CT Responsible Global Equity Strategy 2023 Responsible Profile

With astonishing rapidity, investors shrugged off the gloom of 2022 and embraced risk, confident that radical central bank action has tamed inflation, and that rates are coming down, driving the MSCI World up almost 20%. This confidence has spilled over into 2024, despite the Fed keeping the world waiting for its first rate cut, with the continued rally underpinned by growth and technology stocks.

Given our bias towards innovative, quality-growth companies, it was particularly frustrating for us as a strategy to underperform in 2023. There were a number of headwinds, but much of this underperformance was rooted in being underweight to the constellation of stocks dubbed the Magnificent Seven – Nvidia, Tesla, Meta, Apple, Amazon, Microsoft and Alphabet – market cap behemoths who drove the majority of performance in an extremely concentrated rally.

Many of these names we cannot own due to the screens that safeguard this strategy. We firmly believe that having a rigorous, impartially applied set of screens aligns with our client’s ethics and protects their capital in the long term, but there will occasionally be performance penalties to these screens. Such was the case last year.

In a market where so many of the biggest businesses are also its innovation leaders, it is vital to regularly re-screen large benchmark weights to ascertain whether our stance on them is still appropriate, and last year we re-screened most of the Magnificent Seven, with Alphabet moving from non-acceptable to acceptable due to material improvements in its data management practices. We added the stock towards the end of the year. We will continue to review and refine our screens to ensure they are appropriate for the world we are moving in to.

We live in era of continuous innovation, but even by these standards, 2023 has been an extraordinary year of technological change, with history seeming to accelerate in front of our eyes. Artificial intelligence has emerged to become an almost all-consuming interest of markets, driving Nvidia’s historic run to become the second biggest company in the world, and bringing hundreds of billions of dollars of capex off the sidelines to invest in GPUs, semiconductors and data centre capacity, as corporates race to embrace this technology.

AI has the potential to augment and automate a huge range of cerebral tasks the way the industrial evolution substituted machines for muscles two and a half centuries ago. That first industrial revolution was the greatest wealth unlock in human history, but it was accompanied by serious social consequences. The implications of the AI revolution could be equally profound. As responsible investors, we want to attach ourselves to this growth, whilst also, just as importantly, trying to ensure it is applied ethically, wisely and sustainably.

We are a low turnover strategy by design, buying businesses that we have long-term conviction in. This will not change. But in a year of radical market and technological change, it is necessary that we are correspondingly nimble to grasp opportunities before they evaporate. Our turnover in 2023 was consequentially higher than normal, but we believe that the trades we carried out leave us much better positioned in emergent mega-trends. You will read more about these trades in this report.

We are very mindful of the performances challenges of 2023 and 2022. They serve to keep us hungry and disciplined in our investment approach. But it is gratifying to see that trading activity we conducted in 2023 is positively contributing to performance into 2024. These are genuinely exciting times to be an investor, and the opportunity set is rich. We hope to convey some of that excitement in this report, and remain committed to investing your money into the most innovative global businesses, which have both the potential to power long term fund performance, and scope to make a positive non-financial contribution for all employees, stakeholders and shareholders.