The International Growth Fund returned -5.8% in March, compared with the benchmark index which returned -4.6%.

March was dominated by the outbreak of the US-Iran conflict, which caused the effective closure of the Strait of Hormuz and a 63% surge in Brent oil prices, the largest monthly increase in four decades. The S&P 500 fell 5.1%, its worst month in a year, with energy being the only positive sector (+6%). The conflict amplified the rotation away from quality growth stocks (our investment style) into asset-heavy, cyclical sectors perceived as beneficiaries of higher commodity prices. For the full quarter, value stocks (+1%) comfortably outperformed growth stocks (-8%), and low-quality stocks (+2%) significantly outperformed high-quality stocks (-9%). While the velocity of this rotation has been extraordinary, the long-term data for quality remains compelling: the quality factor has outperformed the broader market by approximately 2.5% per annum over the past three decades.

Amazon (-1%) and US large-cap tech generally were a relative calm amid the storm. Following its deal with OpenAI (announced on the last day of February for US$100 billion of incremental revenue), investors now consider Amazon well positioned with key AI customers (Anthropic, OpenAI). This should accelerate revenue growth in AWS, its key datacentre business.

Floor & Decor (-27%) came under further pressure as surging fuel prices and Middle East uncertainties compounded the ongoing drag from high US mortgage rates. The flooring market has been in a severe recession for over three years, and while Floor & Decor continues to take market share and open new stores, the stock is priced for a bleak outlook. We think this is overly pessimistic. Like Old Dominion in trucking, Floor & Decor is a business where it doesn't take much improvement in the cycle for the stock to move materially. When existing home sales recover, the pent-up demand for flooring renovations (a large, discretionary purchase that homeowners have been deferring) should translate into a meaningful earnings recovery.

The market volatility in recent months has created attractive opportunities in parts of the market. In recent months we have added a number of new stocks to the portfolio, including Keyence, TSMC, Capital One, Mercardo Libre, Uber, Equifax, Tyler and HDFC Bank. We have further diversified the portfolio by adding new holdings in the financial and industrial sectors and have also added geographic diversification by adding selected stocks in Japan, Taiwan, India and Latin America. With many of the companies in the portfolio trading at what we see as very attractive valuations, we believe the portfolio is well positioned for future growth.