Strong gains were delivered across most markets and asset classes during the third quarter, fueled by synchronized (yet tepid) global economic growth, a benign inflationary environment, and continuing unorthodox monetary policies. Improving corporate earnings further supported market strength with emerging markets and the most economically cyclical industries leading markets to all-time highs. Meanwhile, volatility levels, as measured by the VIX index, fell to all-time low levels. This inherent complacency is unsettling in light of historically low interest rates, high valuation levels,
The Altrinsic Global Equity portfolio gained 5.9% in the second quarter, outperforming the MSCI World's 4.0% rise as measured in U.S. dollars. Outperformance was overwhelmingly driven by stock-specific factors, most notably delivered by our investments in Nintendo (Japan), Ionis Pharmaceuticals (U.S.), Heineken (Netherlands), Nestlé (Switzerland), and Intercontinental Exchange (U.S.). At the broad market level, underlying corporate earnings have been strong, but the degree of complacency in many markets concerns us.
Global equity markets, as measured by the MSCI World Index gained 6.4% during the first quarter. The Altrinsic Global Equity portfolio returned 5.0% over the same period, as measured in U.S. dollars. An improving outlook for corporate profits in many parts of the world, easing of stresses emanating from China, and a continuation of reflationary central bank monetary policies outweighed the ongoing geopolitical uncertainties, lofty asset valuations, and macroeconomic imbalances in many of the world’s largest countries.
The Altrinsic Global Equity portfolio gained 0.7% and 11.9% during the fourth quarter and full year, respectively. By comparison, the MSCI World gained 1.9% and 7.5% over the same periods, as measured in U.S. dollars. Strong absolute and relative gains were delivered during an eventful year in which key developments, most notably Brexit results and the election of Donald Trump, defied the odds makers.
The Altrinsic Global Equity portfolio gained 2.7% during the second quarter. By comparison, both the MSCI World and ACWI indices increased 1.0% as measured in U.S. dollars. Stock-specific factors were the primary sources of outperformance amidst an eventful macro backdrop. During the quarter, British citizens voted to leave the European Union, concerns about the European banking system intensified, Middle East unrest spread to distant lands, and the yields on U.S.
A transition appears to be underway. Global equity markets have delivered above-normal returns during the last seven years with low volatility and few lasting setbacks, but we may have entered a new environment characterized by more normal returns albeit with much greater volatility. The first quarter was reflective of this increase in volatility, as a 12% rally in the MSCI World Index during the second half of the quarter tempered anxieties that emerged during the 13% dip in the first half, as measured in local currency terms.
Global equity market returns were relatively flat for the year, measured in local currency, but this result masked the significant dispersion in performance among stock, bond, currency, and commodity markets. These muddling markets appear to be increasingly recognizing fragile underlying fundamentals including lingering global imbalances, eroding confidence in policymakers, a slowing Chinese economy, intensifying geopolitical risks, and the vulnerability of U.S. corporate profit margins.
The third quarter was particularly challenging given the broad-based nature of the selloff across
asset classes. Global equity markets declined 8.4% and 9.4% as measured by the MSCI World
and MSCI All Country World indices, respectively as measured in U.S. dollars. This weakness
was largely precipitated by a pair of factors, namely mounting concerns about China’s growth
rate and the credibility of policymakers’ efforts to revitalize economies globally. The Altrinsic
Global equity market returns were relatively flat for the year, measured in local currency, but this result masked the significant dispersion in performance among stock, bond, currency, and commodity markets as illustrated in Figure 1. These muddling markets appear to be increasingly recognizing fragile underlying fundamentals including lingering global imbalances, eroding confidence in policymakers, a slowing Chinese economy, intensifying geopolitical risks, and the vulnerability of U.S. corporate profit margins.