Exit Amazon.com, new position in Microsoft
Our decision to exit Amazon.com was the standout transaction of the month. Several factors contributed to this move, not least growing concerns about Amazon’s move into advertising and associated worries about how they utilise personal consumer data and the onset of greater regulatory scrutiny. We are also mindful that whilst some progress has been made with our engagement efforts, the pace of improvement has slowed. Microsoft replaces Amazon.com – its addition reflecting our positive assessment of its earnings prospects and its ESG sustainability outlook.
We also sold Covetrus (animal health technology) and Kontoor Brands (jeans-wear), which span out of Henry Schein and VF Corp, respectively.
Broader positioning remains unchanged, with an ongoing bias towards higher quality, sustainable growth companies that can prosper in any near-term economic and policy-driven volatility. We continue to add to positions where we see strong underlying quality and where the market allows us to top up holdings at more attractive levels. And where appropriate, we have been building positions that offer more defensive revenue streams given the slowdown in economic growth expectations and trimming holdings that have performed strongly and offer reduced upside potential.
Sector-wise, Information Technology, Industrials and Healthcare are our main overweights, whilst Financials is a modest overweight. The portfolio is underweight Communication Services, Energy and Consumer Staples. At the regional level, Emerging Markets, Japan (take a look at our recent Japan trip note) and the UK are our biggest overweights, with the U.S. our largest underweight.
Trade rhetoric overshadows positive earnings
Whilst resurfacing rhetoric around trade-pressured equity markets generally, the Q1 earnings season continued in robust fashion, with many companies posting better-than-expected results. That said, a number of obstacles remain in place, with global trade issues, geopolitical tensions and central bank actions among the factors capable of triggering short-term volatility. Whilst valuations have now returned to levels that appear to be fair given the conditions, we still feel that there is a positive outlook over the medium term for equity markets. We remain vigilant but stay constructive overall.