The global stock market edged upward again in August; a month traditionally associated with low trading volumes as the holiday season proceeds through the Northern Hemisphere summer. The US dollar returned to a weaker tone, thus enhancing dollar returns compared to other currencies. There was something of a shift underlying the market returns, with Information Technology and Industrials lagging other sectors such as Consumer Goods and Health Care companies. The Financials sector continued to be strong, driven by banking stocks in particular. For the portfolio, holdings in Consumer Goods companies were a benefit to returns as their half-year results were taken well. Information services companies fared less well in the market despite their results demonstrating the reliable mid-to-high single digit revenue growth to which we have become accustomed. Companies such as RELX and Wolters Kluwer had enjoyed positive sentiment over the last two years around their data assets in the age of AI. Whilst high quality, we had reduced the size of their positions in the fund to reflect the lessened valuation appeal. With valuations becoming cheaper we are gradually moving positions upward, with the addition of LSEG and Informa this year in a similar vein.

Now that all results are in from the half year reporting season, we see that the portfolio revenue and profit growth are proceeding as expected at around +5% organic revenue^[1] increase on average and moderate margin expansion. The positive share price reaction of consumer goods companies is interesting in that it is the slowest growing part of the portfolio, albeit still positive with an average +3% organic increase in revenues. To us it indicates that valuations are undemanding, something we manage across the portfolio in its various sectors. We don’t believe the same can be said for the overall equity market level which looks expensive, but for patient investors we think a clear opportunity has opened up in high quality, high return on capital, cash compounding businesses.

^[1] Organic revenue – Excludes growth attributable to mergers and acquisitions, and foreign exchange.