Global Value Improvers Strategy Commentary August

Key Takeaways

• Global equities advanced in August 2025, aided by resilient corporate earnings and easing financial-conditions expectations into September central-bank meetings.

• The Strategy trailed its benchmark as detractors within the industrials and consumer discretionary sectors, combined with an overweight to industrials, overcame positive stock selection in consumer staples and health care sectors. 

• As valuations have recovered and market expectations have risen, the focus remains on finding idiosyncratic opportunities where structural improvement is underappreciated and can persist irrespective of macroeconomic outcomes.

Market Overview

Global equities advanced in August 2025, aided by resilient corporate earnings and easing financial-conditions expectations into September central-bank meetings. The MSCI World Index rose 2.6% (USD), while the MSCI EAFE Index returned 4.3%, reflecting stronger performance in the international markets relative to the US. Style-wise, value led growth for the month: the MSCI World Value Index returned 3.6% versus the 1.7% return for the MSCI World Growth Index. Emerging markets also posted gains but lagged developed peers, with the MSCI EM Index up 1.3%. MSCI World Large Cap Index returned 6.2%, outperforming MSCI World Small Cap Index, as monetary easing expectations drove the broadening of the market.

Emerging markets proved the best performing sector in the benchmark on broadly positive – but mixed – results. China’s data remained a focal point: the official manufacturing PMI stayed in contraction at 49.4 while the non-manufacturing PMI held just above expansion at 50.3, underscoring uneven domestic momentum. By contrast, the RatingDog China General Services PMI rose to 53 in August – the highest since May 2024 - hinting at stabilisation in export-oriented and smaller private firms.

In the U.S., attention shifted to a weaker labour print and benign inflation backdrop. The August jobs report showed just 22,000 jobs added – well below expectations – bolstering market conviction that the Fed could begin cutting rates in September. July CPI rose 0.2% month-over-month and 2.7% year-over-year, with core CPI up 3.1% from a year earlier, keeping disinflation progress broadly on track. Equity performance was supported by ongoing earnings resilience among large-cap leaders despite policy and data-credibility headlines.

Europe ex-U.K. saw firm returns as inflation hovered near the ECB’s target and growth indicators steadied. The euro area’s August Harmonized Index of Consumer Prices (HICP) edged up to 2.1% year-over-year in August (from 2.0% in July), reinforcing expectations for a cautious policy stance and helping sentiment alongside signs of resilient activity in core economies.

Across Asia, Japan was in focus amid political uncertainty and soft trade dynamics. Reports pointed to leadership turbulence in Tokyo even as markets weighed external-demand headwinds; recent data showed exports falling year-over-year in July as tariff-related pressures persisted. Nonetheless, regional risk assets held up into month-end on hopes for U.S. policy easing and signs that parts of China’s private sector are stabilising.

Within the MSCI World Value Index in August 2025, sector performance was mixed: four out of eleven sectors posted negative returns – namely Communication Services, Industrials, Information Technology, and Utilities – with Communication Services underperforming most sharply. By contrast, Consumer Discretionary led the index, delivering the strongest gains, highlighting the rotation toward traditional value drivers in consumer spending, even as sectors like Industrials and Tech remain pressured.    

Portfolio Highlights

Against this backdrop, the ClearBridge Global Value Improvers Strategy trailed its benchmark for the month as detractors within the industrials and consumer discretionary sectors, combined with an overweight to industrials overcame positive stock selection in consumer staples and health care sectors. On a regional basis, stock selection in North America, Japan, the U.S. and emerging markets weighed on performance while our overweight to emerging markets and underweight to North America proved beneficial. Conceptually, the relative underperformance was largely attributable to strong winners in AI and energy transition gave back some performance as the market broadened in the context of a concentrated portfolio.

Health care proved a bright spot during the month, led by top performing holding CVS Health. CVS shares rose strongly after the company delivered better than expected second quarter results and raised its full year guidance. U.K. biopharma company AstraZeneca also rose on strong second quarterly earnings led by an increase in sales of its oncology drugs, as well as alleviating concerns over tariffs on pharmaceuticals and policy support encouraging drug manufacturing in the U.S.

Our top detractor during the month was Japanese industrial electronics conglomerate Hitachi, which took a breather given a run-up in performance over the past few months. Despite investors taking gains and putting pressure on the stock, we still believe that Hitachi continues to benefit from the demand and buildout of data centres and upgrading of global electrical grids, and after of a decade of meaningful restructuring, Hitachi has now become a model for value creation in Japan, which in turn motivates its management team to find further avenues for growth and returns. Also in industrials, CNH Industrial stock dropped despite reporting second quarter earnings that exceeded market forecasts, due to concerns and declines driven by weaker demand in its agricultural segments, particularly in North America, as well as dealer destocking trends. However, we believe that the new CEO is well respected and are looking forward to seeing his long-term strategic vision for the company.

All returns are in local currency.

Positioning and Outlook

Markets continue to rally as more clarity around tariffs, fiscal policy and accelerating AI capex lend confidence that current expansionary trends can continue. At the same time, valuations have recovered to levels above the start of the year when there was extreme optimism around US exceptionalism and global economic reacceleration. As it stands today, we find the risk/reward of the market to be balanced at best. We continue to be mindful of the lagging effects of tariffs on trade flows and price levels, and the multiple unresolved geopolitical conflicts, as areas of potential risk that the market has seemingly brushed off.  Our focus remains on finding undervalued stocks with strong idiosyncratic growth drivers or restructuring benefits that are less reliant on a strong macro backdrop.

As an example, we see energy demand and efficiency as an area where structural changes in industry dynamics are creating attractive secular investment opportunities. Specific areas include: 

• Renewables and energy storage: After a painful reset driven by rising rates and shifting subsidies, renewables now sit at the intersection of three secular drivers — the need for clean energy, the push for energy security and the soaring power demand from AI and data infrastructure. In many regions, new generation capacity is no longer optional, while solar, wind and battery storage offer scalable, secure and carbon-free solutions.
• Energy-efficiency enablers: Companies that help others use less energy such as Vertiv, which delivers thermal management systems critical for data centre cooling (an area where power use is spiking) or Johnson Controls, which helps modernise building systems for smarter, lower-emission operations, are ideally positioned in this new regime. These are not just ESG stories but they also sit at the heart of converging trends: rising energy costs, data centre buildouts, net-zero goals and infrastructure adaptation. In a world with capital constraints and climate risk, efficiency is no longer a nice-to-have — it’s a competitive edge.
• Grid modernisation: Investment in power grids checks multiple boxes. It enables decarbonisation by connecting renewable supply, lowers long-term energy costs, and is essential to handle rising loads from AI infrastructure while also building resilience into systems facing climate-driven disruptions. In many cases, it’s a “multi-benefit” project that aligns economic, environmental and strategic priorities.