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 0.89% in the third quarter versus a return of 0.71% for the benchmark MSCI ACWI ex USA Index.
In terms of country attribution, country allocation and stock selection both contributed to relative investment results. Positive country allocation effects came from an underweight to China, along with overweights to Norway and Sweden. Negative country allocation effects came from an overweight to Ireland, along with underweights to Taiwan and Switzerland. Positive selection effects came from stock selection in Germany, Korea, and Norway. Negative selection effects came from stock selection in France, Israel, and Sweden.
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 Health Care, along with underweights to Real Estate and Consumer Staples. Negative sector allocation effects came from overweights to Consumer Discretionary and Information Technology, along with an underweight to Energy. Positive selection effects came from stock selection in Financials, Information Technology, and Consumer Discretionary. Negative selection effects came from stock selection in Industrials, Health Care, and Materials.
We continue to witness steady global growth, albeit at a slower rate. Global growth has been tempered by continued trade frictions and various political uncertainties, as well as U.S. economic strength and high oil prices. Despite the heightened volatility, favorable unemployment trends and low inflation continue to support global growth expectations. Furthermore, most central bank policies remain accommodative, even as tightening measures are underway, led by the U.S. Federal Reserve.
U.S. dollar strength persisted, as the dollar extended its year-to-date gains against most major currencies, particularly emerging markets. Emerging markets are generally under pressure and remain volatile, due to both strength in the dollar and rising energy prices, which squeeze corporate margins and dents consumer spending. While we do expect some continued near-term dollar recovery, we expect dollar weakness to reassert itself in the medium to long term.
The recent slowdown in European economic growth appears to have stabilized. However, many European countries are still plagued by their own unique challenges, including the UK's ongoing Brexit negotiations, political gridlock in Sweden, and surging borrowing costs in Italy. Despite pressure on Turkey's currency, Eastern Europe continues to experience good growth and stable inflation.
Saudi Arabia is growing a bit slower than other countries in the region. The United Arab Emirates maintained its growth trend from earlier in the year, although its property market weakened. Egypt continues its economic recovery thanks to recent reforms, but it is potentially facing international investor outflows.
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 will closely monitor inflationary pressures, currency prices, and geopolitical and policy risks. 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.
U.S. stocks continue to perform well relative to the rest of the world, simply because the U.S. economy continues to show signs of strength. The majority of companies with which we speak echo this upbeat viewpoint. However, there are pockets of weakness, like auto sales trending down and certain sectors impacted by tariffs.
Most other world economies were in modestly positive territory for the quarter. Germany pointed to domestic demand and above-inflation pay raises bolstering growth. House buying remained firm, along with retail sales and service in the UK although not all signals are positive. Brexit-related uncertainty may drag on business investment in the UK in coming quarters. While there is concern manufacturing activity is slowing throughout Europe as export demand weakens and input costs firm, we continue to see a potential strengthening in the third quarter after a slower summer. Asian economies are wary, as the U.S.- China tariff salvos continue.
These concerns have led to recent global market volatility, which has pushed some of our watch-list companies down to our price targets. We have renewed our research on these and other companies with the intent of near-term purchases. We continue to appraise the valuation profile, attempt to mitigate downside risk, and position the portfolio for long-term success opportunities.