Global Markets See Uptick in Q2 Amidst Economic Disparities
The second quarter of the year saw global equities rise, driven in part by robust earnings from a select group of mega-cap technology companies. However, the global landscape was marked by disparities in inflation and economic growth across countries. The European Central Bank began easing interest rates in June, while the US Federal Reserve held policy rates steady. Market expectations for the Fed to commence easing monetary policy were pushed into the second half of the year.
Consumption growth remained healthy across the European Union, supported by improving real wage growth. In Japan, the yen hit 30-year lows against the US dollar, complicating the Bank of Japan’s plan to hike interest rates. China’s economic rebound was restrained by the ailing property sector. Indian Prime Minister Narendra Modi won a third consecutive term, but his party failed to win an outright majority in Parliament.
The MSCI ACWI ex USA Growth index returned 0.72% for the quarter, with seven out of eleven sectors rising during the period. Communication services and information technology were the top-performing sectors, while consumer discretionary and materials were the bottom-performing sectors.
The Hartford International Growth Fund underperformed the MSCI ACWI ex USA Growth Index during the quarter, due in part to weak selection in industrials and consumer discretionary. However, selection in healthcare and information technology partially offset these losses. Sector allocation, driven by our bottom-up stock selection process, contributed to returns. Our top relative detractors included an overweight to Airbus and an out-of-benchmark position in Ryanair, while our top relative contributors were an out-of-benchmark allocation to Spotify and an overweight to Taiwan Semiconductor.
Looking ahead, we believe the likelihood of a soft landing has increased due to continued economic strength, but the US elections could lead to volatility. China surprised to the upside, though challenges in the real-estate sector endure. In Japan, the outlook remains good, and further rate hikes may be on the horizon. European elections have caused geopolitical uncertainty, but as that resolves and greater transparency is achieved, the eurozone looks well-positioned.
We remain excited about our holdings in the artificial intelligence space and their ability to execute, especially given our global outlook. At the end of the period, our largest overweights were to information technology and communication services, while we were most underweight to financials and materials.
Top holdings included Taiwan Semiconductor Manufacturing Co. Ltd., Novo Nordisk AS, ASML Holding NV, Schneider Electric SE, and AstraZeneca PLC.
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