Global Growth Strategy May Commentary

Market Overview

Global equities delivered broad gains in May as a potential détente in U.S. trade policy and the tailwinds of policy stimulus outside the U.S. lifted shares. North America was the only region to outperform the 5.14% return in local currency of the benchmark MSCI All Country World Index. Nevertheless, all regions posted positive returns with Asia Ex Japan, Europe Ex UK and emerging markets the next best performers.

Led by continued momentum in U.S. large caps, growth stocks outperformed their value counterparts with the MSCI ACWI Growth Index rising 8.25% in USD compared to a return of 3.16% for the MSCI ACWI Value Index.

U.S. stocks, which represents the largest weight in the benchmark and the Strategy, delivered their best monthly performance since November 2023, as a string of bilateral deals with the U.S.’s biggest trading partners, a de-escalation in reciprocal tariffs by both the U.S. and China and a federal trade court ruling pausing President Trump’s most sweeping tariffs as well as a generally positive corporate earnings season boosted equities. The S&P 500 Index returned 6.29% in USD for the month and is now up 1.06% year-to-date. The U.S. added 177k jobs in April — exceeding analyst expectations — while the unemployment rate remained unchanged at 4.2%. Inflation readings were largely better than anticipated and showed little impact from newly imposed tariffs. Soft economic data was lukewarm, with the ISM Manufacturing PMI dropping slightly from 48.7 in April to 48.5, while the University of Michigan Survey of Consumers remained unchanged in May.

The bond market fared worse than equities as scepticism over the President’s multitrillion dollar fiscal package and the downgrading of U.S. debt from its triple A rating by Moody’s sparked a nearly quarter point rise in yields to 4.41%.

Portfolio Highlights

The ClearBridge Global Growth Strategy outperformed the benchmark in May with stock selection in North America and emerging markets the primary contributors.

From a sector standpoint, stock selection in communication services and information technology (IT) as well as an overweight to communication services contributed to results. Within communication services, U.S.-based online game and game development platform Roblox was lifted by the success of new game Grow a Garden which is accelerating booking and market share growth above expectations while Singapore’s gaming and e-commerce provider Sea Limited also saw strong share gains. Among secular growers in the sector, Walt Disney delivered solid results across its streaming, parks and entertainment divisions and raised its earnings guidance for the year. In IT, the leading contributors were Taiwan Semiconductor and U.S.-based Intuit which benefited from acceleration in its TurboTax Live tax filing service.

On the negative side, stock selection in the health care sector was the primary detractor from relative performance. Shares of Dutch biotech Argenx slumped after a quarterly sales beat that was not as strong as expected and negative sentiment on most favoured nation drug pricing. Poor sentiment and its premium valuation impacted U.S biotech Vertex Pharmaceuticals as well. Also within health care, Japanese medical device maker Terumo and China biotech Zai Lab traded lower. Among individual detractors, T-Mobile US gave back some gains after a strong start to the year.

We exited four positions in May: Irish building materials producer CRH, U.S. financial information provider S&P Global, French cosmetics maker L’Oreal and Swiss electrical components maker ABB.

Outlook

May demonstrated the speed with which equity markets can react to the potential for global trade policy clarity following a chaotic start to the year. But as the month ended with enmity re-emerging between China and the U.S, we believe a diversified, valuation sensitive approach to growth investing remains warranted. While our U.S. holdings would most directly benefit from the settling of a global trade war, our non-U.S. holdings enjoy distinct tailwinds. These include lower multiples, central banks in regions where inflation under better control providing more leeway for future rate cuts, as well as accommodative fiscal and public policy being driven by the need to become less dependent on the U.S. as a trading and security ally.