International Equity

10 min read | Global markets recovered strongly during the fourth quarter, aided by falling inflation expectations, optimism that the US Federal Reserve would move away from aggressive policy tightening, an improved energy outlook in Europe, and President Xi’s unexpected decision to unwind zero-COVID policies. The rally was certainly welcomed, but 2022 was the most challenging year since the global financial crisis. According to Michael Howell of CrossBorder Capital, global investors lost US$23T of wealth in housing and financial assets in 2022, equivalent to 22% of global GDP and greater than the US$18T of losses suffered in the 2008 financial crisis. Commodities were the only refuge, as long-term bonds had their worst year since the 18th century (according to the Financial Times) and and equities fell 18.1% in 2022 (MSCI World Index), as measured in US dollars.

2 min read | by Glenn Cunningham | I recently attended the Industrial Manufacturing Technology Show (IMTS) in Chicago to gain further insight into the technology and industrial industry ecosystems. Discussions at the show reinforced a number of key themes that we have independently identified through our bottom-up research. Broadly speaking, these include the need for more automation due to skilled labor shortages, the costs and benefits of supply chain fragmentation, and the growing integration of technology across the industrial landscape.

The downturn in markets continued during the third quarter as concerns over tightening monetary policy, inflationary pressures, weakening economic growth, and geopolitical risks intensified. Despite strong gains early in the quarter, the MSCI EAFE Index declined 9.4% (as measured in US dollars), ending approximately 27% below peak levels reached in September 2021. The Altrinsic International Equity portfolio declined 9.8% over the same period.

Greed has given way to fear. We have not reached a stage of extreme capitulation, liquidity unwinds, or distress, but fear emanating from headlines and market declines is reflected in poor investor sentiment and the growing presence of value.

International equities delivered their worst quarterly performance since the European sovereign debt crisis as uncertainty stemming from inflationary concerns, tightening central bank policies, and rising recession risk weighed on markets.  The Altrinsic International Equity portfolio declined 11.5% during the second quarter, outperforming the MSCI EAFE Index’s 14.5% decline, as measured in US dollars.   Outperformance was derived from all major industry exposures except real estate and utilities.  Japanese and European-based companies with meaningful US dollar exposure were notable outperformers, benefiting from the relative strength of the US dollar versus most other currencies.  We take no consolation in our relative outperformance during this painful drawdown.  Near-term macro data and corporate earnings will likely be disappointing, but we are confident in our positioning and encouraged by the investment propositions offered by a growing number of companies with strong long-term fundamentals and attractive valuations.

Thought Leadership

8 min read | by Rich McCormick | I spent two weeks in June traveling throughout Europe, engaging with a range of old and new contacts – political leaders, regulators, and management teams from over 40 companies in the insurance, banking, fintech, and industrial sectors.  Throughout the trip and upon my return, I kept this journal of the most significant takeaways and implications for our portfolio positioning – some reinforcements to previously-held beliefs and a few surprises.

1 min read | Stock-based compensation (SBC) in the technology sector has proliferated in recent years, driven by the war for talent and a period marked by low cost of capital, plentiful access to capital, and rising valuations. The challenge comes when decade-long market tailwinds begin to change direction. The virtuous cycle of aggressive stock issuance to employees, elevated ‘adjusted’ earnings, rising stock prices, and strong employee engagement can become vicious when it unwinds.

The Altrinsic International Equity portfolio declined 1.5% during the first quarter, outperforming the MSCI EAFE Index’s 5.9% decline, as measured in US dollars.   Just as most nations began lifting COVID-related restrictions and returning to normal, tensions intensified amidst surging inflationary pressures, tightening policy measures in the US,  lockdowns in China, and Russia's invasion of Ukraine.  

Thought Leadership

3 min read | Hypersonic weaponry is one of the most disruptive technologies in modern defense. We recognize that this is a controversial, sensitive, and potentially polarizing topic for multiple reasons, especially given the ongoing war in Ukraine. Yet, given the significant resources governments are committing to hypersonic research and innovation, we felt it would be valuable to provide a brief, fact-based review of hypersonic technology, its history, and the potential implications from both geopolitical and industry standpoints. Our sole intent is to provide an educational overview.

Beginning with the January insurrection at the US Capitol and ending with the rapidly spreading Omicron COVID-19 variant, 2021 provided much for markets to digest.  Nonetheless, equity markets continued their rise with support from re-opening economies, strong corporate earnings growth, and stimulative monetary and fiscal policies.  US equities and “growth” stocks continued to lead markets during the fourth quarter, but important transitions are underway that are supportive of a long overdue broadening away from this leadership in markets.

Thought Leadership

7 min read | Data breaches are up 280-fold over the past decade, and worldwide underinvestment in cybersecurity and data protection is a massive problem.  A ransomware attack now occurs every 11 seconds.  The cost to control cybercrime has ballooned to 1% of global GDP but related spending still represents just 3.6% of companies’ IT budgets.  This paper by Glenn Cunningham (global technology analyst), presents a case for why data has become one of the world’s hottest commodities and why protecting it has become a hot button topic for corporate and political leaders alike.  

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