Commentaries

Global Growth

For the Period Ending: 12/31/2018

Portfolio Manager:
Sarah C. Ross, CFA

Market Update

The fourth quarter was marked by a notable sell-off in equity markets globally. Concerns of slowing global economic growth played into market declines. Fears that the U.S. Federal Reserve (Fed) might continue to raise rates despite signs of a slowing economy, negative impacts from rising tariffs, general concerns of a U.S. and China trade war, slowing Chinese growth, weaker European growth, and Brexit uncertainty were all contributing factors.

Most developed markets were down generally in line with the broader market, with Germany, France, Japan and the U.S. underperforming. The U.K., Spain and Italy modestly outperformed. In emerging markets, Brazil was the notable standout, up double digits in the wake of presidential elections that increase the likelihood of pro-business reforms. China was down double digits, but modestly outperformed relative to international markets in general.

On a sector basis, utilities, real estate, consumer staples and health care all outperformed, while energy, information technology and consumer discretionary underperformed in this risk off quarter.

Portfolio Review

The Portfolio underperformed the benchmark in the quarter driven by stock selection as strong performers earlier in the year reversed trend. Stock selection in industrials and health care were weak and more than offset positive selection in information technology and financials. The Portfolio’s underweight allocation to utilities, real estate and consumer staples and overweight allocation to consumer discretionary and information technology were all negative contributors.

Earlier in the year, we significantly reduced exposure in emerging markets as well as cyclical technology, and continue to reduce cyclicality. We continue to gradually add more exposure to defensive sectors including health care and consumer staples.

Outlook

The ongoing trade disputes between China and the U.S. have far reaching risks and in our opinion are unlikely to be quickly resolved. China’s growth has slowed significantly with consumer, industrial production and fixed-asset investment all weaker. We are expecting a challenging earnings season globally with the U.S., Europe and China all weaker as we enter 2019.

In the U.S., tax cuts from last year start to annualize, weaker consumer confidence is negatively impacting demand, and the disruptions from the ongoing government shutdown pressure growth. In Europe, Brexit uncertainty remains a concern, and both Germany and France have slowed. In China, growth looks as weak as it’s been in years with significant slow downs in the consumer, industrial production and fixed-asset investment despite government efforts to stimulate growth. Japan has been the one area of positive surprise in developed markets, but off of a low growth rate.

We believe that our portfolio of sustainable growth companies with unique competitive advantages can perform well in the current environment of uncertainty. We continue to reduce exposure to firms we believe are most at risk to trade concerns and economic slowdown. We continue to look to add to companies that can succeed in a wide range of economic outcomes.

The opinions expressed are those of the portfolio manager(s) and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 31, 2018 and are subject to change due to market conditions or other factors. Any mention of investment performance refers to gross-of-fees performance, unless otherwise noted.
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Investment Team

Sarah C. Ross, CFA

Senior Vice President, Portfolio Manager

Ms. Ross is portfolio manager for the firm’s Global Growth investment style. She was appointed portfolio manager of the firm’s International Growth style (later broadened to a Global Growth style) in 2014. From 2006 to 2014 she was a member of the firm’s Large Cap Growth team as an assistant portfolio manager. She was portfolio manager of the firm’s former Tax-Managed Equity mutual funds from 2009 to 2014. She joined the firm in 2003 as an equity investment analyst, covering the health care sector.

Prior to joining the organization, Ms. Ross was a senior health care analyst and vice president for Banc of America Capital Management from 2001 to 2003. From 1995 to 2001 she was with Edward Jones, during which time she was a senior health care analyst and limited partner.

Ms. Ross earned a BS in Business Administration and a BA in French in 1995 from John M. Olin School of Business, Washington University, St. Louis, MO.

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