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.
PNC International Growth Fund (class I) returned 13.28% in the first quarter versus a return of 12.31% for the benchmark MSCI ACWI ex USA Growth Index.
In terms of country attribution, the Fund outperformed on both a country allocation basis and on a stock selection basis. Positive country allocation effects came from overweights to Argentina and Kenya, along with an underweight to Korea. Negative country allocation effects came from overweights to Singapore and the United Arab Emirates (UAE), along with an underweight to Canada. Positive selection effects came from stock selection in in Japan, Israel, and Switzerland, while negative selection effects arose from stock selection in Germany, Ireland, and the UAE.
In terms of sector attribution, the Fund underperformed on a sector allocation basis and outperformed on a stock selection basis. Positive sector allocation effects came from an overweight to Information Technology, and underweights to Consumer Staples and Materials. Negative sector allocation effects came from overweights to Health Care and Financials, along with an underweight to Consumer Discretionary. Positive selection effects came from stock selection in Consumer Discretionary and Financials, while negative selection effects came from Real Estate and Industrials.
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. In the matter of several quarters, the rise of synchronized global growth has been replaced by fears of synchronized global contraction, as globalization can be a double-edged sword. In our view, investors appear increasingly focused on the potential unraveling of global supply chains.
In Asia, attention continues to be centered on a slowing Chinese economy and the still unresolved U.S./China trade dispute. Export-driven Asian economies, including Japan, Korea, and Taiwan, have been negatively affected by U.S./China trade tensions. Japanese economic statistics continue to weaken.
In India, the campaign for the election of the next prime minister is in full swing. At the end of the quarter, Thailand held its first general election since the 2014 military coup. In Indonesia, President Joko Widodo was re-elected allowing for the continuation of his policies.
In Europe, investors have been buffeted by weak economic statistics, trade tensions with the U.S., the Brexit saga, and upcoming European Union parliamentary elections. In the United Kingdom, the irresolution surrounding Brexit continues. Germany’s economy continues to struggle, as the slowdown in China and other emerging market economies is weakening the country’s trade and manufacturing sectors. France and Italy are slowing at the margin, while Spain continues to expand at similar rates as last year.
The focus in Latin America continues to be on the new Brazilian administration and whether it can push through much-needed reforms. In Mexico, populist rhetoric by the new administration is rattling both the domestic and international investor base.
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.