Market Sector Update
- Across the globe, markets were turbulent
but overall up slightly. Largely, markets
climbed until May, but then proceeded to
unsettle due to the coming Brexit vote and
potential rate hikes by the U.S. Federal
Reserve (Fed). Global markets took a brief
dive post the Brexit vote, but quickly
- In local currency, Canada, Australia, the
U.K., Switzerland and the U.S. performed
well, while Europe and Japan lagged.
From a global sector standpoint, energy
and health care performed the best, while
consumer discretionary, information
technology and financials performed the
worst. Over the quarter, the U.S. dollar
gained approximately 3% versus a basket
of other currencies.
- The Fed continues to push out further
rate hikes due to the combination of
paltry May jobs growth and Brexit. The
market does not expect additional hikes
until mid-2017 due to slowing growth in
Europe stemming from the Brexit; mixed
U.S. economic results; poor emergingmarket
growth; and deflationary forces.
- Post Brexit, the Bank of England stood
ready for rate cuts and liquidity to aid an
economy that may fall into a recession.
The European Central Bank (ECB) does
not plan to lower rates further, and is
instead focused on getting the banking
system fit to handle any added shocks.
- Fears of a global recession slightly
increased, as many feared the Brexit
“yes” vote would hurt the U.K., and to a
lesser extent, the European economy.
Global purchasing managers’ indices had
been getting slowly better before the
- The Fund slightly outperformed the
benchmark, before the effects of sales
charges, for the quarter. Stock selection
slightly contributed to relative
performance, while sector allocation
slightly detracted. An underweight
allocation to the U.S., a relatively strongperforming
market, detracted but strong
stock selection in the U.S. more than offset
the underweight allocation.
- From a stock selection standpoint,
energy and consumer discretionary
aided performance, while selection in
telecommunication services and
information technology were the largest
- U.S. dollar currency hedges to the euro
and British pound was the top contributor
to performance as those currencies were
weak relative to the U.S. dollar.
- As the quarter progressed, we slightly
increased our weighting to more
defensive sectors due to slowing global
growth, expected higher oil prices and
the Brexit vote. The Fund increased its
allocation to energy via large integrated
oil and to health care. On the other hand,
the Fund reduced exposure to consumer
discretionary, industrials and financials.
The Fund also lowered its exposure to
the U.K., Japan and Switzerland, while
increasing exposure to the U.S. and
mainland Europe. Exposure to large cap
names increased over the quarter as well.
- The Fund’s largest sector overweights
include telecommunications, health care
and energy, where we continue to find
companies we believe provide good
dividend yield, recovery potential or
growth prospects. In our view, our
underweight allocations to information
technology and financials tend to have
either poor fundamentals or high relative
- We think global economic growth will
remain slow and faces additional
headwinds caused by the Brexit vote
hurting the U.K., and to a lesser extent, the
European economy. Slower emergingmarket
growth has also contributed to the
muted growth outlook. We believe
monetary policy is likely to remain
aggressive for the foreseeable future, but
to a lesser extent in the U.S. We think the
Fed will raise interest rates early in 2017,
which at times, will keep the markets on
- We are concerned about the recent
terrorist attacks in Europe and the effects
the large refugee influx will have on
European politics and the economy.
- We continue to follow policies stemming
from Europe, including reforms and
regulation measures from foreign
governments and the ECB. The global
marketplace had been fairly nervous
about a Brexit, though we feel it is best for
investors to keep things in context. The
upcoming formal legal process of
withdrawing from the EU – an
approximate two year negotiation process
– should provide a clearer impact of the
yes referendum vote. In our view, Britain’s
pending exit from the EU is unique, and
we do not expect additional countries to
- We believe China is in a multi-year
rebalancing to a more consumer-based
economy and its anticorruption efforts
need to be monitored. In our view, these
changes will have lasting impacts
throughout the global marketplace in
shaping GDP growth, commodity prices
and multinational profits based in Europe
and the U.S.
- We believe Japan will stimulate its
economy via increased fiscal spending
and quantitative easing.
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.
Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. 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. Fixed income securities are subject to interest rate risk and, as such, the
net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Dividend-paying investments may
not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected.These and other risks are
more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.
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