October was another strong month for equity markets, though leadership remained narrow with the Magnificent 7 and AI-exposed growth names powering the market higher. While the MSCI World Index (+2% in USD) posted a 6th consecutive monthly gain, the equal-weighted MSCI World Index (-0.1% in USD) recorded its first monthly decline since the Liberation Day turmoil in April. Or in other words, most of the index constituents fell back in October.

Against this backdrop, the fund delivered a positive return for the month but underperformed its comparator benchmark, the MSCI World Index (GBP terms). The underperformance was largely driven by our lower exposure to the AI trade and a softer month for several of our information services holdings. While such periods can be testing, we continue to believe that owning quality cash-compounders at sensible prices remains the most reliable path to long-term capital growth and risk management.

The debate around the impact of AI on information services stocks continued this month. Concerns have centred on whether new AI-enabled entrants could better compile and connect data than established vendors. Recent company results provided an incrementally more reassuring picture for the incumbents. LSEG delivered a strong third-quarter update, helping to ease fears around AI disruption and supporting a rerating in the shares after a period of weakness. We see scope for continued progress across information services names as the market increasingly recognises the durability of their competitive positions and the growing monetisation opportunities linked to rising demand for high-quality, curated data.

Coming out of the third-quarter reporting season, fundamental results across the portfolio have been encouraging. Portfolio companies continue to post average organic revenue growth* of c8% and most have expanded operating margins. Cash flow growth continues to run ahead of the MSCI World Index. Despite this healthy operational performance, the portfolio trades at a meaningful discount to the market on a free-cash-flow basis, while offering higher margins, stronger returns on capital and lower leverage.

Typically, we would expect companies with superior fundamentals to trade at a premium to the broader market. A lower multiple would require clear structural deterioration in pricing power ahead. Results like those of LSEG and other holdings indicate that pricing power and growth potential has remained solid, and we believe that current conditions present a clear opportunity to pick up superior fundamentals at a rare discount.

*Organic revenue growth excludes impact of mergers/ acquisitions and foreign exchange.