HL Select Global Growth - Q2 2025 Review

Gareth Campbell - Fund Manager

3 August 2025

Market review

Q2 began in crisis as Trump’s tariff policy put global economies and share prices in a tailspin. This was quite short-lived, as once US credit markets showed signs of weakness, these policies quickly softened, proving that to even the most powerful of presidents, they are still no match for the bond market.

By the end of Q2 many economic indicators such as yields and commodities recovered, and the stock market is at all-time highs. This short-lived normality has emboldened Trump to re-engage in some of his more extreme policies, and he has heightened pressure on the US central bank to cut rates despite inflation’s future path being uncertain.

US Republicans successfully passed their key legislation extending and increasing tax cuts which should be positive for growth, although the cost to long-term fiscal stability is unknown. We think concerns around Federal Reserve replacement are exaggerated as even if rates were cut, the market dictates long-term rates and those are also influenced by many other factors outside of the Federal Reserve’s direct control.

Market leadership has reverted to AI and its broader ecosystem, with a narrow subset of stocks delivering exceptional returns from the April lows. This has been complemented by high growth disruptive thematics also seeing very strong performance, illustrated by Ark Innovation's 70%+ bounce from mid-April. We think many quality and defensive businesses are being left behind, even if their fundamentals remain strong, making it a challenging period for fundamental investors looking for diverse market returns. However, we must remember that past performance does not determine future outcomes.

The portfolio’s defensiveness proved valuable during the period of crisis, with relative performance being very strong. We made some changes near the lows to take advantage of this volatility by adding Meta as a new position and allocating capital to areas we felt had underappreciated defensive characteristics.

Our more neutral exposure to the AI ecosystem has helped shelter performance, but such a rapid recovery with narrow leadership will be a challenging backdrop for many funds. With macro conditions remaining uncertain, we think the value of owning businesses with diverse drivers of returns and more defensive characteristics is under appreciated and remain focused on building a portfolio of compounders that can thrive irrespective of how the market or politics change in the future.

Performance review

The HL Select Global fund returned 5.35% during Q2, compared to the MSCI World Index return of 5.00%, resulting in 0.35% outperformance versus the benchmark.

Positive and negative contributors

Our positive relative performance was driven by sector and stock selection, as all regions delivered very similar performance after adjusting for currencies.

An overweight of Information Technology sector was the main driver of our positive sector allocation, with only two other sectors, Industrials and Communication Services, outperforming during the quarter. Not owning Energy, Real Estate and Utility stocks was a positive for performance, as they reversed all their Q1 gains.

Stock selection was broadly strong across the portfolio, offset by a handful of large negatives that derailed what otherwise would have been a very strong quarter for the HL Select Global Growth fund. These are discussed in more detail below.

Positive contributors

Amphenol's multiple had derated as sentiment in AI acceleration declined into Q1. In Q2 it delivered very strong results, leading to a large earnings upgrade, a rapid re-pricing of the multiple and very strong quarterly returns. We trimmed the position in June after the multiple recovered to a level near the highs of its recent range.

Taiwan Semiconductor Manufacturing Company (TSMC), BE Semiconductors and DISCO (along with most other semiconductor companies) had an exceptional quarter. It is staggering that the sector is just 8% of the index but delivered over 50% of index returns last quarter. This strong performance was due to a mix of sentiment, results and continued record investment in data centre infrastructure. Nvidia and Broadcom are our other holdings in the sector, which we have a small underweight position. We added to DISCO in June because we thought its position as a near monopoly provider of tools is indispensable to advanced chip manufacturing and its share price had unduly lagged other perceived winners.

Microsoft’s strong results helped reverse a de-rating that had persisted for the prior 6 months. We still think that despite the criticism of Co-Pilot, its position in the ecosystem and investment in AI technology will help it become a long-term winner, and it remains our largest holding.

API Group's recent earnings increased confidence that negative revisions have ended. Despite the strong move in the share price, we still see its market opportunity as large and its multiple versus peers as low, so we think its opportunity to compound has only just begun.

Negative contributors

Fiserv's earnings highlighted a slowing in key product Clover, which took the market by surprise. This was followed by commentary at a conference that Q2 wouldn’t show much improvement. Overall, we think the reaction and collapse in the relative multiple to a 10+ year low was excessive for a company with 40+ years of double-digit EPS growth and stable earnings revisions. We think it is unlikely Fiserv can recapture its premium multiple, as Clover won’t see growth re-accelerate to previous highs, but we believe consistent mid-teens EPS growth will be rewarded through patient compounding and a re-rating closer to market multiple.

United Health Group and Elevance began the quarter well due to their safe-haven status during the tariff crisis, given their US domestic focus and limited cyclicality. We are thankful to have trimmed at this peak as UNH results dispelled this status as higher medical costs and a seeming never ending attempt by the Wall Street Journal to “take-down” the insurance sector has resulted in UNH underperforming by over 50% since the peak. Since then, other managed care companies have also reported higher medical costs and the Republicans’ new legislation will see millions lose coverage through Medicaid cuts. Despite insurance companies’ characterisation as the bad guys, we see them as the main source of efficiency and cost savings in the US health care system and see limited risk to their position in the value chain longer term. Health insurance also re-prices every year, so the damage should be recovered in the next couple of years. We are reviewing both companies to determine if our thesis has changed or if this is a great opportunity to own businesses with some of the most enviable long-term records of compounding in the US market.

Marsh & McLennan has sold off on fears of a softening insurance market and AI challenges to its consulting business. Historically softer insurance markets haven’t led to negative revisions but concerns around AI’s impact on consulting have some validity.

Medtronic reversed its relative gains from Q1 as despite delivering organic growth the business still failed to generate operating leverage. We still think the business is undervalued and that the pipeline could materially add to growth, but execution needs to improve for a re-rating to materialise.

London Stock Exchange Group is executing well, and we think recent weakness is more down to its defensive characteristics than business concerns.

New positions

Meta operates some of the largest social networks in the world in Facebook, Instagram and WhatsApp. This gives them enviable data and customer engagement in a global economy increasingly driven by these inputs.

Its platform means the business is less at risk from AI disruption as it can determine how users best get the value from AI; this is an enviable and not fully appreciated position within big tech.

The de-rating during the market selloff gave us an opportunity to buy a business we have been looking at and thinking about (with regrets) for many years.

Dexcom are the global leaders in continuous glucose monitoring (CGM), which is used for the treatment of diabetes, but also could have benefits to pre-diabetics and other health concerns.

We think investors underappreciate how early it is in developing the market and how a shift to longer-lived devices will have a very positive impact on capital intensity and returns on invested capital.

We see concerns around the role of GLP-1’s as largely misunderstood as GLP-1’s have been used to treat diabetes for 20+ years, they are not new to this market. They may help slow the growth of the prevalence of diabetes, but we think the market expansion opportunity far outweighs this potential negative.

Accor are an owner and operator of hotel brands, ranging from Ibis at the lower end to the ultra-luxury Orient Express.

We think investors underappreciate that through positive mix and property divestments the company has transitioned its business model, which should result in revenue growth and operating metrics closer to that of highly rated peers. We think this means its large discount to peers is unjustified.

Portfolio changes

We added to Motorola Solutions as we think their new body camera device is a step-change improvement in an industry currently dominated by Axon (the manufacturer of tasers). We think this product can accelerate the business model shift to software and services, which is positive for margins, return on capital, and makes the business less cyclical. Motorola are the dominant provider of radios to emergency services and so have a strong right-to-win in this market, while we think Axon’s aggressive pricing strategy means it will be challenging to protect its market share from a reinvigorated competitor without damaging its core business.

Sold positions

No positions were sold in the quarter.