Harding Loevner International Equity ADR Composite Q1 2024 Report

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Harding Loevner is an investment manager that invests primarily in publicly traded global equities. We were founded in 1989 by former managers for the Rockefeller family. Harding Loevner is a Delaware...

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Harding Loevner is a Delaware...</p>\n\n<a href=\"https://seekingalpha.com/article/4696221-harding-loevner-international-equity-adr-composite-q1-2024-report\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Harding Loevner International Equity ADR Composite Q1 2024 Report</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nHarding Loevner International Equity ADR Composite Q1 2024 Report\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-29 22:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696221-harding-loevner-international-equity-adr-composite-q1-2024-report><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Harding Loevner is an investment manager that invests primarily in publicly traded global equities. We were founded in 1989 by former managers for the Rockefeller family. Harding Loevner is a Delaware...</p>\n\n<a href=\"https://seekingalpha.com/article/4696221-harding-loevner-international-equity-adr-composite-q1-2024-report\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"03145","symbol_name":"华夏亚洲高息股","start_time":0,"source_url":"https://seekingalpha.com/article/4696221-harding-loevner-international-equity-adr-composite-q1-2024-report","article_id":"2439757618","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1335295270/image_1335295270.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2439757618","pubTimestamp":1716993000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Click to enlarge Source: FactSet, MSCI Inc. Data as of March 31, 2024. In a landmark move, the Bank of Japan  raised short-term interest rates, bringing to a close the country’s decade-long era of negative interest rates. The BOJ also announced an end to both its yield curve control policy, which had capped long-term Japanese government bond yields, and its asset-purchase pr","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"03145":"华夏亚洲高息股","LU0079474960.USD":"联博美国增长基金A","AAGIY":"友邦保险ADR","DASTY":"Dassault Systemes SA","IE00BJJMRX11.SGD":"Janus Henderson Balanced A Acc SGD","ATLCY":"Atlas Copco AB","IT":"加特纳","RIO":"力拓","ADYEY":"Adyen N.V.","DFKCY":"Daifuku Co., Ltd.","IFNNF":"Infineon Technologies AG","DAIUF":"Daifuku Co., Ltd.","AMD":"美国超微公司","LU0348814723.USD":"ALLIANZ TOTAL RETURN ASIAN EQUITY \"A\" (USD) INC  NC","BHP":"必和必拓公司","LU0878005551.USD":"UBS (LUX) KEY SELEC ASIA ALLOCATION OPPORTUNITY (USD) \"P\" (USD) ACC","RHHBF":"Roche Holding Ltd","EQR":"资产住宅公司","EPOKY":"Epiroc Aktiebolag","AAIGF":"AIA Group, Ltd.","ADYYF":"Adyen N.V.","SONY":"索尼","ATLKY":"Atlas Copco AB","LU1267930656.SGD":"FRANKLIN INDIA \"AS\" (SGD) ACC A","HDB":"HDFC银行","RHHBY":"罗氏控股","SBGSF":"Schneider Electric SE","ALFVF":"Alfa-Laval AB","SBGSY":"Schneider Electric SE","ALFVY":"Alfa-Laval AB","TSM":"台积电","DASTF":"Dassault Systemes SA","TM":"丰田汽车","03160":"华夏日股对冲","BNTX":"BioNTech SE","LU0572940350.SGD":"Janus Henderson Horizon Asian Dividend Income A3 SGD","NVO":"诺和诺德","RHHVF":"Roche Holding Ltd","ASAZF":"Assa Abloy AB","BK4567":"ESG概念","IFNNY":"Infineon Technologies AG","NVDA":"英伟达","ASAZY":"Assa Abloy AB","SAP":"SAP SE","03165":"华夏欧优股对冲","LLY":"礼来","GB00BDT5M118.USD":"天利环球扩展Alpha基金A Acc","LVMHF":"LVMH-Moet Hennessy Louis Vuitton","ASML":"阿斯麦","LU1551013342.USD":"Allianz Income and Growth Cl AMg2 DIS USD"},"translate_title":"Harding Loevner International Equity ADR综合Q1 2024年报告","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"RHHBF":1,"DFKCY":1,"EPOKY":1,"EQR":1,"IFNNF":1,"IFNNY":1,"IT":1,"LLY":1,"LVMHF":1,"NVDA":1,"NVO":1,"HDB":1,"RHHBY":1,"RHHVF":1,"RIO":1,"SAP":1,"SBGSF":1,"SBGSY":1,"SONY":1,"TM":1,"TSM":1,"ATLKY":1,"ASAZY":1,"ASML":1,"ATLCY":1,"ASAZF":1,"AMD":1,"ALFVY":1,"ALFVF":1,"ADYYF":1,"ADYEY":1,"BHP":1,"AAIGF":1,"BNTX":1,"AAGIY":1,"DASTY":1,"DAIUF":1,"DASTF":1,"03160":0.6,"03165":0.6,"03145":0.6},"content_text":"Harding Loevner is an investment manager that invests primarily in publicly traded global equities. We were founded in 1989 by former managers for the Rockefeller family. Harding Loevner is a Delaware limited partnership. We operate independently of Affiliated Managers Group.The International Equity ADR composite rose 2.26% in the quarter gross of fees, trailing the 4.81% gain for the MSCI ACWI ex US Index.The portfolio lagged across most regions and sectors, with over half of this attributed to Japan, a market comprising just one-seventh of the index.The IT sector has delivered very strong returns over the last decade, and TSMC has enabled our IT holdings to keep up with those returns.   piranka Market Review Stock markets gained in the quarter despite rising bond yields, due in no small part to ongoing interest in the prospects for artificial intelligence (AI). Most sectors and all regions except Pacific ex Japan finished in positive territory. Monetary policies in global developed markets, which had previously moved together toward higher rates to curb inflation, began to diverge as central bankers addressed varied inflationary trends. In the US, the Federal Reserve kept its benchmark rate steady at 5.25–5.5% for the fifth consecutive meeting, as higher- than-expected Consumer Price Index figures largely caused by rising housing expenses dashed hopes for an early rate cut. Nevertheless, the Fed continued to signal three rate cuts this year. Longer-term interest rates in the US such as mortgage rates actually increased as investors adjusted their expectations for timing and magnitude of future rate cuts from the Fed; expectations began the year at seven cuts of 25 basis points (bps), well ahead of guidance. Both the Bank of England and European Central Bank also kept rates unchanged, in contrast to the Swiss National Bank’s unexpected reduction of 25 bps—the first cut by a major central bank cut since the pandemic’s end—triggered by inflation there returning to the bank’s target range. MSCI ACWI ex US Index Performance (USD %)   Sector 1Q 2024 Trailing 12 Months   Communication Services 2.2 -2.7   Consumer Discretionary 7.3 9.2   Consumer Staples -3.1 -4.4   Energy 5.5 22.3   Financials 6.1 22.3   Health Care 4.0 8.0   Industrials 7.1 20.1   Information Technology 11.4 30.1   Materials -1.6 4.9   Real Estate -0.1 7.3   Utilities -2.8 6.0   Geography 1Q 2024 Trailing 12 Months   Canada 4.2 16.0   Emerging Markets 2.4 8.6   Europe EMU 8.0 17.2   Europe ex EMU 2.7 12.3   Japan 11.2 26.2   Middle East 12.5 24.5   Pacific ex Japan -1.7 2.5   MSCI ACWI ex US Index 4.8 13.8  \nClick to enlarge Source: FactSet, MSCI Inc. Data as of March 31, 2024. In a landmark move, the Bank of Japan (BOJ) raised short-term interest rates, bringing to a close the country’s decade-long era of negative interest rates. The BOJ also announced an end to both its yield curve control policy, which had capped long-term Japanese government bond yields, and its asset-purchase program, which had encompassed not only government bonds but also stock ETFs and real estate investment trusts, in a sustained effort to offset negative wealth effects from deflation. As a result, yields on Japanese 10-year bonds increased, though they remain well below comparable yields in other developed markets. In contrast, the People’s Bank of China continued efforts to stimulate the real estate sector and broader economic activity and introduced measures to invigorate its moribund economy, including reducing the cash-reserve requirements for banks—freeing up more funds for lending—and enhancing credit availability to eligible developers. The Bloomberg Commodity Index, which tracks a broad set of commodity prices, rose slightly. Strong gains in energy prices and precious metals were offset by weakness in agricultural commodities such as corn and wheat and certain industrial metals such as nickel, which fell due to fears of weakening battery demand and increased supply from Indonesia, a key global producer. Brent crude oil, a major global benchmark, rose almost $10 to reach $85 per barrel, largely due to OPEC+ supply cuts and disruptions in Russian refining capacity. The US dollar appreciated against most major currencies, buoyed by flows into the US equity market and the curtailed number of expected rate cuts, a distinct reversal from the dollar’s broad decline last quarter. The Information Technology (IT) sector was once again the top performer, closing the period with an 11% increase, led by substantial gains in semiconductor stocks. Shares of AI beneficiaries such as TSMC (TSM) — the exclusive manufacturer of NVIDIA’s (NVDA) GPU chips—and Dutch lithography specialist ASML (ASML) both surged. Industrials also performed well, largely attributable to solid returns from Capital Goods stocks. In contrast, interest-rate-sensitive sectors such as Real Estate and Utilities lagged, pulled down by the decline in bond prices, while Consumer Staples trailed as investors favored faster-growing sectors. The Materials sector suffered from declines in the shares of large mining companies like BHP (BHP) and Rio Tinto (RIO), both of which tumbled with the slump in prices for industrial metals. Of major regions, Japan spearheaded performance. The Pacific ex Japan region underperformed, hurt by poor returns in Hong Kong, which was weighed down by ongoing economic weakness on the Chinese mainland. Emerging Markets also lagged, with poor returns for Chinese stocks partly offset by strong performance in India and Taiwan. Shares of faster-growing companies outperformed those of slower-growing companies this quarter, though the margin between the top quintile of growth and the bottom was not as extreme as seen in the US. The fastest-growing cohort came out on top in just three sectors—Health Care, IT, and Utilities—the former of which was buoyed by a very strong returns from Danish pharmaceutical company Novo Nordisk (NVO). Higher-quality companies, characterized by lower debt levels and more consistent earnings, also performed better than those of lower quality. In Japan, last year’s value rally continued, as the stocks of lower-quality companies and those in the cheapest cohorts significantly outperformed. Performance and Attribution The International Equity ADR composite rose 2.26% in the quarter gross of fees, trailing the 4.81% gain for the MSCI ACWI ex US Index. The portfolio lagged across most regions and sectors, with over half of this attributed to Japan, a market comprising just one-seventh of the index. In Japan, investors once again favored the cheapest stocks, typically associated with the least-profitable and slower-growing companies. The stocks from the two cheapest quintiles of value outperformed the other three quintiles by 1300 bps. Our holdings there, typically priced at a premium due to their superior proven quality and growth track records, fell afoul of this trend. Adding injury to that insult, Sony (SONY) shares fell after the company released quarterly results that featured fewer sales of its PlayStation 5 console than expected. In Europe, relative performance suffered due to a few poor stocks combined with the narrow segment of market-leading large-cap stocks we’ve been reluctant to own for valuation reasons. As for the latter, Danish obesity drugmaker Novo Nordisk, Dutch semiconductor equipment manufacturer ASML, and French luxury goods conglomerate LVMH (OTCPK:LVMHF) added nearly a full percentage point to the index return, but none to our portfolio. We do own Infineon Technologies (OTCQX:IFNNY)(OTCQX:IFNNF), the German power semiconductor manufacturer, whose shares fell and hurt returns the most. The firm faced headwinds as its industrial and automotive customers postponed purchases in efforts to deplete inventories they had accumulated previously. Decelerating sales of electric vehicles (EVs) slashed expectations of faster growth from that source for its power management chips. Unlike last year, Emerging Markets in general, and China in particular, were not a drag on relative performance. There were some stocks elsewhere that suffered from their connection to China. In Hong Kong, insurer AIA Group (OTCPK:AAGIY) (OTCPK:AAIGF) lagged even as its COVID-19-constrained new business production began to rebound. Further afield in Australia and the UK, shares of mining giants BHP and Rio Tinto declined in parallel with the falling price of iron ore, reflecting continued concerns about Chinese steel production. Viewed by sector, weak stocks in Health Care, IT, Consumer Discretionary, and Industrials were the biggest drag on performance. In Health Care, Novo Nordisk’s strong performance and large market cap single-handedly delivered nearly all that sector’s contribution to the index. Among the stocks we owned instead, Roche (OTCQX:RHHBY) (OTCQX:RHHBF) (OTCPK:RHHVF) and BioNTech (BNTX) suffered due to waning COVID-related sales, with contributions from their drug pipelines seemingly too remote to attract the attention of Health Care investors captivated by weight-loss drug makers. First Quarter 2024 Performance Attribution Sector International Equity ADR Composite vs. MSCI ACWI ex US Index    Geography International Equity ADR Composite vs. MSCI ACWI ex US Index   “OTHER”: Includes companies classified in countries outside the index. (Source: Harding Loevner International Equity ADR composite, FactSet, MSCI Inc. The total effect shown here may differ from the variance of the composite performance and benchmark performance shown on the first page of this report due to the way in which FactSet calculates performance attribution. This information is supplemental to the composite GIPS Presentation.) Within IT, the drag from Infineon shares, along with the absence of ASML, hurt returns. Dassault Systèmes (OTCPK:DASTY) (OTCPK:DASTF), little-exposed to the AI craze, also hurt returns, as demand from Life Sciences customers fell short of investor expectations, causing management to issue disappointing guidance due to expected continued weakness. This offset gains from SAP (SAP), which does tout the AI features of its enterprise software. Strong returns from TSMC, the primary manufacturer of NVIDIA’s GPU chips, partially made up the lost ground; we sold a slice off our holding as it approached our single security limit of 5%. In Industrials, our four Swedish multinationals, Atlas Copco (OTCPK:ATLKY)(OTCPK:ATLCY)(OTCPK:ATLKF), ASSA ABLOY (OTCPK:ASAZF) (OTCPK:ASAZY), Epiroc (OTCPK:EPOKY), and Alfa Laval (OTCPK:ALFVF) (OTCPK:ALFVY), all suffered modest share price reversals and collectively contributed to the sector’s underperformance. For Consumer Discretionary, Sony was the biggest drag on returns, compounded by the absence of Toyota Motors (TM) and LVMH from our portfolio. These latter two companies alone accounted for about half the sector’s overall contribution to the index. Financials were a bright spot in the quarter, especially shares of [[BBVA]]. The banks’ strong net interest income growth in both Spain and Mexico will allow it to boost its dividends and share repurchase programs. Additionally, the Dutch payments specialist, Adyen (OTCPK:ADYEY)(OTCPK:ADYYF), continued its path to recovery reporting a 23% year-over-year increase in revenue for the latest quarter, which has significantly bolstered investor confidence in its market position. Offsetting this was continued weakness in shares of HDFC Bank (HDB) following its merger with its parent HDFC Corp last year, with its results suffering from a slower-than-expected pace of replacing higher-cost wholesale funding with lower-cost retail bank deposits. Perspective and Outlook As global markets increasingly align to capitalize on the AI theme, driving up a diverse array of beneficiaries, our decision to own, or not, various companies tied to this theme is rooted in a deliberate process of bottom-up decision-making that spans years and occasionally decades. We recognize and can elucidate the ways in which our portfolio of high-quality, growth-oriented companies stand to benefit from this burgeoning area of growth. But our investment in these companies is not predicated on some specific target for AI exposure, despite the pain caused by missing out on some companies that are tied to that theme during certain times. While we have significant portfolio-level exposure to the growth AI may bring, it comes via a diverse set of companies that are already fundamentally strong. The companies that investors anticipate will benefit from AI fall into two broad categories. The first includes companies that provide goods and services enhanced by AI—enabling them, improving them or delivering them more efficiently. This includes internet giants such as Meta Platforms and Alphabet, and other large service providers like Salesforce and SAP. Many of these companies are focused on the potential of generative AI, which is capable of processing complex language prompts to perform a variety of tasks, mimicking human-like creativity and problem-solving skills across a broad spectrum of applications. The second group that is drawing investor interest consists of companies developing the underlying technology that powers AI. Leading this group are the designers and manufacturers of the advanced semiconductors necessary to run AI algorithms, but the interest also extends to the producers of semiconductor manufacturing equipment and providers of the critical computing infrastructure required by AI systems. NVIDIA, headquartered in the United States, has dominated headlines as the leading designer and vendor of AI-focused semiconductors and software. Another US-based chip designer, AMD (AMD), has also ventured into the AI arena. But neither company undertakes the manufacturing of their AI-centric semiconductors. Instead, the production of virtually all high-performance AI chips designed by these firms is carried out by TSMC, a company we’ve owned for decades. The AI chips produced for NVIDIA and AMD include Central Processing Units (CPUs) and Graphics Processing Units (GPUs) fabricated using some of TSMC’s most sophisticated manufacturing technologies, resulting in chips at the pinnacle of the industry in terms of transistor density, speed, and energy efficiency per computing unit. These attributes are critical for AI applications, where processing power and efficiency are paramount. NVIDIA and AMD’s reliance on TSMC extends beyond chip manufacturing. They also increasingly depend on TSMC’s innovative capabilities in integrating and packaging the logic, memory, and input/output components. In January, TSMC CEO C.C. Wei highlighted the company’s pivotal role in the AI sector, stating “We are a key enabler for AI applications. So far today, everything you saw for AI comes from TSMC.” He also projected that AI-specific chips would constitute nearly 20% of TSMC’s total revenue in 2027. Rising use of AI applications may also spur demand for other types of semiconductors manufactured by TSMC, as chips used in networking devices and smartphones grow ever-more advanced, underscoring the company’s integral role in the global semiconductor ecosystem. After growing at a 6% annualized rate over the last quarter century, total global semiconductor sales plateaued at close to US$500B per year over the last three years, recent projections suggest the surging demand for all things AI-related could result in an incremental US$400B of annual semiconductor sales between 2027 and 2030. That would power a return to double-digit revenue growth rates that the industry has not seen since before the year 2000. The anticipated growth in semiconductor demand is boosting expectations for related suppliers. As giants like TSMC and Samsung increase investments, suppliers such as ASML, known for its advanced EUV lithography machines essential for cutting-edge chips, stand to benefit. This dynamic extends to a broad set of companies involved in various facets of semiconductor production. Daifuku (OTCPK:DFKCY) (OTCPK:DAIUF), a Japanese firm specializing in automated handling systems, particularly for ultra-low vibration transport, is also key supplier for TSMC. Cleanroom automation systems for semiconductor and display makers represent about one-third of Daifuku’s sales. Along with the rising demand for its cutting-edge cleanroom technologies, there’s also plenty of demand for the company’s legacy products, especially in China. Daifuku’s business remains strong in Taiwan and Korea, while efforts to revitalize semiconductor manufacturing in Japan and the US present further growth opportunities. Data centers are also likely to see increased investment to accommodate the expanding range of AI services. That expansion will create opportunities for companies that supply essential infrastructure components for datacenters, including Schneider Electric (OTCPK:SBGSF) (OTCPK:SBGSY) and Infineon, which are key suppliers of some of these critical elements, including cooling and power management. Data centers are notable energy hogs, using 10 to 50 times more energy per square foot than a typical office building; in the US, data centers already account for 4% of the total electricity usage. Schneider’s expertise in power management for IT infrastructure has positioned it as a leader in this space, offering a range of services that include electricity usage management, infrastructure management software, cooling systems, uninterruptible power supplies, and rack systems. The company’s recent projections call for organic growth between 7% and 10% annually through 2027, along with consistent margin improvement. Infineon, widely recognized for its automotive semiconductors, particularly for electric and hybrid vehicles, also plays a crucial role in data centers and AI computing. The high power demands and the necessity for power density is a good match for Infineon’s switched mode power supplies, conversion solutions, and voltage regulator designs that power high performance CPU’s, GPUs, and memory products, helping to reduce power consumption. While current forecasts predict a swift expansion of AI computing, and corresponding investments in AI-related capex, the range of these forecasts varies significantly. While investors are currently focused on growth and rewards, there are risks and uncertainties worth keeping in mind. For instance, the semiconductor wafer fabrication equipment industry has grown massively over the past 30 years, from US$10B in annual sales in 1990 to over US$60B per year in 2020. But that growth has been highly variable, with the industry taking 10 years to surpass a US$40B sales peak in 2007, and twice seeing peak to trough declines of over 40%. Should AI turn out to be more evolution than revolution, or if the surge in capex investment falls short of estimates, or if the industry’s path is as variable as fabrication’s, we remain confident in the resilience and long-term growth potential of the companies within our portfolio, as none of them are wholly dependent on AI associated predictions to grow. Portfolio Highlights The idea that themes in the portfolio emerge from a collection of disparate individual holdings revealed to share exposure to growing trends, and that sector allocations are merely the result of an accumulation of specific stock decisions, is illustrated well by our long-term stance in favor of the Information Technology and Consumer Staples sectors. We’ve owned TSMC continuously since 1999 in this strategy, and the holding has been a cornerstone of our IT weight, leading to a persistent overweight to the semiconductor industry group. This description, written for our commentary nearly a quarter-century ago, still rings true: “The global trend toward outsourcing is not confined to the services sector. Capital requirements in the semiconductor manufacturing industry are so high that many electronic equipment companies have gradually withdrawn from manufacturing, choosing to fulfill their semiconductor requirements from external sources. By taking orders from a broad base of such OEM customers, TSMC has become the world’s most efficient chipmaker, and can generate high returns on the large capital investment required.” Management has redoubled investment to reinforce that efficiency and retain its technology lead, when others balked at the audacious commitment required, and that sustained advantage has enabled growth that has rewarded investors handsomely over time.    The IT sector has delivered very strong returns over the last decade, and TSMC has enabled our IT holdings to keep up with those returns. But our outsized allocation to IT overall, partly a result of this longstanding holding, has contributed significantly to relative performance over the past five and ten years. The semiconductor industry has historically been highly cyclical, characterized by frequent revenue downturns of 10% or more, with even larger profit declines especially for the weakest competitors. Recognizing our limitations in forecasting these cycles, we’ve aimed to mitigate the cyclical volatility of our substantial semiconductor investments by diversifying with investments in less-cyclical sectors, such as Consumer Staples. This balance allows us to manage risk while maintaining exposure to the growth potential of the semiconductor industry. This approach has resulted in our overweight in Consumer Staples for most of the past 15 years. The companies within Consumer Staples, which include food, beverage, and personal household goods makers, typically exhibit more moderate growth rates compared to many of our other holdings. However, the stability of their profitability, as reflected in rock-steady Cash Flow Return on Investment (CFROI) over many years, has resulted in their share prices being significantly less volatile than the rest of the market. This lower volatility, along with lower market sensitivity (as measured by their beta) provides substantial portfolio diversification benefits, particularly during market downturns. It creates opportunities to rebalance our holdings, shifting away from stable stocks towards more-cyclical and more-volatile segments when other investors are seeking safety in the predictability of Consumer Staples.    This approach of seizing opportunities amid market fear— implicitly heeding Warren Buffett’s advice to “Be greedy when others are fearful”— has been successfully implemented repeatedly over the years, such as our early battle against the rising valuations afforded high-quality companies in 2015-16, then during the COVID-induced market plunge of 2020, and later amid the sharp downturn in shares of high-growth companies in 2022. By reducing our allocation to Consumer Staples during these periods, we capitalized on the enhanced potential of more volatile market segments. This contrarian behavior, which demands not only the fortitude to trade against the crowd, but also the patience to hold less-glamorous investments during more risk-friendly environments, has been pivotal. On average, our approach has resulted in Consumer Staples contributing to our relative performance over the last decade. A word about our view on Novo Nordisk is in order. Currently, its drugs Ozempic and Wegovy for diabetes and obesity are the only engines of the company’s growth. By 2030, the drugs are expected to account for 70% of the company’s revenue, but then the patents on the drugs will expire in 2031 and 2032. The price and volume pressure that will ensue at that point is a substantial challenge to Novo’s long-term earnings and thus how we view the current valuation of its shares. Further, there are nearer risks to Novo’s market position than the eventual patent expiries. The current duopoly between Novo and Lilly (LLY) for anti-obesity drugs is not a foregone conclusion; there is a proliferation of candidate drugs from other companies, many with early data that’s as compelling as Novo and Lilly’s drugs. And because commercial payors (insurers and Medicare) haven’t normalized the coverage of obesity drugs, their bargaining power could curb the growth of (or the prices commanded for) GLP-1 drugs for obesity overall. Those risks to Novo’s revenue and profits aren’t reflected in the forecasts used to justify Novo’s current share price.  Companies held in the portfolio at the end of the quarter appear in bold type; only the first reference to a particular holding appears in bold. The portfolio is actively managed; therefore, holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of holdings for the past year, please contact Harding Loevner. A complete list of holdings at March 31, 2024, is available on page 9 of this report. Harding Loevner’s Quality, Growth, and Value rankings are proprietary measures determined using objective data. Quality rankings are based on the stability, trend, and level of profitability, as well as balance sheet strength. Growth rankings are based on historical growth of earnings, sales, and assets, as well as expected changes in earnings and profitability. Value rankings are based on several valuation measures, including price ratios. \nClick to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2439757618"}