The international Growth Fund returned -3.0% in January, compared to its benchmark of +0.1%.

January was notable for a sharp factor rotation. High quality companies (Fisher Fund’s style) underperformed low quality by 10%, one of the sharpest one-month differentials we have seen. Growth (IGF’s style) underperformed value by 5%, which is again one of the sharpest months we have seen. Against this backdrop, while cold comfort, we would expect our style to underperform.

The AI winner-loser narrative was once again a driver of diverging performance in markets, with the 25% outperformance of semiconductor versus software stocks particularly stark. ASML (+32%) was our top contributor for the month, driven by overwhelming demand for its advanced chip-making equipment. ASML received US$13 billion of orders for its lithography tools in the fourth quarter. This was nearly double what the market expected as AI chip manufacturers rapidly build new capacity to meet high demand. Leading chip maker TSMC is running near 100% capacity for its advanced chips, while memory chip makers like Micron are also "sold out" until the end of the year. We took the opportunity to reduce our position in ASML after strong share price performance (+90% since the end of August).

Software stocks were the biggest detractors in January, with Salesforce (-20%) down on fears that the traditional software model could be disrupted by AI. These fears were reignited as AI company Anthropic launched its own enterprise AI agent “Claude Cowork” to rave reviews. The software sell-off was compounded by software earnings releases that were below expectations. Microsoft (-11%) saw the largest single-day decline since 2020 after signalling that its massive AI investments may take longer to pay off than the market expected. While this is a fast-changing space, we believe that large, entrenched enterprise software platforms such as Microsoft and Salesforce will play an important role in the roll-out of AI in the enterprise.