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 Emerging Markets Equity (class I) Fund returned 1.19% in the second quarter versus a return of 0.61% for the benchmark MSCI Emerging Markets Index.
In terms of country attribution, the fund outperformed on a country allocation basis, but underperformed on a stock selection basis. Positive country allocation effects came from overweights to Argentina, Thailand, and Egypt. Negative country allocation effects came from overweights to Vietnam and Hungary, along with an underweight to Russia. Positive selection effects came from stock selection in China, Thailand, and the Philippines. Negative selection effects came from stock selection in Argentina, Brazil, and Taiwan.
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 underweights to Materials, Technology, and Energy. Negative sector allocation effects came from overweights to Healthcare and Consumer Discretionary, along with an underweight to Financials. Positive selection effects came from stock selection in Consumer Discretionary, Information Technology, and Financials. Negative selection effects came from Energy, Consumer Staples, and Industrials.
International equities ended the quarter in positive territory, led by developed markets, but still underperformed U.S. equities by a modest margin. After moving in near lock-step with developed market equities last quarter, emerging market equities lagged during the second quarter (as measured by the MSCI EAFE and MSCI Emerging Markets indexes, respectively).
While global economic growth continues to grind forward, signs of slowing have given many investors pause. The shift by major central banks towards accommodative monetary policy reignited some appetite for more risky assets during the quarter, but concern for an impending recession still looms large. Although the Federal Reserve has held rates steady, a rate cut during 2019 is increasingly possible, and the market is forecasting two cuts. Emerging market central banks are also becoming more accommodative as they keep a close eye on Fed policy.
Ongoing trade tensions between the U.S. and major trading partners, particularly China, continue to weigh on financial markets. In our view, uncertainty around a U.S.-China trade agreement remains elevated. Tensions between the two countries has heightened investors’ awareness of the potential unraveling of worldwide supply chains. In our view, trade negotiations between China and the U.S. have entered into a much longer phase, and an agreement seems far from concluding anytime soon. While the two parties agreed to resume talks during the G20 meeting in Japan, there does not appear to be any substantive progress. China is preparing for a long, drawn-out process by initiating stimulus measures in the real estate and auto industries to offset the slowdown from trade.
India was dragged into global trade disputes when the U.S. officially terminated the country’s status as a developing nation and slapped tariffs on some 2,000 products. India retaliated with a tariff of its own, and its central bank continued to cut interest rates to boost growth. Generally, exports in the region are still suffering, especially in trade-dependent countries in north Asia. Exports to China and in semiconductor products have seen the largest declines. As expected, the election in Thailand resulted in the military holding onto control. President Joko Widodo was re-elected in Indonesia, but he will need to balance religious animosities and economic prerogatives.
In Latin America, the focus remains on the new Brazilian administration and whether it can push through efforts to improve the country’s fiscal standing. Privatizations have increased, initial pension reform proposals look promising, and savings estimates thus far have been slightly higher than expected. However, political questions remain. In Mexico, investors continue to watch relations with the U.S., where tariff and immigration issues loom large.
International investors are witnessing slowing global growth due to a weaker Chinese economy, uncertainty around continued trade tensions, and weakening industrial production. Global central banks have largely become more accommodative across the globe, thus providing support for financial markets. With a stabilizing global economy and reduced near-term trade tensions, we expect some recovery in emerging equity markets.
Global investors remain concerned about high relative levels of developed and developing market indebtedness, geopolitical and trade considerations, populism, central bank policy, and the sustainability of global growth. We are closely monitoring inflationary pressures, currency prices, and geopolitical and policy risks. We continue to search for companies within attractive emerging market regions that have earnings growth potential, high-quality balance sheets, strong management teams, and clearly defined growth strategies.