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July 2024



Core Equity: Staying the Course on Long Term Secular Growth 




Amy Chen Director
  • Continue to focus on high-quality companies.
  • Balanced exposure between cyclical and defensive sectors.
  • Positioning toward AI mega trend and beneficiaries.

The S&P 500 finished the first half of 2024 near record highs and up 15.3%. While the advance has continued to be driven by growth stocks, especially tech-related, more sectors are participating in the rally this year, delivering solid to strong returns overall year to date. Given high valuations, the Core Equity strategy remains balanced and continues to favor secular growth and high-quality companies, which exhibit above-average margins, earnings growth, and return on invested capital. 

Chart 1: YTD  S&P 500  Return vs Sector Weight
 

Source: FactSet,  as of June 2024.
Information is subject to change and is not a guarantee of future results. 

 

In Q2, Core Equity returned 4.93%, 65 bps ahead of S&P 500, net of fees. Healthcare, Consumer Staples, and Industrial sectors led performance. Within Healthcare, we prefer biotech pharmaceutical companies over healthcare service providers, as we see greater financial benefits from drug development and fewer policy risks. Companies with exposure to weight loss, cancer, chronic pain, and gene therapy drugs make up the majority of our exposure. In Consumer Staples, two of the companies we own won additional market share by being the price leaders in the industry. EDLP (everyday low price) has gained popularity, as low-end consumers struggle with inflation and high borrowing costs. In the Industrials sector, companies leveraging the benefits of AI, particularly within the data center, electricity, and HVAC businesses, had strong performance.




Using quantitative and fundamental research, the Core Equity portfolio is structured by layering quality and valuation metrics over long-term secular themes of Digital Revolution, Durable Consumer Franchises, Healthcare Innovators, Domestic Growers, Industrial Leaders, and Clean Climate, while minimizing risk. During Q2, portfolio tracking error fell from 2.4% to 2.2%, and positioning continued to shift toward the AI mega trend with increases in semiconductor, hyperscale cloud operator, and digital media platforms, and reductions in traditional industries like cable networks, cellular carrier, and payment companies.

 

Chart 2: Thematic Research Focus
 

Source: CNR Research, as of July 2024. 

*Some stocks are included in more than one theme. Information is subject to change. 

 

 

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