Quarterly Commentaries

International Equity Strategy 2Q 2018


Key Takeaways

  • In the second quarter of 2018, our International Equity strategy outperformed the MSCI All Country World ex-US index, generating a small gain against a fall in the benchmark. Our concentrated portfolio of companies that we believe have stable and consistent earnings growth weathered the increasingly volatile environment.
  • The quarter was marked by a shift to risk-off in a number of markets. While most major economies continued to post healthy GDP figures, the U.S. shook the status quo. Hearty U.S. growth has led to a tight labor market and rising inflation – so the significant, debt-fueled tax cut and increased budget deficit could easily be viewed as pouring gasoline on a fire.The outlook for quicker rate rises, alongside a strong oil price and trade battles, has created unpredictability in a number of markets that were already richly priced.
  • Emerging markets (EM) were hit hard in the quarter. The MSCI EM index fell 8% in U.S. dollar terms. Harder-hit EM currencies included the Brazilian real and the South African rand, both of which fell 14% against the U.S. dollar, lifting the costs of global commodities such as oil in local terms in these economies. The strong U.S. dollar pushed positive European and Japanese market returns in local currency to a fall in U.S. dollar terms.
  • During the quarter, the portfolio’s positive absolute performance was driven by our exposure to companies with global sales bases, particularly in the industrials and information technology sectors. These more than offset the weak quarter posted by our higher-yielding consumer staples holdings. Lack of exposure to the energy sector weighed against relative returns.
  • Our focus has always been on the resilience of the businesses we own. This discipline is not rewarded in every period. For a while, the market was fixated on companies’ current growth, irrespective of its sustainability. This year, some risk appreciation is coming back, which we see as a healthy development. We believe our evergreen quality growth discipline should hold us in good stead in today’s market, as it has done over the past two decades.

Trailing Returns: International Equity Composite(As of 06.30.2018)

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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