European Equity Strategy 4Q 2018


Key Takeaways

  • European equity markets faced significant pressure as volatility escalated in the fourth quarter. The MSCI Europe Index declined 11.32%, bringing the index’s year-to-date return from roughly flat at the beginning of the quarter into decisively negative territory for 2018 (in euros). Our European Equity strategy, which was also negative in the fourth quarter and the full year, modestly underperformed the benchmark in both periods.
  • On a sector basis, our industrials holdings were the most significant positive contributors to relative returns. Over the past two years, we believe we have identified several attractive quality growth opportunities in the industrials space, many of which are asset-light business services companies. At the other end of the spectrum, our holdings in the health care sector were the most significant detractors from our relative performance.
  • We anticipate that the end of quantitative easing (QE) from the European Central Bank (ECB), combined with a buildup of geopolitical issues, will lead to a weakening of the earnings outlook for riskier and more cyclically sensitive companies over the coming year. It is in this environment that, as quality growth investors, we look to deliver stable and predictable portfolio earnings to underwrite a pathway to long-term returns.
  • The large majority of our companies continued to grow their underlying earnings, and outlooks remain healthy. This combination of positive earnings growth and weak markets makes for future return expectations that are brighter now than they were a year ago, despite continued threats to the region. We remain optimistic as we invest in individual companies – not in countries.

Trailing Returns: European Equity Composite(As of 12.31.2018)

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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