Global Value Improvers Strategy April Commentary

Key Takeaways

• Global equities were mostly higher in April, persevering through continued volatility in global economic relations and continued impact from new tariffs under the Trump administration.

• The Strategy outperformed its benchmark as strong contributions from industrials helped offset detractors in communication services and financials.

• Despite market noise, there remain many durable themes, such as the energy transition and artificial intelligence deployment, that we will look to add to opportunistically.

Market Overview

Global equities were mostly higher in April, persevering 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%. The MSCI World Index returned 0.89% (in U.S. Dollars), while the MSCI World Growth Index, led by a rebound in U.S. large cap growth stocks, outperformed the MSCI World Value Index, returning 3.18% and -1.37%, respectively.

In the U.S., equities tumbled after President Trump unveiled “Liberation Day” reciprocal tariffs on U.S. trading partners on April 2, almost all of which were much more severe and wide-ranging than expected. This resulted in a 10% correction in the S&P 500 by April 7. While stocks rallied strongly the following week after the White House announced a 90-day delay in tariff implementation, they reversed course yet again as tariffs were raised to 145% on China and Trump threatened to fire Federal Reserve Chairman Jerome Powell. However, stocks rebounded once again to end the month as Trump softened his tone vis-à-vis Powell and trade relations with China. 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.

China saw its manufacturing sector expand at its fastest pace in a year in March and a surge of new export orders as purchasers attempted to get ahead of new tariffs, the escalation in tariffs prompted both a reciprocal rise of 125% on U.S. goods and prompted the government to announce additional growth-supporting measures to offset new challenges. This included statements alluding to further interest rate cuts, reduce required bank reserves and introducing new, more loose monetary policy to support initiatives such as technological innovation, exports and domestic consumption. However, China’s CPI continued to edge lower, suggesting that persistent disinflationary pressure many continue to complicate the government’s ability to stimulate further domestic demand.

The announcement of the U.S.’ Liberation Day prompted EU members to approve a list of retaliatory tariffs on a range of U.S. products including agricultural products and industrial goods, but followed the U.S. in pausing the tariffs before they could take effect mid-month. However, despite the avoidance of a direct trade war, trade continued to weigh on EU economies, with the French exports declining as a pre-emptive boost from frontrunning U.S. customers failed to materialise. France also saw consumer spending fall to its lowest level in a decade (excluding the pandemic era), suggesting that European consumers remain nervous about the economic impact from a less friendly trade environment. These downside risks and growing trade tensions contributed to the ECB’s decision to lower interest rates by another 25 basis points, its seventh rate cut in the last 12 months.

In Canada, Liberal Party leader Mark Carney declared victory in federal elections, following a campaign largely influenced by the imposition of steep tariffs by the U.S. on Canadian goods such as steel and aluminium, cars and car parts and threats of further tariffs on pharmaceuticals and lumber. Although Carney has stated that he has not ruled out further talks with the U.S. on trade matters, the new Prime Minister is largely seen as someone able to navigate the challenges of an extended trade war and honest about the challenges that it poses on the Canadian economy and employment.

Portfolio Highlights

Against this backdrop, the ClearBridge Global Value Improvers Strategy outperformed its benchmark for the month as strong contributions from industrials helped offset detractors in communication services and financials. On a regional basis, stock selection in the U.K., an underweight to North America and overweight to the U.K. and Europe Ex U.K. positively contributed while stock selection in Europe Ex U.K. detracted.

Stock selection in industrials proved to be the largest contributor to relative performance, including our top two individual performers: Siemens Energy and Nexans. Siemens Energy stock rose after the company raised its full year guidance after a strong performance across its various business lines during its second fiscal quarter. Meanwhile Nexans also delivered a strong earnings report and reassured the market that its US offshore wind projects were largely complete and the company has little further exposure going forward.

Our top detractor during the month was energy company TotalEnergies, whose share price followed oil prices lower – recording their biggest monthly decline in more than three years – after Saudi signaled a move toward expanding production while trade war concerns eroded the outlook for fuel demand. Meanwhile, payment and financial services technology company Fiserv dropped sharply after the company’s adjusted first quarter revenue fell short of analyst expectations and showed signs of slowing in organic revenue growth.

During the month, we exited a position in Uber Technologies in the industrials sector and initiated a new position in Corcept Therapeutics in the health care sectorr.

All returns are in local currency.

Positioning and Outlook

Despite heightened volatility caused by the ever-evolving trade dynamic, we are encouraged by the broadening of sector flows and the potential for regime change in favour of value and non-U.S. stocks. We expect this uncertainty to persist for the foreseeable future and look to take advantage of attractive valuation opportunities offered up by market dislocations.

We believe the current environment supports our flexible but process-driven philosophy. On the one hand, we are focussed on absolute value opportunities, particularly businesses with fortress-like balance sheets that trade at low multiples of free cash flow. These types of businesses should not only be resilient in times of economic stress but also emerge from market turmoil in better competitive positions to deploy their balance and drive future growth. On the other hand, we believe that indiscriminate market selloffs can also offer chances to buy secular growth companies at valuations that imply little future growth. Despite market noise, there remain many durable growth themes, such as the energy transition and artificial intelligence deployment, that we will look to add to opportunistically.