Economic Activity in the First Quarter and the Results of the International Select Portfolio

With the first quarter of 2017 over, we are reviewing the progress of our International Select portfolio. Over the past ten years (ending 3/31/2017) North American markets have seen an average of over 7% a year, while the MSCI EAFE has averaged only 1.53% per annum. Furthermore, over the past year, also ending 3/31/2017, the North American markets have increased by 17.34% with MSCI EAFE only rising by a little over 12.25%. Despite these differences between North American and European, Australasian, and Far Eastern markets, we believe that non-US markets will become market leaders over the coming few years. The outlook for the global economy is affected by Trump’s presidency, and the effect of this on US GDP growth rate back up to 3% per year. If this level of growth can be met, it should ensure long-term, positive effects on a global scale.

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In terms of the International Select portfolio, it has returned 9.75% pure gross, and 9.28% net while the MSCI EAFE Index has seen returns of 7.39%. Several factors have influenced the performance of this portfolio. Stock selection and country weightings in Switzerland, France, Belgium, the UK, and China have all proved beneficial, while the same processes in Canada, India, Norway, the Netherlands, and Panama have had hindering effects. Other factors that aided the portfolio’s return were positions in technology services, electronic technology, health technology, energy minerals, and retail trade. Hurting performance were positions in producer manufacturing, consumer non-durables, and transportation. However, portfolio activity was primarily in an upward direction, trailing one-year (ending 31/3/2017) and returning 19.21% pure gross, and 16.38% net versus the 12.25% result of the MSCI EAFE.

In terms of global growth, The US has been an influential presence and, on the political scene, populism has arrived in the UK, Italy, and various other nations. The hope is that the best characteristics of this doctrine will combine with proven economic activities, resulting in the resumption of global economic growth. This growth will hopefully occur in several sectors, including a period of rising GDP, corporate earnings growth, and a rising tide for economies in general. If this comes to fruition, it may open the door for non-US markets to come to the fore, where, up to the present, their currencies have underperformed the US dollar. In an environment of stronger non-US markets, the International Select portfolio, with a strategy of high-conviction, low-turnover which blends both quantitative and fundamental-based analysis, should thrive.

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