Insights

Portfolio Managers Quoc Tran and Michael Im, CFA, provide their perspective on the direction of the market given the recent interest rate cuts, opportunities they’re finding, and their thoughts on the semi-conductor industry.

Would you please provide your perspective on the market’s direction given the expected rate cuts over the next year?

We believe stocks are at an inflection point because of the direction of interest rates and the broadening out of market performance.

Over the past two years, rate increases led to multiple contractions in the market, and now the reverse may be taking place. In September, the Federal Reserve cut rates by 50 basis points. The Fed also signaled that it expects to cut the rate by another half a percentage point this year with four more cuts in 2025 and two in 2026. We believe these rate cuts over the next 18 months should be supportive of equity markets.

In addition, market performance should broaden out. Over the past year, market returns were dominated by a few large-cap technology companies. However, in the third quarter the S&P Equal Weight Index, an equal-weight version of the S&P 500, outperformed the overall S&P 500 by 370 basis points, indicating that positive returns have not been concentrated only in a narrow group of mega-cap stocks but rather a wider range of companies.

Where have you been finding opportunities in the market?

The Fund seeks exceptionally managed, well-run companies that offer attractive share prices with significant growth potential. Many of these companies have not participated in the market’s performance in recent months or have not been recognized.

As an example, we purchased Veeva Systems, a leading life sciences software company with a large market share in the pharmaceutical industry. Veeva’s software helps pharmaceutical companies manage customer databases, track drug developments, and organize clinical trials. The company’s growth has been fueled by the increasing use of cloudbased technologies in the pharmaceutical industry.

As interest rates rose and spending in the biopharmaceutical and biotechnology sectors declined, the stock price suffered. We saw this as an opportunity to invest in a high-quality company at an attractive price at a time when rates are declining.

What are your thoughts on the semi-conductor industry?

We remain bullish on our semiconductor holdings primarily because we believe we are in the early stages of a third technology wave. The first wave was the introduction of personal computers followed by a decade of growth. The second wave of technology was dominated by smartphones and tablets, which enabled the success of new businesses including Uber and Airbnb.

Now we believe we are at the beginning of a new artificial intelligence wave, with companies such as Amazon, Microsoft and NVIDIA potentially benefiting over the long term. With that said, during each of these waves, pullbacks are to be expected but we see them as an opportunity to purchase more shares.

Given our favorable opinion around AI, nearly 50% of our portfolio holdings as of the end of the third quarter 2024 are focused on AI-related investments and the development of new AI applications as of the end of the third quarter 2024.