Capital Group International Developed Equity
Mandate commentary
Q2 2026
Highlights
① The mandate returned 9.24%, underperforming the MSCI EAFE Index by 1.58 percentage points, as financials selection and cash outweighed positive information technology positioning.
② Earnings strength helped markets absorb uncertainty.
③ Valuations and rates make selectivity more important.
Mandate overview
International equities rebounded sharply during the second quarter, following the March sell-off, supported by attractive valuations, strong corporate earnings and easing geopolitical tensions. Technology advanced significantly, as demand for artificial intelligence memory chips and semiconductor equipment remained strong, while energy declined as progress in U.S.-Iran negotiations weighed on oil prices. European equities benefited from better-than-expected earnings and continued investment in AI infrastructure, while Japanese equities reached record highs, led by information technology and financials.
Relative performance was primarily constrained by financials, where stock selection in capital markets and insurance detracted. Stock selection in industrials and materials also weighed on results, while cash holdings were a headwind during the strong market advance. Regionally, stock selection in Japan, Germany and France detracted.
Mandate: Capital Group International Developed Equity
Performance contributors
Tokyo Electron was the largest contributor to relative performance, adding approximately 0.99 percentage points. The company benefited from strong demand for AI memory chips and semiconductor-manufacturing equipment used in advanced logic and memory production.
Taiwan Semiconductor Manufacturing Company was the second-largest contributor, adding approximately 0.8 percentage points. Its shares advanced amid rapid growth in AI spending by hyperscalers and strong demand for leading-edge semiconductor production.
Performance detractors
TotalEnergies was the largest detractor from relative performance, reducing returns by approximately 0.59 percentage points. Its shares declined, as oil prices retreated following progress in U.S.-Iran negotiations. Sentiment was also affected by the possibility of a windfall tax proposed by the French government.
Marubeni was the second-largest detractor, reducing relative performance by approximately 0.52 percentage points. The Japanese trading company declined during the quarter and contributed to weaker stock selection within industrials and Japan.
Total gross returns:
Total return (USD) | QTD | YTD | 1YR | 3YR | 5YR | SINCE INC. (FEB. 18, 2025) |
CAPITAL GROUP INTERNATIONAL DEVELOPED EQUITY | 9.24
| 6.40
| 13.91
| 17.92
|
Mandate repositioning
The portfolio remains focused on identifying businesses capable of providing attractive long-term returns and resilience. Portfolio construction continues on a company-by-company basis, with ongoing market concentration and concerns about AI-related disruption creating potential entry points among high-quality and overlooked businesses.
Industrials remains the portfolio’s largest sector allocation and its largest overweight relative to the benchmark. Financials exposure continues to be reduced, following strong performance by European banks and a more limited assessment of their remaining upside and potential contribution to portfolio resilience. At quarter-end, financials represented approximately 15% of the portfolio, compared with 25% of the benchmark.
Information technology remains an area of emphasis, particularly semiconductor and semiconductor-equipment companies exposed to leading-edge production supporting artificial intelligence. The sector represented approximately 20% of the portfolio, compared with 12% of the benchmark. Utilities exposure also remains elevated, reflecting opportunities among companies positioned to address growing power demand and renewable-energy requirements associated with data centres.
Market overview: earnings strength helped markets absorb uncertainty
The second quarter of 2026 reinforced the resilience of financial markets. Investors faced conflict in the Middle East, commodity-price volatility, shifting interest-rate expectations and renewed inflation concerns, yet global equities continued to advance as corporate earnings and economic activity remained stronger than expected. The S&P 500 gained 14.9% in U.S.-dollar terms for the quarter, while the S&P/TSX Composite Index advanced 6.4%, supported by healthier earnings expectations and improving market breadth.
Canadian equities were led by a strong rebound in financials, as better-than-expected bank earnings, resilient credit quality and improved capital markets activity lifted sentiment. U.S. equities were supported by earnings strength rather than a simple risk-on rally, with Information Technology leading as AI infrastructure spending continued to anchor sentiment. International equities also contributed meaningfully, with emerging markets Korea and Taiwan benefitting from demand across the global technology supply chain.
Market outlook: valuations and rates make selectivity more important
Markets enter the second half of 2026 with fundamentals remaining broadly supportive, although elevated equity valuations leave less room for error. Earnings growth is likely to remain the key driver of returns, while inflation trends, central bank policy and interest-rate expectations will continue to shape market sentiment.
Across asset classes, diversification remains important. Canadian, international and emerging market equities offer exposure to distinct sources of growth, while higher yields in fixed income continue to provide a cushion against volatility. Selectivity remains key as investors balance opportunities against valuation and policy risks.
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