World Stock Watch

International Equities Shine in Third Quarter

The third quarter was a bright spot for international equities, with 9 out of 11 GICS sectors posting positive returns. The financials and industrials sectors led the charge, while energy and information technology lagged behind. From a country perspective, Canada and Japan were the top contributors to market performance, while Denmark and the Netherlands detracted from it.

Portfolio Performance

Our portfolio returned 8.96% (net) for the reporting period, outpacing the MSCI World ex USA Index, which returned 7.76%. We’re pleased with these results, especially considering the challenging market conditions.

Stock Highlights

• Alibaba Group (BABA): This Chinese e-commerce giant saw its stock price rally after the government announced a stimulus package. We believe there’s still upside potential for the company, particularly in its e-commerce business.
• Bayer (BAYRY): The German pharmaceutical company’s stock rose after a favorable court ruling in the RoundUp case. We’re also encouraged by the company’s efforts to streamline operations and reduce bureaucracy.
• Fresenius (FMS): This German healthcare services company posted strong second-quarter results, driven by its Kabi and Helios segments. We’re impressed by the company’s progress in biosimilars and its focus on operational execution.

New Additions

We initiated positions in two new companies during the quarter:

• Diageo (DEO): This global spirits producer boasts a diverse portfolio of brands, including Johnnie Walker and Guinness. We like the company’s scale, distribution network, and focus on premiumization.
• Pernod Ricard (PDRDF): This French spirits company has a strong portfolio of brands, including Absolut Vodka and Jameson Whiskey. We’re attracted to the company’s exposure to emerging markets and its focus on operational efficiency.

Eliminated Positions

We eliminated certain positions during the quarter, taking advantage of market volatility to adjust our portfolio.

Market Outlook

We believe the current market environment presents opportunities for investors who can identify businesses with strong, durable cash flow streams. While we’re frustrated with our recent performance, we remain confident in our time-tested investment approach.

Index Information

The MSCI World ex USA Index (NET) is a free float-adjusted, market capitalization-weighted index that measures international developed market equity performance, excluding the U.S.