For the three months ending June 30, 2024, the iMGP International Fund fell 3.14%, underperforming the MSCI EAFE Index, which lost 0.42%. The fund trailed the Morningstar Foreign Large Blend category return of 0.16% in the quarter.
Since its inception on December 1, 1997, iMGP International has returned 6.28% annualized. Over the same period, the fund has outperformed MSCI EAFE and the Morningstar Foreign Large Blend category, which have generated an annualized return of 5.12% and 4.31%, respectively.
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.imgpfunds.com. *There are contractual fee waivers in effect through 4/30/2025.
For standardized performance click here: https://imgpfunds.com/international-fund/
Brief Discussion of Performance Drivers for the Quarter
It is worth remembering the fund’s overall positioning is driven by the managers’ stock picking. As a result, stock selection is always the main driver behind the fund’s absolute and relative performance. Attribution analysis over a given period may, however, show other factors that also explain relative performance.
The fund benefited modestly from its sector allocation during the quarter. An overweight to the health care sector was the main contributor from a sector standpoint. Security selection within consumer discretionary and materials sectors was strong. Financials and industrials stocks held within the portfolio were the main headwinds during the quarter.
Portfolio Breakdown as of 6/30/2024
| By Sector | Fund |
| Finance | 16.9% |
| Consumer Discretionary | 14.3% |
| Information Technology | 17.4% |
| Communication Services | 3.6% |
| Health Care & Pharmaceuticals | 23.2% |
| Industrials | 13.4% |
| Consumer Staples | 5.7% |
| Real Estate | 0.0% |
| Utilities | 0.0% |
| Energy | 0.0% |
| Materials | 2.7% |
| Cash | 2.9% |
| By Region | Fund |
| Europe | 83.4% |
| North America | 3.8% |
| Asia ex-Japan | 5.0% |
| Japan | 5.6% |
| Latin America | 0.0% |
| Africa | 0.0% |
| Australia/ New Zealand | 0.0% |
| Middle East | 2.2% |
| Other Countries | 0.0% |
| *Cash is excluded from calculation |
| By Region | |
| US Equities | 1.2% |
| Developed International Equities | 93.8% |
| Emerging Market Equities | 5.0% |
| By Market Cap | |
| Small Cap | 1.5% |
| Mid Cap | 21.8% |
| Large Cap | 76.7% |
Quarterly Market and Portfolio Commentary from Managers
David Herro, Harris Associates
International equities finished flat during the second quarter, with six of eleven Global Industry Classification Standards sectors posting negative returns. Consumer Discretionary and Industrials were the largest detractors from performance, offsetting the positive contribution from Health Care and Financials. By country, a pull back from all-time highs in Japan and political uncertainty in France detracted from market performance, while the United Kingdom, Netherlands and Switzerland were the strongest contributors to international market returns.
Whereas investors attempt to determine the price of an asset using fundamental analysis, then buy low and sell high, a trader uses analysis to predict price movement. Although traders have greatly influenced current market conditions, we believe the result has been more opportunity for investors. Though we are frustrated with our recent performance, based on today’s valuations, we remain fully confident on what we can deliver in terms of future performance for our clients.
Robin Jones, Lazard Asset Management
Equity markets were mixed over the course of the second quarter. Higher-than-expected inflation data in the US put pressure on markets in April. The pattern of performance was reminiscent of 2022 with most sectors down, energy outperforming and gains in banks. Bond yields rose in most developed markets as central banks made efforts to curb expectations for rate cuts. Strong growth in the US coupled with signs of persistent inflation, are leading to debate about rates remaining higher for longer. The late reaction by central banks to inflationary pressures is likely to put policy makers in a more conservative mindset when it comes to cutting rates. This ongoing uncertainty will be central to markets in 2024. A glimmer of hope was offered when the European Central Bank cut rates citing easing inflationary pressures—helping markets recover over the course of May and June.
The prospect of sustained high rates, a move up in the oil prices and sticky inflation reinforced concerns about the resilience of the consumer. Consumer discretionary led declines, but even consumer staples underperformed in the quarter.
Cyclicals generally performed in line, but lower iron ore prices, post the restocking period in China, dragged on materials names. In contrast, energy stocks were supported by higher commodity prices as were utilities. Financials, mainly banks, were strongest among cyclicals on the prospects of sustained higher rates—supporting high ROEs and capital generation underpinning significant cash returns to shareholders.
Health care was one of the best performing sectors, led by large defensive pharmaceuticals companies. This masked weakness in the life science and bioprocessing related areas, which continues to suffer from destocking. Information technology stocks continued to deliver strong gains, though largely driven by US and Asia ex-Japan.
Globally, there is a polarized picture ranging from a strong US economy, change in Japan through to a weak economic backdrop in China. Economic growth ticked up in Europe, though remains modest with some drag from destocking seen across most markets. However, the focus for investors appeared to be directed at a seeming rise in populist politics driving a selloff in most European markets.
Emerging markets were generally strong with the notable exception of Latin America where recent and pending elections in Mexico and Brazil weighed on markets. Asia saw a notable shift in trend with domestic China outperforming on potential stimulus measures, while Japan lagging. The latter driven in part by another notable dip in the Yen—hitting the lowest levels against the US dollar since the 1980s.
Todd Morris and Daniel Fields, Polen Capital
Economic growth rates and inflation readings in most corners of the world remain positive but evidence decelerating trends. As Polen Capital sees it, flagging growth and inflation across many economies puts a premium on security selection. We believe our focus on maintaining a concentrated portfolio of competitively advantaged companies geared to grow earnings at above market rates is the best way to invest in such environments.
Edited Commentary from the Respective Managers on Selected Contributors
Taiwan Semiconductor (Lazard Asset Management)
As the leading semiconductor manufacturer in the world, TSMC is benefiting from strong demand for artificial intelligence (AI)-related chips. This new demand driver has emerged at a time when there are growing signs that some of the largest end-markets for semiconductors are reaching a bottom (e.g., smartphones, PCs). The shares had lagged most of the semiconductor industry earlier in the year, which is unusual given the company’s central role in the industry. Strong results in April highlighted this anomaly and supported the shares through the rest of the quarter. Revenues were up 17% year over year and forward guidance was ahead of expectations. There have been increasing indications from the supply chain that TSMC is looking to raise prices, which will be another driver to the strong sales growth expected as some of the key end market begins to improve.
Glencore (Harris Associates)
Glencore is one of the world’s largest mining firms. We like that Glencore is run by smart, hyper-competitive and value-focused managers with a focus on improving asset returns. In our estimation, Glencore differentiates itself from other miners with its trading business that provides high returns and cash flow with low cyclicality and significant barriers to entry. We appreciate the company’s leading market positions in attractive commodities and believe existing mining operations will benefit from normalized prices, higher volumes, lower costs and the move towards a low carbon economy. We believe Glencore is an attractive investment and trades at approximately two-thirds of our estimate of its intrinsic value.
Glencore was a contributor during the quarter. The U.K.-headquartered diversified metals and mining company reported first-quarter results that were largely in line with consensus expectations. While there was no change to the 2024 production guidance, Glencore issued a higher guidance for 2024 marketing earnings metrics. The market reacted favorably towards Glencore’s consideration to sell its nearly 70% stake in Kazzinc, a mining company, in early June. In our view, Glencore remains an attractive holding.
Teleperformance (Polen Capital)
Teleperformance is the world’s leading provider of outsourced customer experience management. Teleperformance offers its customers cost effective ways to service their clients with dedicated call center resources. Teleperformance is the largest player in this market and enjoys significant scale advantages around the world. Shares snapped back in the quarter after being under pressure earlier in the year. In recent quarters, a weak macro backdrop impacted IT services companies’ shares as spending slowed on a global basis. Teleperformance continues delivering market-leading growth, albeit at lower-than-average rates. As such, we view this slow down as a temporary issue. Secondly, negative sentiment seemingly continues to fester toward the customer experience category as a potential “AI-loser.” We see AI as an opportunity for the company. Teleperformance is leaning into AI as an enabler of faster call resolution for low complexity customer interactions. We believe Teleperformance’s competitive advantages are unchanged, and we view the weaker operating performance as a function of the economic backdrop. The stock’s current forward 12-month P/E multiple of 7x reflects negative sentiment toward the industry. In the long run, we feel the company can grow its earnings at a healthy double-digit rate.
Edited Commentary from the Respective Managers on Selected Detractors
Ryanair (Lazard Asset Management)
Delivered record results driven by growth in traffic (+9% year over year) and strong pricing when they reported results in May. On the outlook, management noted some moderation in pricing, which raised concerns among investors given the high level of profitability following the COVID recovery. Demand over the key summer months will be a key test for the stock, while updates from Airbus and Boeing continues to highlight the limited ability to bring on additional supply to the market, which should be supportive of the pricing environment. The valuation is now back near all-time low despite having increased their cost advantage versus their peers over the last few years. We expect a combination of this cost advantage and limited supply addition to support margins in a downturn. Meanwhile we keep monitoring how the travel market evolves to manage the position in the short-term.
CNH Industrial (Harris Associates)
As one of the largest agriculture equipment providers in the world, CNH Industrial has significant scale advantages and well-known brands in an agriculture equipment industry that we believe remains structurally appealing. Management has worked to fortify the balance sheet while protecting pricing, and we believe the team is driven to create shareholder value through operational enhancements and other initiatives.
CNH Industrial was a detractor during the quarter. This U.S.-headquartered manufacturer of agricultural and construction equipment announced that CEO Scott Wine will be replaced by Gerrit Marx, CEO of Iveco Group, effective July 1, 2024. Wine has made significant contributions to CNH Industrial in the areas of product, technology, and cost efficiency and we were disappointed to see him leave the business. We met with both Executive Chair Suzanne Heywood and Wine in April and gained insight into the management change. CNH Industrial also slightly reduced guidance for 2024 when reporting first-quarter results due to a weaker agricultural equipment market. This reduction was consistent with our forecasts and does not impact our view of the long-term profitability potential of the business. We believe that CNH Industrial’s position within the structurally attractive agriculture equipment market will improve in the coming years. As a result, we continue to believe the stock is compelling.
Icon (Polen Capital)
Icon is a global leader in the outsourced drug trial management and administration market which is called contract research organization (CRO) services. Icon shares detracted from quarterly performance as the stock price declined slightly. Interestingly, share price movement in this 90-day window belies growing fundamental business strength. The company reported solid first quarter results, including accelerating sales trends, expanding profit margins, and an improving financial position. While broad strength is noteworthy, we note Icon’s biotechnology efforts are gaining traction with customers. In addition, Icon hosted a capital markets day in which it issued robust medium-term guidance including 7-9% total revenue growth, continued margin expansion and financial options resulting from steady cash generation. We appreciate asset-light services businesses for their persistent cash generation and the flexibility it affords management to intelligently allocate capital. In Icon’s case, the company excels at M&A and left open the potential to repurchase shares should they trade at compelling multiples. We view Icon’s management as sharp stewards of shareholder capital and trust they can continue to position the company for industry leading growth in sales and earnings. We believe Icon can continue growing earnings at a high teens rate and think the current <20x forward earnings multiple is too low for a company of this quality. This explains our large weight in Icon shares.