International Equities

2018 was a challenging environment for all asset classes, but particularly in equities, where negative returns were delivered across nearly all major markets and industries.  We outperformed market benchmarks during the fourth quarter and for the full year, as our intrinsic value discipline kept us out of many significant decliners, especially among banks, highly cyclical businesses, and previously high-flying tech stocks.  

The Altrinsic International Equity Portfolio delivered a 3.8% return during the third quarter, outperforming the 1.4% gain by the MSCI EAFE Index as measured in U.S. dollars.  Strong equity market gains during the quarter masked a challenging environment characterized by a significant divergence in underlying stocks’ performance.  The dominance by a small group of high-priced and crowded U.S.

Investment performance was mixed across asset classes during the second quarter against a backdrop of stronger economic growth in the U.S. and China, election uncertainties (particularly in Italy and Mexico), intensifying trade tensions, and central banks' transition away from policy stimulus and quantitative easing (QE) to quantitative tightening (QT).  Energy prices (Brent Crude +14%) and the U.S.

The Altrinsic International Equity Portfolio gained 1.3% during the first quarter, outperforming the 1.5% decline by the MSCI EAFE Index as measured in U.S.

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The fear that persisted in the aftermath of the Global Financial Crisis (GFC) has been replaced by complacency and growing excesses in many markets.  It was difficult to lose money in 2017, as 38 of the 39 major asset classes monitored by Deutsche Bank delivered positive returns.  Global equity markets, as measured by the MSCI World Index, climbed in every single month of 2017 and have now delivered a 237% total return since their 2009 lows.2  Stock market valuations have become stretched by historical measures, while interest rates, credit spreads, and volatility hover near all-time lows. 

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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,

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The Altrinsic International Equity Portfolio gained 7.9% in the second quarter, outperforming the MSCI EAFE's 6.1% rise as measured in U.S. dollars.  Outperformance was overwhelmingly driven by stock-specific factors, most notably delivered by our investments in Nintendo (Japan), Japan Exchange (Japan), and Heineken (Netherlands). At the broad market level, underlying corporate earnings have been strong, but the degree of complacency in many markets concerns us.  Macro imbalances persist and stock market valuations remain elevated, following a robust nine-year climb.

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The Altrinsic International Equity Portfolio gained 7.4% during the first quarter.  International equity markets, as measured by the MSCI EAFE index returned 7.2% 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.

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The Altrinsic International Equity Portfolio declined 1.2% and gained 8.9% during the fourth quarter and full year, respectively.  By comparison, the MSCI EAFE declined 0.7% and gained 1.0% 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.

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The Altrinsic International Equity Portfolio gained 7.7% during the third quarter, outperforming gains of 6.4% and 6.9% for the MSCI EAFE and ACWI ex-US indices, respectively, as measured in U.S. dollars.  Stock-specific factors were the primary drivers of outperformance, led by positions in the technology, energy, telecommunications, consumer staples, and industrial sectors.

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