Global Technology Equity Fund

Investment involves risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Overview

Manager's Outlook

Global technology stocks faced pressure during the period as the market saw a continuation of the macro-driven-style headwinds in equity markets that have persisted since late 2021. The Federal Reserve's mid-June decision to raise interest rates by three-quarters of a percentage point, the most aggressive hike since 1994, also exacerbated fears that higher borrowing costs could tip the U.S. into a recession. As interest rates have increased, the market's duration has shortened, which hasn't boded well for long duration growth assets like technology stocks. In recent months, many technology companies, including several mega-cap stocks as well as technology companies that we don't own in the portfolio, missed quarterly earnings estimates and issued disappointing guidance as a result of difficult year-over-year comparables, which has further weighed on valuations within the technology space. At the end of June, the Nasdaq Composite remained in bear territory, while the MSCI All Country World Index Information Technology ended the month down more than 25% from the start of the year.

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As with many other areas of the market, demand distortions stemming from the coronavirus pandemic and recent supply chain issues have impacted our investment universe and challenged even some of the most seasoned management teams in our portfolio, such as Amazon.com. The scale of its business does not create immunity to these challenges; in fact, it could exaggerate it in the short term. However, many of the top holdings in the portfolio today have secular growth drivers that we think are durable, including digital transformation?in which we are participating through the public cloud providers?next-generation database companies, and infrastructure software companies. We maintain conviction in the fundamental growth profiles that our investments bring to the portfolio, and we are confident that the unique, long-term prospects of these firms will again be rewarded.

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We believe the market has more than discounted the possibility of greater interest rate hikes in the coming months as reflected in technology valuations that have corrected to pre-pandemic levels. Going forward, we think recessionary pressures will come from earnings revisions, as opposed to from multiple compression. We are starting to see estimate revisions, but so far these revisions have been isolated to semiconductors and the consumer. Our overweight allocation to enterprise software is a defensive position from a fundamental perspective. We have conviction of the underlying business models and profitability these companies have with established unit economics in a variety of economic scenarios.

Strategy

Fund Summary

Actively managed and invests mainly in a diversified portfolio of shares of technology development or utilisation companies, with a focus on leading global technology companies. The companies may be anywhere in the world, including emerging markets.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance. Performance returns are calculated on a NAV-NAV basis, net of fees, with distributions reinvested. Returns for the current year performance is cumulative. Benchmark returns are shown with reinvestment of dividends after the deduction of withholding taxes. The Excess Returns are shown as Fund % minus the Benchmark %. Performance returns for share classes less than 1 year old (and associated benchmarks) are cumulative rather than annualised.

30-Nov-2023 - Dom Rizzo, Portfolio Manager,

Global equities advanced strongly in November amid hopes that central banks may not have to raise interest rates further to combat inflation. Within the portfolio, our stock choices in semiconductors contributed to relative returns. Shares of a semiconductor capital equipment company that focuses on back-end assembly equipment for advanced packaging applications rose as investors appreciated its unique role in the semiconductor manufacturing space. We like the company’s dominant market share in hybrid bonding, the most advanced and capital-intensive method of packaging, and high-margin structure. Our lack of exposure to telecommunications equipment also aided relative results as the subsector advanced but trailed the benchmark during the month. Not owning a large global vendor of networking products including routers and switches, contributed to relative returns as management lowered guidance for 2024 in its most recent earnings report. We believe there are higher-quality investment opportunities elsewhere in the portfolio, and we are focusing our investments there. Alternatively, our avoidance of business services detracted from relative results as the subsector outperformed the index during the month.

30-Nov-2023 - Dom Rizzo, Portfolio Manager,

Our positions in consumer internet companies continue to benefit from improving fundamentals in terms of e-commerce demand trends, operational efficiency, and the ability to show improvement in earnings and free cash flow. Our largest holding in the subsector is a leading e-commerce platform and reflects our belief that the company’s e-commerce division and margins will improve over the next year. We also maintain a position in a leading US online food delivery platform. We continue to like the positioning of the company within its industry as well as its strong management team.

30-Jun-2022 - Alan Tu, Portfolio Manager,

We initiated a position in Salesforce, a leading provider of customer relationship management software. Shares dropped mid-quarter on concerns that protracted economic weakness could undermine enterprise technology spending, and we believe this created an attractive valuation for a company that is in a privileged market position and has a long growth runway driven by businesses prioritizing how they attract and serve customers. We also believe in management's efforts to make the business more profitable.
We downsized our position in Okta, a company providing software services for identity management solutions. Okta was negatively impacted by a security incident earlier in the year. However, we believe an increasingly mobile workforce, along with growing demand from enterprises for more robust network security, represents strong secular tailwinds for the firm.
We reduced our position in Hubspot, a provider of marketing and customer relationship management software for small businesses. Although e-commerce has decelerated and consumer spending has weakened, we believe HubSpot should continue to benefit from its strong management team, the secular shift from offline-to-online interactions, and the prospects for increased durable growth as it moves upmarket.
We sold shares in Taiwan Semiconductors, the world's largest dedicated foundry of semiconductor manufacturer capacity. We believe the company's sustained tech leadership in the semiconductor space and broadening demand from smartphones to personal computing, data centers, and automotive components can help it overcome cyclical demands within the industry. While we remain constructive on the position, we trimmed our holdings to capture some long-term profits.
MercadoLibre is the premier e-commerce marketplace in Latin America. We trimmed our position given signs of slowing online growth. While we continue to appreciate the company's vibrant marketplace ecosystem and proven experience in building two-sided networks, we have increased cautiousness on the company's ability to overdeliver on commerce volume growth expectations as we cycle through two years of elevated pandemic-related comparables in the quarters ahead.
We sold shares in Etsy to reduce our position size and on concerns about macroeconomic headwinds and slowing e-commerce demand. Etsy is an online marketplace for unique, creative, and often homemade goods that employs a flywheel strategy to drive organic revenue growth. We value the company for its strong market position, global growth opportunity, and very large total addressable market.
We added to Roblox on recent weakness. We are attracted to the powerful social network effects Roblox utilizes in drawing in new active users and creators. This sets up a positive feedback loop and helps the platform widen its moat, expand its addressable market, and potentially deliver durable earnings.
We sold shares of Tesla. Performance lagged as the company dealt with mixed messaging on staffing levels and production issues. We appreciate Tesla's ability to leverage its advantages in manufacturing, software, and brand, and we expect it to eventually be able to move down the cost curve and unlock new parts of the market while increasing unit margins. However, we sold shares during the period to manage risk/reward.
We eliminated our position in the electric vehicle manufacturer and developer Rivian Automotive. While the company reduced cash burn and has a projected liquidity runway to 2025 to provide runway for its production ramp-up, we sold shares on the belief that it remains a long road to scale. We feel the company will have to walk an execution tightrope to profitably produce its models, especially its SUV and pickup truck, and continue to add production volume while coming down the cost curve.

30-Jun-2022 - Alan Tu, Portfolio Manager,

Shopify offers online merchants a single, easy-to-use platform for setting up and managing e-commerce businesses. The company faced macroeconomic headwinds as its warning of decelerating e-commerce sales growth alarmed investors. We think year-over-year comparisons in e-commerce should improve in the second half of 2022. Additionally, investors have been sanguine on the expansion of its Shopify Fulfillment Network, an investment we think is constructive.
Atlassian, a collaboration and workflow tool provider, detracted from relative returns during the period. The uncertain pace of its users migrating to the cloud, a long-term driver of increased revenue for Atlassian, is providing near-term friction as the company cannot control when the clients choose to change over. We believe Atlassian can successfully navigate this transition, and we remain constructive on the long-term prospects of a company that directly targets users in marketing their products by employing a low-cost flywheel approach rather than a traditional top-down sales model.
Shares of DoorDash, a growing on-demand delivery platform, lost value as markets feared the firm may face a demand hangover as the coronavirus pandemic wanes. We believe DoorDash maintains a favorable behavioral backdrop with purchases becoming habitual in its customer base, which should allow for high retention even in the face of a tough economic setting. We also like the company's strategy that focuses on building last-mile logistics to expand its services across multiple market segments and penetrate a large and growing accessible market.
Shares of Sea declined after the company reported a drop in margins, mainly attributing losses to its increased discretionary spend on research and development. While we are still attracted to Sea's unique platform and ability to lead secular trends within fast-growing markets, we will monitor how the company evolves its growth strategy and game development.
Shares of Tesla, the leading developer of electric and automated vehicles, declined as founder Elon Musk's efforts to buy Twitter raised concerns about how he would fund that purchase, with his Tesla stock used as collateral. We appreciate Tesla's ability to leverage its advantages in manufacturing, software, and brand, and we expect the company will eventually move down the cost curve and unlock new parts of the market while increasing unit margins.
A lack of exposure to IT services detracted from relative performance as many of these stocks outperformed those in other areas of technology, despite their negative returns.
An underweight position in semiconductors contributed to relative results as the sector underperformed the broader index.

Disclosure on Vendor Indices can be found here.

Risks

Typical Investor