Market Sector Update
- Global equity markets were up modestly
for the quarter. Investors’ desire for perceived safety
continued to reward assets classes and
sectors generally viewed as defensive.
Uncertainty surrounding global growth,
negative rates in Japan, a delay by the U.S.
Federal Reserve (Fed) to raise rates, and
the June 23 Brexit vote all likely
contributed to continued outperformance
and premium valuations for perceived
- During the quarter, long-term U.S.
Treasuries as well as gold were some of
the best performing asset classes. U.S.
equities outperformed most international
markets; high dividend yielders generally
outperformed; and value outperformed
- Returns in Europe were weak
as investors remained uncertain about
the Brexit decision and the resulting
implications going forward. Japan
equities ended the period in line with the
market despite some volatility around
returns. In terms of global equity returns,
energy was the strongest performing
sector by a solid margin, followed by
health care, utilities and consumer
- The Fund underperformed the benchmark
for the quarter, with the majority of
negative performance driven by poor
stock selection and a portfolio more
heavily focused on growth relative to the
benchmark. In general, low growth,
defensive companies meaningfully
outperformed high growth companies.
- Stock selection in health care was a
significant negative contributor during
the period. While our overweight in the
sector modestly helped, especially given
the sector’s relative outperformance to
the overall market, our overweight in
biotechnology relative to high-dividendyielding
pharmaceuticals in the period
was a material driver of the weakness.
Weak performance from Allergan Plc,
Teva Pharmaceuticals and Gilead
Sciences Inc. were top detractors.
- Industrial stock selection was also a
negative contributor, but to a lesser
degree, with Rockwell Collins Inc. and JB
Hunt negatively contributing. Consumer
discretionary holdings JD.com and
Carnival Corp also contributed to the
- A significant underweight in financials,
positive stock selection in energy and
individual outperformers including
Amazon.com and Tencent Holding Ltd
were positive contributors for the period.
- We expect a relatively anemic environment
for global growth and corporate earnings
growth given the current environment of
political and economic uncertainty. The
impact from Britain’s decision to exit the EU
remains uncertain, both in terms of nearterm
economic risk to the region and the
long-term overall strength of the EU.
- We remain underweight to Europe given
the risks associated with the exit process
and concern around slowing capital
spending and economic growth as a
result. In addition, the uncertainty
surrounding the U.S. presidential election
is higher in our view than election cycles
in the past given the low predictability of
- While we remain overweight the U.S., we believe the environment lends itself towards increased short- term volatility. The outlook in China is still challenging relative to historical growth rates. We continue to favor the middle-income consumer globally with most of our consumer exposure in the U.S. and China.
- We prefer exposure to consumer areas
that have an incremental boost from
secular share gains such as the shift to
online retailing from bricks and mortar as
well as the secular shift in many regions
towards travel. We remain underweight
consumer staples, viewing current
valuation premiums as unsustainable.
- Despite uncertainties in the market, we
believe our portfolio of strong global
growers with sustainable competitive
advantages and unique products that
serve large end-markets can continue to
drive shareholder value over time.
The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2016. The manager’s views are subject to change at any time based on market and other conditions,
and no forecasts can be guaranteed. Past performance is not a guarantee of future results.
Top 10 equity holdings as a percent of net assets as of 6/30/2016: Amazon.com, Inc. 5.1%, Visa, Inc., Class A 4.7%, Alphabet, Inc., Class C 4.0%, Allergan plc 3.6%, JD.com, Inc. ADR 3.4%, Anthem, Inc. 3.3%, Fresenius
SE & Co. KGaA 3.1%, Tencent Holdings Ltd. 2.9%, MasterCard, Inc., Class A 2.9% and J.B. Hunt Transport Services, Inc. 2.8%.
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Insurance Corporation or any other government agency. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in
accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the Fund’s prospectus.
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