International Equity Strategy 4Q 2018


Key Takeaways

  • International equity markets faced significant pressure as volatility escalated in the fourth quarter. The MSCI AWCI ex U.S. declined 11.46%, bringing the index’s year-to-date return from roughly flat at the beginning of the quarter into decisively negative territory for 2018. While our International Equity strategy was also negative in the fourth quarter and the full year, it outperformed the benchmark in both periods.
  • In the fourth quarter and for the year, the financials sector was the most significant driver of our relative returns, helped by our core Indian financials. We increased our exposure to the industrials sector throughout 2018 and it has been one of the year’s best relative performers. Consistent with our quality growth investment style, we avoided exposure to highly cyclical areas, such as energy, which was a relative headwind for most of the year. However, we benefited from the sharp decline in oil prices in the fourth quarter. Our health care and information technology holdings detracted from relative performance over the quarter.
  • Macro concerns shaking the markets include the trade and geopolitical confrontation between the U.S. and China, uncertainty around Brexit, and the volatile oil price – but the core issue has been rising rates in the U.S. As rates climb, the hand that had squeezed savings out of safe developed market assets towards higher growth is now releasing its grip. As liquidity flows back, it will not only raise the price of risk, but make funding difficult in some riskier areas.
  • At times like this, some names that have been hit amid the market turbulence still have solid underlying fundamentals and long-term growth prospects. Our strategy should benefit from the coiled-spring effect as the market eventually recognizes these companies.
  • Importantly, the 2019 and long-term earnings outlook for our portfolio is solid. Even though absolute returns were negative in 2018, the businesses continue to grow profits, which is the ultimate determinate of stock prices. So despite the prevailing gloom and doom sentiment among investors, we are starting 2019 on an optimistic note.

Trailing Returns: International Equity Composite(As of 12.31.2018)

Calendar Year Returns

Source: NorthernTrust

All results portrayed are expressed in U.S. dollars.
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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