July saw our fund outperform with a return of 4.5%.

We benefited from the profit-taking and subsequent shift from Mag7The "Magnificent Seven" refers to Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla - the seven largest technology companies by market capitalisation. and tech more broadly to everything else. The sell-off in these names has occurred for several reasons, including disappointing 2Q results from Google and Microsoft, and fears around AI costs and capex investment outpacing revenue and cost benefits. OpenAI might lose ~US$5B this year due to higher training costs, with media outlets such as The Information suggesting the company may need to raise capital in the next 12 months or so.

Weak US consumer data points are also weighing on the market, such as credit card delinquencies reaching the worst level since 2012, with the proportion of card balances more than 60 days past due at the end of the March quarter climbing above 2.5%, more than double the lows seen during the COVID-19 pandemic. As a result, there has been pressure on the Fed to cut rates earlier - an example is the Op-Ed published by former NY Fed President Bill Dudley asking for a rate cut at the July meeting to avoid a recession.

We are underweight the Mag7 relative to the index but hold a few names like Meta, Amazon and Microsoft (albeit at lower weights than the index), which were the biggest detractors to our portfolio. Testament to the strength of the diversification of our fund, our five largest upward movers were from 3 different countries and 5 different sectors. We continue to view this breadth as one of our key unique selling proportions and acknowledge its a different mindset from many of the highly concentrated global funds in the Australian market. But one of our core beliefs is our fund shouldn’t hinge on the performance of a few names. As Greek philosopher Epictetus says, “Neither should a ship rely on one small anchor, nor should life rest on a single hope.”