Global Value Improvers Strategy Commentary July

Key Takeaways

• Global equities posted modest gains in July, supported by signs of economic resilience across regions and as numerous U.S. trade partners signed deals reducing trade uncertainty.

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

• 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 posted modest gains in July 2025, supported by improving macroeconomic indicators and sector-specific tailwinds across major regions. The MSCI World Index rose 1.3% (in U.S. Dollars), while the MSCI EAFE Index declined 1.4%. Growth stocks continued to lead performance in value stocks, with the MSCI World Growth Index returning 2.1% compared to the 0.4% return of the MSCI World Value Index – bringing growth stocks in line with value stocks on a year-to-date basis.

Emerging markets proved the strongest performing region within the benchmark, as China’s markets responded positively to renewed trade negotiations with the U.S. Despite China’s second quarter GDP showing slight signs of slowing compared to the first, government officials reported a nearly 6% increase in outbound shipments in the first half of the year and indicated China is on track to achieve its official growth target. However, economic data was more subdued, with Chinese PMI indicating a potential economic slowdown as factory, services and construction activity weakened and Chinese leaders announced that they would refrain from further stimulus measures.

In the U.S., a strong June jobs report, the passing of the One Big Beautiful Bill Act, softer than expected inflation in June, preliminary trade deals for the U.S. with both the EU and Japan and positive earnings reports from the Magnificent Seven and other major companies were all positive drivers of market returns in the month, helping temper concerns about tariffs and Federal Reserve independence.

Meanwhile, Europe ex U.K. saw muted, but positive performance, amid concerns over trade deals and inflation returning to the ECB’s 2% target. However, several key economic data points highlighted signs of resiliency in the Eurozone, including rising economic sentiment across the region, a rebound in factory output from May and unemployment at historic lows. Sentiment was further lifted later in the month after the announcement of a new trade deal between the EU and U.S. was reached which would instate a single, all-inclusive U.S. tariff ceiling of 15% for EU goods.

In Asia, Prime Minister Shigeru Ishiba’s ruling coalition suffered a significant loss in Japanese parliamentary election, raising concerns about the government’s ability to successfully negotiate a new trade deal with the U.S. and avoid higher tariffs, but ultimately eased after both governments announced an agreement later in the month. The deal also bolstered hopes that other Asian countries, particularly Indonesia, the Philippines and Vietnam, would be able to secure deals before the August 1 tariff implementation. However, it proved too late to avoid the first impact of tariffs, with Japanese exports to the U.S. declining 11.4% from a year earlier and declining for the second consecutive month.

On a regional basis, the U.K. outperformed both North America and Japan as it solidified its own trade agreement but saw signs of cracks in its own economy. The U.K.’s GDP fell 0.3% in the first quarter, marking the deepest contraction in 18 months, inflation rose above analyst expectations and unemployment crept up amid a cooling job market– putting pressure on the Bank of England who voted to keep rates unchanged at its July meeting.

Portfolio Highlights

Against this backdrop, the ClearBridge Global Value Improvers Strategy slightly trailed its benchmark for the month as strong contributions from industrials tempered detractors in the energy, materials and real estate sectors. On a regional basis, stock selection in Europe Ex U.K. and Japan, as well as an overweight in emerging markets positively contributed while stock selection in North America detracted.

Stock selection in industrials proved to be the largest contributor to relative performance, including two of our long-term contributors: Nexans and Hitachi. French cable systems manufacturer Nexans saw its stock rise following the release of first quarter earnings that exceeded analyst expectations, largely driven by increased sales and deliveries for the Revolution wind contract in the U.S., as well as an increasing backlog in its high voltage transmission business. Japanese industrial conglomerate Hitachi, meanwhile is benefiting from demand and innovation within AI-enabled infrastructure, digital system and energy grid infrastructure. 

Our top detractor during the month was pharmaceutical company Novo Nordisk, which we exited during the month as shares declined following management’s lowering of full year guidance, citing weaker U.S. sales driven by increased competition and continued availability of compounded Wegovy, despite the end of the official supply shortage. Investors also viewed the replacement of the company’s CEO with an internal candidate as adding additional uncertainty during a crucial time. Meanwhile, Teck Resources’ shares came under pressure following mixed second quarter results, which exceeded expectations on earnings but fell short of revenue expectations, as well as lowering production guidance for its Quebrada Blanca copper mine in Chile.

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 from 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.