Global Quality Mid Cap - July Commentary

This is a marketing communication. Please refer to the prospectus, supplement and KID/KIID for the Funds before making any final investment decisions. The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.  

Past performance does not predict future returns. 

Macro & Market Overview

The second quarter of 2025 opened with heightened volatility, triggered by the US administration’s sweeping 'Liberation Day' tariffs. Markets initially sold off sharply, with the S&P 500 down over 12%, but recovered quickly after the tariffs were paused for 90 days to facilitate negotiations. This pattern of sharp threats followed by policy softening - dubbed the 'TACO trade' - became a defining feature of the quarter, with investors growing more desensitised to headline risk.

Despite the noise, equities rallied on solid earnings and resilient economic indicators. Growth stocks outperformed after a weak Q1, helped by strong AI-related capital expenditure and a weakening US dollar. Dollar depreciation also boosted non-US markets, prompting flows into emerging markets, Europe, and the UK as investors sought diversification away from the US.

However, concerns are mounting over the long-term US fiscal outlook. The recently passed One Big Beautiful Bill introduced sweeping tax cuts and spending increases, adding over $3 trillion to the deficit by 2034 before interest costs. Combined with trade frictions and political uncertainty, this has pressured the dollar and raised questions about future inflation and borrowing costs - themes that may become more prominent in the months ahead.

As highlighted below, the market saw a material rotation in the 2nd quarter’s winners versus those that led the market in the 1st quarter. Those factors and sectors that sold off the most – such as speculative growth (-16.0% USD in Q1) and the IT sector (-11.9%) - became the leaders in Q2, up 27.4% and 23.2% respectively.

Source: Bloomberg. Data 31st December 2024 - 30th June 2025, USD

Broadly, it was the more growth-orientated areas of the market that drove the market in Q2 (having been the laggards in Q1). However, it is important to note that while value was the lowest-performing factor in Q2 (having led in Q1), it still produced a positive total return (in USD terms).

Fund Attribution Highlights

The Fund benefitted from strong positioning in cyclical sectors, particularly Information Technology and Industrials, which outperformed during the risk-on rally. Our zero exposure to more challenged sectors such as Energy, Real Estate, and Consumer Staples also added positively.

Conversely, our overweight to Health Care detracted, as US policy proposals around drug pricing sparked a sector-wide sell-off in May.

Top Contributors

The portfolio’s strongest performers were:

• Vertiv (+77.9% in USD)
• Delta Electronics (+32.6%)
• Arista Networks (+32.0%)

These companies rebounded sharply as demand for AI-related data centre infrastructure remained strong, despite earlier Q1 concerns. Capex guidance from major cloud providers has increased materially, reinforcing the structural growth story across this segment.

Key Detractor

• Entegris (-7.7%)

Entegris was affected by US-China trade tensions, saw demand from Chinese customers pause as reciprocal tariffs disrupted shipments. While this weighed on Q2 results, some of the weakness has since reversed with an easing in tensions.

Portfolio Activity

We made three new additions this quarter:

• MSCI – a high-margin, asset-light data and analytics business with highly recurring revenues.
• Anta Sports – China’s leading domestic sportswear brand, with strong multi-brand strategy and expanding global footprint.
• Roper Technologies – a high-quality compounder of vertical software businesses with excellent free cash flow dynamics.

We exited:

• Enphase Energy due to rising tariff risk and margin pressure.
• Tetra Tech as US government spending headwinds threatened growth visibility.
• Interroll Holdings amid decelerating revenue and margin compression.

Fund Positioning

The Fund remains concentrated in quality mid-cap businesses, with a continued bias toward IT (42%), Industrials (26%), and Health Care (26%), and no exposure to commodity-driven or highly regulated sectors. Regionally, the Fund maintains 64% exposure to North America, 30% to Europe, and 7% to Asia Pacific.

We thank you for your continued support and remain committed to delivering long-term, quality-driven results for our investors.

Past performance does not predict future returns

Fund launch: 15.12.2020

Source: FE fundinfo. Net of fees. Investors should note that fees and expenses are charged to the capital of the Fund. This reduces the return on your investment by an amount equivalent to the Ongoing Charges Figure (OCF). The OCF for the calendar year 2024 for the share class used for the fund performance returns was 0.89%. Returns for share classes with a different OCF will vary accordingly. Transaction costs also apply and are incurred when a fund buys or sells holdings. The performance returns do not reflect any initial charge; any such charge will also reduce the return.

The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.

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