New York City, USA – The second quarter saw the continuation of a bull market, driven by investor optimism towards large U.S. companies and stocks related to artificial intelligence (AI). This momentum-led rally helped push the MSCI ACWI and MSCI ACWI ex-U.S. indices to modest gains, despite the MSCI EAFE Index experiencing declines due to a lack of exposure to tech beneficiaries in China and Taiwan. Looking ahead, there is a positive global outlook for the second half of 2024, supported by various factors such as a recovery in bank lending, increased global manufacturing activity, recent structural reforms in Japan, new government policies in China to stabilize the property market and boost the economy, and the possibility of rate cuts in the U.S. and Europe. Investors are also closely watching upcoming elections in the U.S. and Europe, as they could result in a reshuffling of political power with potential economic and market implications. Additionally, China’s support of Russia is creating uncertainty and casting a shadow over the market.
Despite the volatility and uncertainty in the market, these risks are seen as short-term noise within the context of long-term investment strategies. In a challenging quarter, the Ariel International DM/EM Composite saw a decline, underperforming its benchmarks. Ariel’s investment strategy focuses on identifying undervalued franchises that are misunderstood and mispriced, with an overweight in select sectors like Consumer Discretionary, Utilities, Health Care, and Financials. The portfolio is underweight in sectors like Industrials, Energy, Consumer Staples, Real Estate, and Information Technology, while lacking exposure to Materials.
Tecnicas Reunidas SA, a Spain-based company in the engineering, procurement, and construction sector focused on oil and gas, performed well in the quarter following a successful Capital Markets Day. The company provided guidance for significant profit growth by 2026, highlighting plans to drive the engineering and contract services business and expand in North America with a focus on decarbonization. Similarly, French tire manufacturer Michelin and tobacco maker Philip Morris International Inc. also saw positive movements in the quarter, driven by strong financial performances and strategic initiatives.
However, companies like Stellantis N.V. and Daimler Truck Holding AG faced challenges during the period, impacted by factors such as interest rates, demand variations, and economic headwinds. Finally, Baidu, Inc., a Chinese tech giant, experienced a decline due to an AI price war among tech companies in the country.
The quarter also saw Ariel Investments initiating positions in various companies across sectors like insurance, banking, property investment, and technology, while exiting some investments to focus on compelling opportunities. Moving forward, as market concentrations and uncertainties persist, active management and a focus on quality companies with solid growth prospects are expected to drive future outperformance. Investors are advised to remain cautious amid potential geopolitical tensions, monetary policy changes, and upcoming elections, which could impact market dynamics in the near term.
