October 2025 Update

October, 2025

The AI virus is everywhere in everything?

We expected some sort of retracement in September, but it didn't happen. Equity markets rose despite steepening yield curves almost everywhere. The AI investment theme continued with significant jumps in Oracle (not owned) and Alibaba, KLA, Applied Materials and TSMC - all owned. Current levels of announced AI spending can go higher. Datacentre spending as a % of GDP is estimated to be at less than one half of that spent on railroads in the US in the 1880s. So for unapologetic bulls, there is grist for the mill.

The Global Diversified Trust rose just over 2% in A$ terms and the Global 30 Value biased, almost 3%. Growth has outperformed Value over recent time periods, again. The reason that our Value strategy has done so well is the (fortunate?) choice of the few Technology and Basic Materials stocks in which we hold necessarily large positions in a 30 stock portfolio.

Our philosophy remains to be fully invested and to focus on stock selection. It is however clear that the AI spend/frenzy is now infecting many sectors and thus correlations or momentum risk exposure for the whole market is rising. Getting diversified is harder. We'll think a bit more about how to diversify risk.

The automobile sector was hurt by write downs by VW and Porsche on their Electric Vehicle production assets. It seems clear that Net Zero targets are unlikely to be met and even scrapped? Chinese EVs are technologically competitive and cheaper. Their energy costs are significantly lower than Europe's. We wonder whether Australia can have a European approach to its economy (subsidies and net zero) while competing economically in Asia which has none of the accompanying inefficiencies. We also wonder why the US is not more constructive toward Japan given that Japan is the largest foreign owner of US treasury debt, has the technological 'know how' to help the US re-industrialise, and is a significant Pacific Ocean defence partner.

We made some trades in September. We purchased Prosus in the Netherlands as a proxy for Tencent in China. This rose fortunately quite strongly. We sold TE Connectivity and purchased Jabil Circuits, both US stocks, and initiated a position in Mabuchi Motors and Toyoda Gosei in Japan. We added to US positions from the receipt of dividends, bringing the country weight closer to the benchmark.

Our portfolio is positioned slightly toward a value bias with an overweight to Japan and underweight to Europe.

Delft Partners October 2025