index is now on over 20x forward earnings, with the S&P 500 Index at 23x. These extended multiples are on forward earnings that are meant to grow double-digit for the next two years on the back of margins improving even further from record highs.

Indeed, when we consider what is priced into today’s historically high market valuations, the market is betting on a continuation of the vigorous AI boom and a macro backdrop strong enough to deliver the double-digit earnings growth, with confidence that easing policy and AI-linked productivity will keep margins elevated. In short, expectations are high. Yet, the record gold price reminds us that uncertainties linger.

We see a tug of war within markets, between the bull argument that AI will be visibly transformational to corporate profitability in the near term and/or the U.S. economy sharply accelerates, and the bear argument where these high expectations are not met.  The bear scenario may come from the scaled enterprise adoption of GenAI taking longer than expected, raising anxieties about the return on the hyperscalers’ massive investments or the macro not being strong enough to justify the double-digit earnings growth expectations. Our long-tenured team is also acutely aware of how painful it can be when elevated expectations reset downwards.

Taking data from the last 150 years, the market appears to be in its fourth “New Tech” era, with the associated extreme valuation, and the S&P 500 CAPE4 over two standard deviations above trend.

Comparisons to the three previous episodes of extreme valuation, in the 1900s, the 1920s and most recently the dot-com bubble, highlight the risk of significant overall market drawdowns when market sentiment shifts (anything from a 15% to 50% drawdown). The most exposed areas suffer more heavily on the way down, while underappreciated segments get their turn in the sun; Consumer Staples in the dot-com crash, and potentially the supposed “AI victims” this time, be they in Software, or in data-rich Financials and Industrials.

While there are similarities to the over-exuberance seen during the Internet “New Tech” era, we do see notable differences today:  the companies at the centre of the boom are earning real money, and their earnings momentum remains strong, while their current price-to-earnings ratios, though high, are not remotely extreme compared with 1999. Another critical difference is that today’s massive hyperscaler capital expenditure is largely being self- funded from operational cash flow, allowing for continued and even expanded investment with limited dependence on external funding.

However, uncertainty remains. There is a paradox currently at the core of the GenAI boom. It has garnered an unprecedented mind share amongst C-suites for a new technology and the potential is clear to anyone who has used it…but the scale adoption and value realisation amongst corporates has been very limited. This could drive a classic Gartner Hype Cycle, with a shift from the period of “Inflated Expectations” to the “Trough of Disillusionment” as implementation proves hard and drawn out, even if it is eventually successful and transformative. In addition, the macro position is unclear given the high levels of policy uncertainty, not least around the eventual effect of tariffs, and worldwide geopolitical risks. It is worth remembering that while growth is positive, the macroeconomic outlook remains modest, with U.S. growth expected around 1.5-2% for both 2025 and 2026 and EAFE markets closer to 1%.

During the quarter markets became increasingly preoccupied with the question of whether AI will disrupt, in particular data-centred businesses. The initial reaction has been quite broad-based, with investors indiscriminately punishing nearly all companies perceived to have exposure to data regardless of differences in business models, competitive positioning, or adaptability. We believe this blanket approach by the market is wrong as it ignores important differences between the industries and companies involved. We carefully examine both the potential vulnerability to AI disruption and the revenue and cost opportunities on a case-by-case basis.

There are some general principles behind our company specific analysis. In our view, those data rich businesses that avoid disruption are likely to control proprietary datasets that cannot be imitated by GenAI bots scraping the internet, or be deeply embedded into clients’ workflows, or even core to whole ecosystems. On the positive side, they should have the financial and technical capacity to integrate AI into their offerings in a way that enhances client value, and also utilise the technology to remove significant costs, be it in client relations or coding.

In the case of RELX, held in our funds, we are already seeing GenAI technology combined with its proprietary data sets accelerating revenue growth in its legal division. SAP, another holding, is protected from disruption by being deeply embedded into mission- critical operations, and by its well-established domain and industry expertise. Its Joule copilots and agents are potential sources of extra revenue, while GenAI innovation could speed clients’ lucrative transition to S/4 Hana, its next generation enterprise resource planning system. It is precisely these sort of high quality, data rich businesses we seek to own in our fund.

As the debate matures and the market develops a clearer view of which companies are truly vulnerable to disruption and which can harness AI as a competitive advantage, we expect to see much greater dispersion in returns across the sector. In the meantime, 

we see the broad-brush approach applied by the market as an opportunity to selectively upgrade some of our holdings in which some uncertainty exists on the impact of AI – where compounding babies have been chucked out with the disrupted bathwater.

In a market where investor certainty meets a very uncertain reality and valuations are stretched, we remain focused on companies we believe offer credible earnings per share growth, driven by strong revenue growth, which is a more reliable source of long-term compounding than supposed margin improvement. Our Fund is set to deliver resilient topline growth close to twice that of the index and is available at a free cash flow discount to the market not seen over the last decade, a very attractive proposition, particularly in relative terms.

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 

Commentary disclosures:

1. Source: MSCI company reports; International Equity Team analysis.

2. Source: Synopsys company reports; International Equity Team analysis.

3. Source: Uber company reports; International Equity Team analysis.

4. CAPE: cyclically adjusted price to earnings ratio, a stock valuation measure usually applied to the S&P 500 Index. https://en.wikipedia. org/wiki/Cyclically_adjusted_price-to-earnings_ratio.

Source for data cited, unless otherwise stated: MSIM, FactSet, as of September 30, 2025.