Capital Group International Developed Equity
Mandate commentary
Q1 2026
Highlights
① International stocks fell, due to surging oil prices and Middle East tensions. Europe declined sharply; Japan advanced on post-election stability.
② The oil shock drove turbulence, as commodities dominated inflation fears.
③ Global growth expectations will be adjusted if conflict extends beyond summer.
Mandate overview
International equities fell, and the composite declined, lagging the MSCI EAFE Index. Stock selection weighed on relative results primarily, while sector positioning and cash holdings provided some support.
Mandate: defensive positioning amid geopolitical volatility
Performance contributors
Stock selection within utilities aided relative results, with RWE and ENGIE contributing strongly. RWE beat 2025 earnings expectations and projected robust growth through 2031, supported by a €35 billion renewables investment program. ENGIE announced strong 2025 results and boosted its 2026 outlook, due to strong renewables demand as well as the acquisition of UK Power Networks.
Information technology had a mixed impact, with semiconductor companies ASML and TSMC both delivering double-digit gains, as demand for leading-edge chips remained robust.
TotalEnergies SE was the top individual contributor to relative results, though the portfolio’s smaller relative footprint in the energy sector during the quarter hurt overall mandate results, as energy prices spiked.
Performance detractors
Weak stock selection in health care hurt results. Novo Nordisk fell as the company issued unfavourable guidance for 2026, forecasting declining sales and operating profit amid increasing competition for its weight-loss drugs and price cuts for its GLP-1 products. Additionally, an overweight position in EssilorLuxottica detracted from relative performance, as shares weakened amid concerns over intensifying competition in smart eyewear and potential margin pressure from rapid growth in the category.
Having fewer investments in the energy sector hurt, as the conflict in the Middle East and the resulting disruption to oil and natural gas exports from the region caused energy prices to spike.
Industrials contributed negatively to relative results, with Ryanair among the top detractors. Skyrocketing jet fuel prices and concerns about a slowdown in consumer spending amid the Middle East conflict impacted the low-cost airline’s shares.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | SINCE INC. (FEB. 18, 2025) |
CAPITAL GROUP INTERNATIONAL DEVELOPED EQUITY | -2.68 | -2.68 | 16.86 | 12.95 |
Mandate repositioning
Industrials represents the largest sector allocation, supported by air traffic growth and defence spending. New purchases include Schneider Electric and Siemens, targeting electrification trends, AI data centre builds and increased power demand with a restructuring or turnaround angle.
Technology continues as an area of emphasis, with semiconductors exuding prominence. Holdings focus on leading-edge production crucial for AI, including ASML and TSMC.
Utilities exposure is at an all-time high, with companies positioned to benefit from the strong power demand driven by AI data centres and expected long-term renewable energy contracts.
Market overview: oil shock drove turbulence, commodities dominated inflation fears
The first quarter of 2026 began with supportive economic momentum; improving manufacturing, a stabilizing U.S. housing backdrop and contained inflation. However, this quickly pivoted as the conflict in the Middle-East involving Iran — along with trade disruption around the Strait of Hormuz — pushed energy commodities higher. The energy shock drove volatility across global equities, yet the underlying backdrop proved more resilient than headlines implied, reinforcing the value of diversification.
Canadian equities were resilient, as higher crude oil prices supported the energy sector and helped offset weaknesses in rate-sensitive areas. Defensive sectors, dividends and real-asset exposure provided additional insulation versus many global peers. U.S. fundamentals remained solid, but sentiment weakened as oil lifted inflation expectations. Investors rotated away from expensive, rate-sensitive growth stocks, making performance more about a valuation reset than deteriorating earnings.
Market outlook: global growth expectations will be adjusted if conflict extends beyond summer
Looking ahead, oil and energy prices remain the central swing factor. A credible path to de-escalation could shift attention back to the positive economic cycle evident early in the quarter; a prolonged disruption would maintain inflation uncertainty and elevated volatility.
In this environment, commodity producers and value‑oriented equities may provide resilience, while long‑duration assets and oil‑importing regions face greater sensitivity to energy-price fluctuations.
Diversification and flexibility remain central to portfolio construction
Canadian equities offer exposure to energy and materials supported by global supply constraints. International developed and emerging markets present valuation‑driven opportunities and help diversify away from concentrated U.S. equity exposure.
Within fixed income, short‑ to intermediate-duration strategies can balance yield and interest‑rate risk, complemented by high‑quality corporate bonds for disciplined income generation. Key areas to watch will be central bank policies, as they look at the impact of higher energy costs and their indirect tax on the consumer.
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