Global Growth Strategy April Commentary

Market Overview

Global equities delivered mixed results in April, with some regions persevering better than others through continued volatility in global economic relations as the Trump administration unveiled “Liberation Day” tariffs against all U.S. trading partners. Many of those levies were subsequently delayed and month end the White House was expressing optimism over working with China after hiking tariffs on its global rival to 145%.  Japan, Asia Ex Japan and Europe delivered gains for the month while the United Kingdom and Emerging Markets also outperformed the -1.7% local currency return of the benchmark MSCI All Country World Index. North America suffered the steepest losses and underperformed as a rotation continued out of U.S. equities.

Led by a rebound in U.S. large caps, growth stocks outperformed their value counterparts with the MSCI ACWI Growth Index rising 3.05% in USD compared to a loss of 1.16% for the MSCI ACWI Value Index.

In the U.S., which represents the largest weight in the benchmark and the Global Growth Strategy, volatility spiked to its highest levels in several years as on-again, off-again tariff actions by the Trump administration led to wide swings in investor sentiment and stock prices. The S&P 500 Index saw substantial losses early in the month before rebounding to finish down 0.68%. U.S. GDP shrank by 0.3% in the first quarter, driven mainly by an increase in imports as businesses and consumers sought to get ahead of impending tariffs.  The U.S. added 177k jobs in April — exceeding analyst expectations — while the unemployment rate remained unchanged at 4.2%. Inflation readings were lower while the University of Michigan Survey of Consumers fell sharply from 57 in March to 52.2 in April, recording its largest three-month decline in expectations since the 1990 recession.

Portfolio Highlights

The ClearBridge Global Growth Strategy outperformed the benchmark in April with strong stock selection in North America and the U.K. the primary contributors.

From a sector standpoint, stock selection in health care, consumer staples and consumer discretionary and a lack of exposure to energy drove results. Within consumer discretionary, Canadian retailer Dollarama, Latin America e-commerce marketplace MercadoLibre and U.S. online pet store Chewy delivered solid gains. Dollarama’s recent share price surge reflects its strong position, effective execution, and future growth potential. Direct sourcing capabilities have helped maintain healthy margins despite tariff pressures, with levers available to manage cost pressures related to U.S. imports. Chewy is benefiting from a positive turnaround in pet adoptions and stable demand trends among pet owners. Within health care, Dutch biotech argenx rose on FDA approval of a prefilled syringe delivery of its Vygart autoimmune treatment. Other leading contributors included French packaged foods and beverage maker Danone, Germany’s Siemens Energy and Canada’s Constellation Software. 

On the negative side, stock selection in the financials and communication services sectors were the primary detractors from relative performance. Within financials, U.S. insurance broker Marsh & McLennan and exchange and mortgage technology provider Intercontinental Exchange were lower in a broad U.S. selloff. Within communication services, T-Mobile US gave back some gains after a strong first quarter. The Strategy’s Chinese holdings Lenovo, BYD and Zai Labs also detracted due to negative trade-related sentiment.

We initiated three new positions in April while exiting three others. The additions were U.K. bank NatWest Group, U.K. grocery chain Tesco and Mexico’s Coca-Cola FEMSA. The Fund sold out of U.S. LTL trucking provider Old Dominion Freight Lines, U.S. off-price retailer TJX and the U.K.’s Lloyd’s Banking Group.

Outlook

April was a microcosm of the policy uncertainty that continues to weigh on sentiment and visibility in the U.S. Markets outside the U.S., most with lower multiples, central banks that are more accommodative, as well as fiscal and public policy more accommodative, provide an opportunity we haven’t seen for many years for relative outperformance.

China is also becoming a compelling investment market again, with heightening trade tensions adding further impetus to Beijing’s quest for technological independence from the West. The Chinese market has been rallying in certain areas; autos as one example with very competitive EV offerings. Chinese pharmaceutical companies have also moved to own R&D and are coming out with very competitive products in cancer treatment and other areas. The country’s focus on technological self-sufficiency has led to more STEM graduates than the rest of the world combined. Beijing is also supporting high levels of R&D spending equivalent to around 2.7% of GDP compared to 0.9% of GDP 20 years ago. In the near term, China is also likely to stimulate its stock market, which trades at a discount less than 20% of U.S. market cap where GDP is over 60% of U.S. market cap.