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.
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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 11.04% in the first quarter versus a return of 10.31% for the benchmark MSCI ACWI ex USA Index.
In terms of country attribution, country allocation detracted from relative investment results, while stock selection contributed. Positive country allocation effects came from overweights to Argentina and Colombia, along with an underweight to Japan. Negative country allocation effects came from an overweight to Korea and underweights to China and Canada. Positive selection effects came from stock selection in the United Kingdom, Norway, and Japan. Negative selection effects came from stock selection in Korea, Thailand, and the United Arab Emirates.
In terms of sector attribution, sector allocation detracted from relative investment results, while stock selection contributed. Positive sector allocation effects came from an overweight to Information Technology, along with underweights to Financials and Utilities. Negative sector allocation effects came from an overweight to Communication Services, along with underweights to Real Estate and Energy. Positive selection effects came from stock selection in Consumer Discretionary, Financials, and Information Technology. Negative selection effects came from stock selection in Utilities, Real Estate, and Communication Services.
Global equity markets staged a dramatic rebound during the first quarter, essentially putting the fourth quarter 2018 selloff in the rearview mirror. Progress towards a U.S./China trade deal and a pivot by the Federal Reserve and European Central Bank away from tightening measures seemed to ease investors’ minds. While markets generally started the year with optimism, buoyant moods were tempered by renewed global growth fears.
Just two months after voting to end new bond purchases through its quantitative easing program, the European Central Bank reversed course and announced it would continue to hold interest rates below zero and also reintroduce cheap long-term loans for banks. Likewise, the International Monetary Fund cut its growth forecast three times in the last six months due to worsening economic data. These actions come amid a confirmed slowdown in global growth due to uncertainties surrounding trade and ongoing geopolitical disruption from issues such as Brexit.
International investors have been witnessing slowing global growth over the past several quarters. The question now becomes whether the global economy slips into recession or whether we experience a rebound off of another mid-cycle slowdown, similar to 2016. On one hand, negative interest rates, a broad-based industrial downturn, jittery emerging markets (e.g., Turkey), and inverted yield curves point to potential trouble ahead. That said, we believe that a stabilizing China, low inflation, a resilient consumer, and more accommodative monetary policies will allow for the mid-cycle scenario to play out.
Global investors remain concerned about high relative levels of developed and developing market indebtedness, geopolitical considerations and populism, central bank policy, and the sustainability of global growth. We continue to search for companies within attractive regions that have robust earnings growth, high-quality balance sheets, strong management teams, and clearly defined growth strategies.
The growth/value disparity was obvious in the first quarter of 2019, with the MSCI EAFE Growth Index outperforming the MSCI EAFE Value Index by more than 4%. We posit that these growth drivers may not be sustainable, as many portfolio companies with which we meet are projecting sluggish business conditions. We are already seeing signs of this at a macro-economic level, with China's economy slowing, compounded by worries in Europe. Stocks may become attractively priced as volatility persists. As value managers, we intend to capitalize on these periods to add high-quality, undervalued companies to the portfolio.