Positive Change: investor letter Q2 2024

July 2024 / 8 minutes


Investment specialist Rosie Rankin gives an update on the Positive Change Strategy covering Q2 2024.

Your capital is at risk. Past performance is not a guide to future results. 

Performance: still waters run deep

On the surface, performance over the quarter appears unexciting. Portfolio returns have been virtually flat on an absolute basis and behind the benchmark on a relative basis. However, beneath these still waters there are interesting currents at play: accelerating growth, a boost from biotech and market sentiment which continues to swirl around short-term news and largely ignore the tides of change ahead.

The relatively weak investment returns belie the fact that the majority of companies in the portfolio continue to deliver pleasing operational progress. Indeed, indications are that fundamental growth is accelerating across the portfolio. Forward three-year earnings growth is currently 17 per cent per annum across the portfolio compared to 13 per cent per annum 12 months ago (to 31 May 24). As growth investors, it is our belief that it is this fundamental growth that will drive superior share price returns over the long run.

Given their obvious exposure to Artificial Intelligence (AI) it is no surprise that TSMC and ASML have been among the top performers over the quarter. However, it’s pleasing that two biotech companies from the portfolio, Moderna and Alnylam, have also been drivers of recent performance after a period of weakness.

Alnylam uses a breakthrough biological discovery called RNA interference (RNAi) to develop highly innovative drugs. Since we invested in 2017, Alnylam has successfully brought five drugs to market targeting mainly rare diseases. At the end of June, Alnylam announced very positive results in a phase 3 trial for its Vutrisiran therapy to be used in treating patients with a heart muscle disease which is estimated to impact as many as 500,000 people globally. The market reacted well to this development, which (if approved) could pave the way to entering a multi-billion-dollar market and improving patient outcomes.

In the case of Moderna, significant news over the year has included regulatory approval from the FDA for use of its RSV vaccine in adults aged over 60 and encouraging three-year follow up data on its phase 2 individualised neoantigen therapy (INT) for a form of skin cancer. These types of development are evidencing our long-held thesis that Moderna is moving from a ‘covid’ story to a maturing diversified Messenger RNA therapeutics platform.

Negativity bias refers to a human’s propensity to focus on negative events, information, or emotions more than their positive counterparts. To some extent, we have seen evidence of this in recent months in terms of market sentiment towards some of the main detractors of our performance, whereby the market has placed much greater weight on any perceived weakness in results and largely ignored any fundamental progress.

This was the case with Remitly, which provides mobile-based remittance services for migrants. Its recent results showed active customers had grown by 36 per cent year-on-year to over six million, margins had improved, and revenue was up 32 per cent. However, the market reaction to these solid results was negative, and the shares sold off, citing concerns around marketing efficiency and lower-than-expected net new active customers added in the latest quarter. Against these short-term gyrations, we remain focused on the long-term investment case. Remitly is still in the early innings of growth and its competitive advantage – a combination of scale, efficiency, and brand – is strengthening. We don’t require quarter on quarter progress to be smooth, providing the long-term opportunity is intact.

We have invested in Bank Rakyat, the largest microfinance-focused bank in Indonesia, since the Positive Change Strategy’s inception. Currently, a combination of operational missteps and a challenging macroeconomic backdrop, including higher food price inflation, has pushed up the bank’s non-performing loan ratio. However, during a meeting with Baillie Gifford, Bank Rakyat’s CFO was very upfront and humble about the operational mistakes and laid out the plan to remedy them. In addition, Bank Rakyat’s microfinance franchise has historically been resilient across the cycle, and the bank is well-capitalised. We believe the company can recover from the near-term difficulties, and the long-term opportunity for loan growth and improving financial inclusion remain attractive.

Embracing diversity

Our planet is incredibly diverse. Earth’s 510 million square km of surface area is home to an estimated 6,000-7,000 species of mammal, including over 8 billion people spread across 192 countries. Over the 200,000 years of modern human history, mankind has faced many challenges (a number of them admittedly self-created) and yet through ingenuity has endured and progressed. Innovation and entrepreneurship have been a bedrock of progress whether you think of the transformative effects of the earliest innovations, to the more recent changes enabled by electrification and digitalisation.

The capital markets evolved as a means to match entrepreneurial endeavours which required capital with those who had a surplus of it that they wished to invest. The capital markets are intrinsically diverse in nature. For example, there are over 300 million companies globally, of which 55,000 are listed on the public markets. However, despite this deep market diversity, excitement over the last year has converged around a very small number of companies (the Magnificent Seven: NVIDIA, Amazon, Alphabet, Meta, Microsoft, Apple and Tesla). As a result, market concentration is now at a 60-year high.

If you scratch beneath the surface, these seven companies have very different characteristics, yet the common thread of market excitement stems from the opportunities presented by AI.

We support the view that AI will create incredible opportunities. However, we believe that the opportunities will be much more wide-ranging than the current narrow market excitement suggests.

Wider magnificence: a wealth of AI opportunity

Throughout history, mankind has been adept at taking technological innovations and adapting them to a staggeringly broad use of applications. AI will be no different. It is a transformative technology with a myriad of uses. AI has the potential to transform our everyday lives: much like the introduction of the personal computer in the 1980s which has changed the way we work and live.

This is exemplified by many of the holdings in the positive change portfolio that are using AI in novel ways to solve challenges, enhance their products, or increase efficiency.

For example, in social inclusion and education, Duolingo the mobile learning platform is using AI to personalise and enhance the learning experience for students. Its AI-generated Roleplay feature allows learners to practice real-world conversation skills with animated characters from the app. No two conversations are the same and learners receive tailored feedback, powered by AI.

John Deere, the manufacturer of agricultural machinery is using AI to power its precision agriculture technologies which enable farmers to ‘do more with less’ – enabling higher yields with significantly less application of chemicals and pesticides. In the case of its See and Spray technology, this means up to 50 per cent less chemicals applied and up to 93 per cent less chemical run-off.

Meanwhile, biotech companies such as Moderna are using AI to expedite their research and drug development. In April, Moderna and Open AI announced their ongoing collaboration to co-innovate with a shared vision of AI’s transformative potential in business and healthcare. From augmenting clinical trial development with Dose ID GPT to using Contract Companion GPT to provide summaries of legal contracts, Moderna is embracing AI with the mindset of using the power of digital to maximise its positive impact on patients.

Of course, these applications of AI are only made possible by companies who are enabling the ‘nuts and bolts’. TSMC remains a critical enabler in the semiconductor industry and is expecting AI revenue to grow 50 per cent+ compound annual growth rate for the next five years. Similarly, ASML’s management outlined a path to the top end of their guidance of (€30-40bn of sales) for 2025, driven by demand for its lithography equipment, which is essential within the semiconductor manufacturing process.

And every rose has its thorn. We are at the early stages of understanding the societal consequences of AI, from the prospect of the technology disrupting jobs, to the potential for AI to be used to create false, manipulative news. There are also environmental consequences. Data centres are highly water and energy consumptive.

Portfolio companies such as water infrastructure company Xylem and speciality water and hygiene solution company Ecolab are well placed to support data centres and other customers to monitor and moderate their use of water through their digital water solutions. For example, in 2023, Ecolab helped customers save around 857 million cubic metres of water – equivalent to the drinking water needs of almost 782 million people.

Unearthing new ideas

Mining equipment is perhaps not an immediately obvious choice for the portfolio and it’s not often that our research takes us literally underground. However, mining is an industry we can’t ignore. Our research into the industry has spanned several years. We’ve questioned industry experts from around the globe, quizzed management teams, and visited mines in Finland and Sweden to see mining machinery in action.

Metals and minerals are essential for progress in areas such as the green energy transition, but their extraction comes at a cost. Mining is a carbon-intensive and traditionally dirty industry. How can we continue to mine the materials we need in a way that mitigates damage?

We have taken a new position in Epiroc, a high-quality Swedish industrial business which provides mission-critical equipment and services to the mining and construction industries. This is a high-quality business, operating in a consolidated market with high barriers to entry. 70 per cent of revenue comes from the aftermarket, including services and parts. Epiroc is driving change in the mining industry through greater electrification, automation, and digitalisation. Through the innovation of products and its business model, Epiroc is helping to catalyse the adoption of technologies that will enable a dirty, but necessary, industry to decarbonise.

Vertex Pharmaceuticals is also new to the portfolio. The company brings transformative medicines in areas of high unmet needs to market. Vertex played an important role in developing treatments for Cystic Fibrosis (CF), a genetic disease that results in excessive mucus in the lung and often leads to serious infections. Prior to effective treatments, many CF patients did not reach adulthood. Today, life expectancy for CF patients is around 60 years, with some patients living into their 80s. CF treatments provide a profitable revenue stream for Vertex, which generated $10bn in sales and $4bn in operating profit in 2023. This profit stream helps to fund research and Vertex’s expansion into new disease areas, including sickle cell disease, beta thalassemia, diabetes, and renal diseases.

We are patient and long-term investors, but when we detect a deterioration in a company’s fundamentals, we will sell and redeploy the capital in companies where we have higher conviction. Over the past quarter, we have sold three companies.

We have owned South African insurance provider Discovery and single-cell sequencing tool developer 10x Genomics for a number of years. Both companies have much to admire about their innovative products, but each company is facing difficulties in growing their business against macro-challenges and industry-specific headwinds. These difficulties have led to disappointing share price performance over our period of ownership. The operational growth headwinds have led us to sell and redeploy the cash into companies where we have higher conviction in our dual objectives being achieved over the long term.

In contrast, we have sold WuXi Biologics after a relatively short period of ownership (we first invested in August 2023). It is a Chinese company providing end-to-end solutions and services for the discovery, development, and manufacturing of biological drugs. It is a highly regarded and entrepreneurial business in a market which has very attractive global growth potential. However, since investing, the geopolitical risks have intensified to the point that a significant proportion of Wuxi’s US-based customers may no longer be permitted to use its services in future. This uncertainty has weighed heavily on the share price, and we feel that despite the attractive fundamentals, it is time to move on.

We know exactly what we are doing today: our purpose is clear. We are focused on finding innovative, high-quality companies solving a diverse range of global challenges. We don’t believe the extreme market concentration will endure. Previous periods of excessive index concentration have always reversed, and evidence shows that over the long term, it is fundamental growth that drives share price performance.

We are researching companies across diverse areas of opportunity including solar, mining, cyber-security, health diagnostics, microbial health, and credit provision in India.

Today, we are also excited by the potential of the companies in the portfolio and how we can support and challenge them through our interactions with them. From our impact monitoring and reporting, we know that these companies are responsible for saving lives, educating students, reducing pollution, and enabling financial resilience. Our role as patient and perseverant investors is intended to support this vastly diverse range of companies today, to the benefit of us all in the future.

The Future Depends on What You Do Today

 – Mahatma Gandhi

Annual past performance to 30 June each year (net%)







Positive Change Composite












Annualised returns to 30 June 2024 (net%)


1 year

5 years

Since Inception*

Positive Change Composite








*Inception date: 31 January 2017.
Source: Revolution and MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite.

Past performance is not a guide to future returns.

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