Capital Group International Developed Equity
Mandate commentary
Q1 2025
Highlights
① International stocks rose in the first quarter (MSCI ACWI ex USA Index), benefiting from a downdraft in U.S. markets that was sparked by concerns about the economic effects of a more aggressive U.S. trade policy.
② Tariffs cast shadow over consumer confidence.
③ Bank of Canada and U.S. Federal Reserve monetary policies diverge.
Mandate overview
International equities rebounded from their sharp Q4 sell-off. In a period where value stocks far outpaced growth stocks, the composite index gained, although results trailed the MSCI EAFE Index.
Mandate: International stocks rose in the first quarter.
Performance contributors
The financials sector recorded double-digit gains over the quarter. The portfolio’s smaller relative holdings proved costly, although stock selection was helpful. European banks, which have seen upward earnings revisions and improvements in profitability since the move off zero-interest-rate policy, contributed, including UniCredit and Deutsche Bank.
Investments in the consumer staples sector boosted returns. This included several traditionally defensive companies in the beverage and tobacco industries.
Performance detractors
Having more significant investments in and, to a lesser extent, stock selection in the information technology sector, hurt relative results. Taiwan Semiconductor Manufacturing Company (TSMC) shares were weak amid broad concerns about artificial intelligence (AI) demand and spending
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
SINCE INC. (FEB. 18, 2025) |
CAPITAL GROUP INTERNATIONAL DEVELOPED EQUITY |
-2.19%
|
Mandate repositioning
The portfolio management team will continue to focus on finding businesses that can provide attractive returns and resilience over the long term. These businesses typically boast unique products, strong brands and large moats that give them pricing power. These companies also usually have long runways for growth, solid balance sheets and low leverage, which can insulate them during difficult market environments. As there continues to be significant volatility in international markets, divergence among companies has allowed the portfolio management team to find attractive entry points for high-quality businesses and some overlooked companies.
Market overview: increased uncertainty in U.S. markets favoured international equities
Investor sentiment turned cautious in the first quarter of 2025, driven by heightened market uncertainty following significant shifts in U.S. trade policy under President Trump. Abrupt tariff changes targeting major trade partners — notably Canada, Mexico and China — increased volatility and pressured equity market performance, particularly affecting the S&P 500 Index. In contrast, European markets outperformed significantly, reflecting investors' preference for Europe's attractive valuations and perceived stronger growth potential.
Despite trade-related headwinds, global manufacturing activity showed resilience, signalling potential earnings growth ahead, provided trade tensions stabilize. Central banks diverged in response: the Bank of Canada proactively lowered its overnight rate to 2.75% to bolster growth amid trade uncertainties, while the U.S. Federal Reserve maintained its rate at 4.5%, viewing tariff-related inflation impacts as temporary.
Market outlook: U.S. tariff concerns may temper earning expectations.
Looking ahead, we remain optimistic, despite recent market volatility and lingering uncertainties. While U.S. equities have faced challenges, including a pullback from February highs and sensitivity to tariff concerns, other regions, such as Canada, Europe and emerging markets, offer compelling opportunities. These regions have shown resilience, supported by stronger fundamentals and more attractive valuations compared to U.S. markets. As long as unemployment remains low, consumption is expected to continue at a steady pace, supporting economic growth. Despite short-term turbulence, global opportunities continue to emerge, and maintaining a long-term perspective will be key to navigating this market volatility.
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