Performance Review

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Annualized Performance
as of 6/30/2018
3 MO:-0.49%
YTD :0.83%
1 YR:13.68%
3 YRS:7.97%
5 YRS:9.31%
10 YRS:5.40%

Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown here.

For Benchmark information click here

The views expressed in this investment report represent the opinions of PNC Capital Advisors, LLC and are not intended to predict or depict performance of any investment. All information contained herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation or recommendation to purchase any security. The information herein was obtained by various sources; we do not guarantee its accuracy or completeness. Fund performance quoted above is for class I shares. Past performance does not guarantee future results. These views are as of the date of this publication and are subject to change based on subsequent developments.

International investments are subject to special risks not ordinarily associated with domestic investments, including currency fluctuations, economic and political change and differing accounting standards that may adversely affect portfolio securities. These risks may be heightened in emerging markets. Investments in value companies can continue to be undervalued for long periods of time and be more volatile than the stock market in general. Investments in growth companies can be more sensitive to the company's earnings and more volatile than the stock market in general. The Fund may invest a portion of its assets in derivatives. Derivative instruments include options, futures and options on futures. A small investment in derivatives could have a potentially large impact on the Fund’s performance. The Fund may be unable to terminate or sell a derivatives position. Derivative counterparties may suffer financial difficulties and may not fulfill their contractual obligations.

PNC International Equity Fund (class I) returned -0.49% in the second quarter versus a return of -2.47% for the benchmark MSCI ACWI ex USA Index.

In terms of country attribution, country allocation and stock selection contributed to relative investment results. Positive country allocation effects came from an underweight to Brazil, along with overweights to Israel and Norway. Negative country allocation effects came from an overweight to Austria, along with underweights to Australia and Canada. Positive selection effects came from stock selection in Germany, Canada, and the United Kingdom. Negative selection effects came from stock selection in the Japan, France, and Russia.

In terms of sector attribution, sector allocation detracted from relative investment results and stock selection contributed. Positive sector allocation effects came from an overweight to Materials, along with underweights to Financials and Real Estate. Negative sector allocation effects came from an overweight to Consumer Discretionary, along with underweights to Consumer Staples and Energy. Positive selection effects came from stock selection in Consumer Discretionary, Financials, and Materials. Negative selection effects came from stock selection in Energy and Real Estate.

Growth Commentary

Global growth appears to be slowing slightly, due to decreasing global liquidity from monetary policy tightening, stronger energy prices, and foreign exchange volatility. Additionally, increased trade tensions are keeping global economies on edge. The U.S. dollar strengthened sharply during the quarter due to continued monetary policy tightening by the Federal Reserve, as well as a jump in short-term U.S. Treasury yields. Dollar strength, combined with higher energy prices, led to a correction in most international currencies, particularly in many emerging markets.

While the Fed raised rates in the U.S., lackluster economic performance in the Eurozone led the European Central Bank to ease up on monetary policy tightening. Several developing countries surprised markets with interest-rate increases in an attempt to stabilize their weakening currencies. Volatility in emerging markets increased during the quarter, as dollar strength also led to significant capital outflows across several countries. Second-quarter outflows from some emerging markets reached levels not seen since November 2016.

In Asia, growth in India continues to recover, with the country’s most recent GDP exceeding 7.5%. Higher-than-expected inflation and accelerating currency depreciation resulted in an interest-rate increase, the first since 2014. In China, tensions with the U.S. escalated over heightened trade tariff rhetoric. In Southeast Asia, massive foreign capital outflows struck every part of the


region, as currency depreciation accelerated. Most countries have raised interest rates to defend their currencies, which could potentially hamper growth in the short term. Tech export-heavy countries, such as South Korea and Taiwan, faced volatility caused by a slowdown in global smartphone sales and a peak cycle in semiconductors.

European economic growth slowed but remained at elevated levels. The euro weakened and Italian bond spreads widened due to concerns regarding increased deficit spending and populist rhetoric. In the UK, both consumers and companies are battling post-Brexit inflation, as rising input costs are squeezing corporate margins. Eastern Europe continues to experience solid growth.

Much of the focus in Mexico during the quarter was on the general election that took place on July 1. Uncertainties surrounding trade negotiations and tariffs threats are expected to continue affecting the Mexican economy in the short run. During the quarter, both the Argentine peso and Brazilian real sold off, causing an emergency $50 billion International Monetary Fund deal in Argentina and a reversal in monetary policy in Brazil.

Global investors remain concerned about high relative levels of developed and developing market indebtedness, geopolitical considerations and populism, shifting central bank policies, and the sustainability of global growth. As a result, the investment team is closely monitoring inflationary pressures, commodity prices, and geopolitical and policy risks.

Value Commentary

Most fundamental indicators that the investment team tracks point to synchronized global growth. The majority of companies, regardless of geography or industry, with which the team has met have expressed optimism about the global economy. Yet, recent declines among systemically important financial institutions (SIFIs) have given us pause. We remain confident in our ability to identify and execute on value opportunities, pinpointing attractively-priced companies in an overheating global economy. This current economic boom may be intermittently tested by the ongoing threat of trade wars or challenges in emerging markets. The investment team aims to capitalize on periods of market volatility to add new investments to the portfolio.

The Fund benefits from a globally diverse analyst team, all of whom conduct on-the-ground research, meet with companies/competitors, visit manufacturing plants, and carefully analyze prospective companies using local and global accounting standards. The Fund's managers continue to believe in the merits of this bottom-up investment philosophy, and strive to improve the valuation and risk profile of the portfolio.


Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown here. Select a Fund to view the most recent month-end performance information or go to each Fund's snapshot page to view most recent month-end performance as well as any waiver or expense reimbursement information.

The information contained in this piece should not be considered legal or tax advice; questions regarding your specific situation should be directed to your legal or tax advisor.

NOT FDIC INSURED | NO BANK OR FEDERAL GOVERNMENT GUARANTEE | MAY LOSE VALUE

You should consider the investment objectives, risks, charges, and expenses of the PNC Funds carefully before investing. A prospectus or summary prospectus with this and other information may be obtained at 800-622-FUND (3863) or pncfunds.com. Please read it carefully before investing.

PNC Capital Advisors, LLC, a subsidiary of The PNC Financial Services Group Inc., serves as investment adviser and co-administrator to PNC Funds and receives fees for its services. PNC Funds are distributed by PNC Funds Distributor, LLC, which is not affiliated with the adviser and is not a bank.

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