PERFORMANCE REVIEW
In May, the fund was up in absolute terms. It lagged its reference index, as in the previous month, due to a combination of underperformance in overweighted sectors like healthcare and financials, while being structurally underweight in the semiconductor space.
Geopolitics remained the key macro driver throughout the month, with the US–Iran conflict dominating market sentiment. Oil prices were highly volatile: Brent crude began May above $108 per barrel, surged to approximately $114 on 4 May following reports of a US warship being struck by Iranian missiles, and then declined sharply by nearly 10% in a single session on 6 May amid emerging hopes of a peace agreement. By month-end, Brent had fallen to around $92, marking its largest monthly decline since March 2020. As of the end of May, President Trump had not yet formally approved the proposed terms.
Artificial intelligence was once again a central market theme. Companies across the AI ecosystem reported generally strong earnings, with AMD, Dell, and Micron among the standout performers this season. Investment in AI infrastructure continues at a strong pace, and forward guidance across the sector has been revised upward, reinforcing the strength of the underlying demand trend.
Meanwhile, a notable divergence has emerged between equity and bond markets. Equity markets have remained resilient, while sentiment in fixed income has deteriorated. Yield curves have shifted higher and steepened, with the US 30-year Treasury yield breaching 5% at the start of the month for the first time since July 2025. This move reflects rising inflation concerns, partly driven by energy price volatility, and increasing expectations that the Federal Reserve’s next policy move could be a rate hike rather than a cut.
Historically, such divergences tend to resolve in favour of the bond market. In an environment characterized by elevated inflation and multi-year high yields, our base case points to an equity market correction rather than a sustained bond rally. Exceptions to this would require either a structural break driven by AI-led productivity gains or a clear and lasting resolution of geopolitical tensions. The longer the disconnect persists, the more abrupt the eventual adjustment is likely to be.
In May, both sector allocation and stock selection had a negative impact on relative performance. While the fund delivered a positive absolute return, the broader market outperformed, driven primarily by gains in information technology and communication services. The underweight position in IT, stemming from our inability to invest in semiconductor companies, was the largest contributor to the underperformance during the month. Additionally, the allocation to financials and healthcare, which lagged the broader market in May, further detracted from relative results.
Among portfolio holdings, the main relative detractors in May were Rakuten Bank (-26.5%), Aecom (-13.8%) and Nu Holdings (-9.4%). On the positive side, the largest contributors from portfolio holdings were Palo Alto (+57.1%), Samsung Electronics (+41.2%) and Cadence Design (+13.8%).
MARKET REVIEW
The US Treasury (UST) 10-year yield was very volatile in May, ending at 4.4%. The Bloomberg Commodity Index was down 3.8%, mainly driven by Energy. The CBOE Volatility Index (VIX) ended the month lower at around 15, compared to 17 in the previous month (which indicates the market’s concentrated leadership, since individual stock volatility is higher than ever before). The best sectors were Information Technology (+16%), Materials (+3.7%) and Consumer Discretionary (+3.5%). The worst sectors were Energy (-5.5%), Utilities (-4.8%) and Consumer Staples (-1.9%).
PORTFOLIO ACTIVITY
We bought a new position in Microsoft and Tesla during May. We sold our positions in Aecom and Sysco.
OUTLOOK
There are many ongoing crises around us, including those related to pensions, healthcare, affordable living, mental health and, given the indebtedness of many countries, public funding. This implies that solutions will often need to come from private markets, and that creates investment opportunities. These crises lead to pain points in our society – situations we can no longer resolve using the solutions of the past. For example, many countries spend 10% or more (the US is at 17%) of GDP on healthcare. This system is unsustainable, and cracks are appearing. As a consequence, it is no longer feasible to continue the pay-for-treatment workflow that caused these pain points to emerge. Pay-for-cure and value-based care are the new go-to solutions aimed at keeping healthcare costs manageable. Companies that actively help reduce those costs (through cheaper treatment or alternative treatment locations and methodologies) are beneficiaries of this system change.
Another example revolves around access to financial services – in other words, financial inclusion. Two billion people worldwide still lack access to basic financial services. That is not only a problem in developing countries – one-fifth of US citizens are either unbanked or underbanked. FinTech companies offer solutions by going down the value chain and offering products and services at a price that makes them available to many more people. They can do this because their business models are set up differently from those of the incumbents, which allows them more flexibility and lower operating costs. These are further good examples of long-term beneficiaries.
We categorise our investible universe into four themes. Affordability includes companies that work towards providing more affordable products and services. We classify many healthcare companies in this group, as well as life-insurance companies and wealth managers, which offer private pension solutions in a world where public pensions are no longer guaranteed.
The second category is Accessibility, and this is mainly applicable to FinTech solutions aimed at financial inclusion, as described above.
The third category is Wellbeing, split into healthy living (preventative care, sporting goods, healthy food) and leisure. Leisure is essential for maintaining a healthy work/life balance. As this balance and healthy living become more important drivers of economic profit, we seek to identify those companies that benefit from these system changes.
Our final theme is Digitally Enabled. Digital is everywhere, including within the social sphere. In this setting, platform companies (like Tencent, Alibaba and SEA) play an important role in empowering small merchants to participate in e-commerce activities. Unfortunately, digital also has a dark side in the form of cyber risks, so we include cybersecurity providers in this category.
Our Fund is diversified across (1) the globe, as system changes are not restricted by borders; (2) market caps, to represent mid-cap to mega-cap companies; and (3) industries, with a natural tilt towards Healthcare, Financials, Consumer and IT. This provides us with good opportunities to build a well-diversified, high-conviction portfolio that benefits from all system changes related to social activities.
Yours sincerely,
THE INVESTMENT TEAM
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