Quarterly Commentaries

European Equity Strategy 1Q 2018


Key Takeaways

  • In the first quarter, the MSCI Europe Index returned -1.98%, masking a volatile period with performance ranging from a high of 6.63% to a low of -3.46%. The Vontobel European Equity strategy return of -3.83% lagged the market, although consistent with the quality growth portfolio, it traded in a slightly narrower range.
  • Our overweight to consumer staples, combined with a few laggards, was the leading contributor to relative underperformance. Our industrial holdings also detracted from returns. But our lack of exposure to telecommunication services and our overweight to consumer discretionary helped balance the overall result.
  • While economies around the world look strong and we have seen relatively synchronized growth, we also see clouds on the horizon, including trade renegotiations, tightening of monetary policy, and politics in many countries reflecting a rise in nationalism and anti-globalization. At the end of the quarter, the markets started to recognize some of these issues, and volatility increased.
  • A side effect of an extended period of ultra-loose monetary policy is that poorly run and overly levered companies could not just remain in business, but thrive. As those policies are reversed, weaker businesses can start to get in trouble. Our investments are in strong businesses that are not overly cyclical or levered.
  • The timing of potential risks fully manifesting in the economy is unclear. But in those times, we see our high-quality companies really shine. While low-quality cyclical companies’ earnings could reverse, ours should show much less earnings volatility. We believe this earnings protection should lead to performance downside protection.

Trailing Returns: European Equity Composite(As of 03.31.2018)

Calendar Year Returns

Source: NorthernTrust
All results portrayed are expressed in U.S. dollars. Periods under one year are not annualized.
Past performance is not necessarily indicative of future results. For full disclosure and for further information regarding comparison to an index, see the Disclaimer and Performance Disclosure.

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