Eurozone stock markets have been trading in the same narrow range since April. In macroeconomic terms we see significant divergence between American, European and Chinese economies. There are signs of a soft landing in the US, a sharp slowdown in Europe and an economy in China that is finding it hard to recover. American interest rate hikes continue, and commodities (e.g. oil) are rising again. As a result the markets are seeing significant sector rotation towards oil and domestic defensive shares, and away from cyclicals such as automotive, industrial and luxury companies. The fund’s performance came to –4.27%, compared with –3.21% for the benchmark index.

The worst performers included ADYEN, which fell sharply after results were published. Its status as leader in the digital payment sector is suddenly very uncertain, especially in the US where the group has experienced a severe slowdown in growth. INFINEON says that business conditions have been lass favourable than expected. Companies with exposure to China are suffering from local economic weakness (e.g. spirits, luxury goods and auto). However, positive contributions came from defensive shares such as health care (ICON, MERCK), reinsurance (HANNOVER RE) and industrial gas (LINDE).

In August we added pharma group MERCK KGaA to the fund’s portfolio. The group is a global leader in equipment for the pharmaceutical industry, an oligopoly with strong barriers to entry. Merck is also a mid-sized pharma company focused on several specialities (e.g. fertility drugs), with key indications in the oncology and immunology pipelines. Moreover, the group supplies chemical products, and has been successful in positioning itself in the semiconductor industry. We sold our position in ADYEN.