Pioneer International Equity Fund Q2 2024 Performance And Market Commentary

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Average Annual Total Returns for Class Y Shares
Month-to-Date |
Quarter-to-Date |
Year-to-Date |
1-Year |
3-Year |
5-Year |
10-Year |
|
Pioneer International Equity Fund (MUTF:INVYX) |
-2.93% |
-1.80% |
6.33% |
11.81% |
4.34% |
9.11% |
5.30% |
Morgan Stanley Capital International ‒ Europe, Australasia, Far East (MSCI EAFE) NR Index* (Benchmark) |
-1.61% |
-0.42% |
5.34% |
11.54% |
2.89% |
6.46% |
4.33% |
Gross expense ratio: 1.00% Net Expense Ratio: 0.76% Call 1-800-225-6292 or visit Amundi US for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Class Y shares are not subject to sales charges and are available for limited groups of investors, including institutional investors. Initial investments are subject to a $5 million investment minimum, which may be waived in some circumstances. All results are historical and assume the reinvestment of dividends and capital gains. Periods of less than one year are actual, not annualized. Other share classes are available for which performance and expenses will differ. The net expense ratio reflects the contractual expense limitation currently in effect through April 1, 2025, for Class Y shares. There can be no assurance that Amundi US will extend the expense limitation beyond such time. Please see the prospectus and financial statements for more information. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, fund performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. *The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. |
Market Review
During the quarter, the MSCI EAFE returned -0.42%. At a regional level, Japan returned -4.27%, European stocks finished at 0.55% and emerging markets enjoyed strong returns at 5.00%.
Market sentiment during this period was influenced by various factors, resulting in significant divergences across different investment styles, market breadth and geographical regions. Investors were closely monitoring global economic data, as the future direction of interest rates and inflation remained uncertain. Additionally, increasing geopolitical risks had a negative impact on stocks across many economic regions.
Market Review
In the U.S., there were surprises in both consumer and producer inflation Indices, with inflation trending lower. However, concerns about the overall health of the economy began to emerge. Reduced growth and inflation expectations led to a decline in benchmark rates throughout the quarter, with the 10-year U.S. Treasury (US10Y) falling from a high of 4.70% in April to 4.36% by the end of June. Furthermore, the market saw a surge in enthusiasm for artificial intelligence, causing investors to overlook valuation concerns and favor select growth stocks, such as Nvidia* (NVDA), which was the most highly valued stock, in terms of market capitalization, in the S&P 500 Index (SP500,SPX) for the quarter. This resulted in a narrow market breadth, with the market-weighted S&P outperforming the equal weighted S&P by more than 6%.
European equity performance was lackluster, as business activity unexpectedly declined, as indicated by both the services and manufacturing PMI indicators. Additionally, volatility in European markets was driven by President Macron’s call for elections in response to European Union elections, which increased political uncertainty in the region.
In Japan, investor enthusiasm waned due to speculation about the direction of the Bank of Japan’s monetary policy normalization. Slowing economic data in the services sector, coupled with rising inflation and interest rates, further dampened demand for equities during the quarter.
In terms of sector performance, health care, financials and energy led the way in the MSCI EAFE, while consumer discretionary, real estate and materials were the laggards.
Performance Review
During the quarter, Pioneer International Equity Fund Class Y shares returned -1.80% underperforming the -0.42% return of the Funds benchmark – the MSCI EAFE. The underperformance for the month was driven by security selection decisions as sector allocation decisions had a positive impact to relative performance, but not enough to offset the weaker relative security selection. At the sector level, security selection within financials, health care and industrials were the largest detractors. Conversely, security selection within consumer discretionary and an overweight to financials aided performance comparisons the most.
From an individual security perspective, CRH and HENSOLDT (OTCPK:HAGHY) were among the largest detractors.
Shares of CRH, a leading global manufacturer of building materials and products used in construction projects, underperformed in the period. The stock fell as after investors took some profits after strong performance over the previous several months, but also due to concerns over short-term demand for building materials in construction projects due to weather and other factors. We remain confident that U.S. infrastructure stimulus will drive a multi-year period of investment from which the company can benefit. In addition, we believe they remain committed to strong shareholder returns, along with a clear investment plan to drive further growth in high return businesses, in our view.
Another detractor was exposure to HENSOLDT, a German company that develops sensor technologies and security electronics for the defense and aerospace sectors. During the quarter, the shares took a breath after three strong months of outperformance driven by continued optimism for higher defense spending in Europe. We continue to hold the stock given the company’s massive order backlog and large business pipeline due to increased German defense spending, which we believe could fuel significant growth for the company in the medium- to long-term. We also find the valuation attractive, given this anticipated long-term growth.
On the positive side, Taiwan Semiconductor (TSM) and KB Financial (KB) were the largest contributors to performance in the period from an individual security perspective.
Taiwan Semiconductor, a global leader in semiconductor manufacturing and design, was the top contributor to performance in the period. Taiwan Semiconductor continues to rise on the back of increased demand for its chips due to the exuberance over AI and the critical nature of their chips in this technology. The company also posted a solid Q1 earnings report, though there were some signs of a slowdown that we are monitoring. We maintain our position in the shares given their leading competitive position and strong pricing power in the industry.
Shares of KB Financial, a leading Korean financial services company, continued to rise after the company reported strong performance in CY 2023, achieving record profit growth across its key business segments. In addition, KB recently announced plans to further enhance shareholder returns through dividends and buybacks. The company is implementing a “value program” in line with the South Korean government’s “Corporate Value-Up Program,” which aims to promote the use of Korean equities for wealth and capital generation to retail investors through more shareholder friendly governance. These initiatives demonstrate KB Financials’ commitment to prioritizing the interests of its shareholders. We continue to favor the shares and have added to our position given the bank is well capitalized, is increasingly focused on shareholder value, and continues to trade at what we consider to be very attractive valuation.
Top Relative Detractors and Contributors – Second Quarter 2024
Relative Contributors |
Average % of Portfolio |
Relative Detractors |
Average % of Portfolio |
|||
─ ─ |
Taiwan Semiconductor KB Financial |
1.99% 3.16% |
─ |
CRH |
3.94% |
|
─ |
HENSOLDT |
2.24% |
||||
─ ─ ─ |
Sumitomo Mitsui Financial Toyota Motor Shell |
2.52% _ 3.38% |
─ ─ |
Seven & I Holdings Novo Nordisk |
2.41% – |
|
─ |
Edenred |
1.72% |
Securities listed above are holdings of the Portfolio, or benchmark components that were not held in the Portfolio, and the average percentage of the Portfolio’s invested assets they represented during the quarterly period shown, in descending order from greatest to least, in terms of contribution to or detraction from the Portfolio’s performance relative to the benchmark. See Page 5 for more information about performance attribution. |
Top 10 Holdings (as of June 30, 2024)
% of Portfolio |
% of Portfolio |
|||
1. RELX (RELX) |
3.7% |
6. Sanofi (SNY) |
3.0% |
|
2. CRH (CRH) |
3.6% |
7. Sumitomo Mitsui Financial (SMFG) |
2.9% |
|
Shell (SHEL) KB Financial (KB) |
3.5% 3.4% |
FinecoBank Banca Fineco (FBK) ABN AMRO Bank (OTCPK:AAVMY) |
2.8% 2.8% |
|
5. UBS (USB) |
3.2% |
10. AerCap (AER) |
2.7% |
The Portfolio is actively managed and current information is subject to change. The holdings listed should not be considered recommendations to buy or sell any security. |
Market Outlook and Positioning
From an economic perspective, we believe the global economy is currently in a better position compared to the consensus view from a year ago. In the U.S., there has been no recession, and in Europe, economic numbers have been quite strong after a period of weaker performance. In Asia and China, signs of a rebound have been more evident, and the outlook appears more favorable than it did a year ago. However, there has been a noticeable slowdown in economic data more recently, with a decline in inflation and GDP growth. In the U.S., the private sector of the economy is slowing down, and the consumer, who is a key driver of the U.S. economy, has been gradually weakening. For example, retail sales are indicating lower annualized growth in the economy.
Additionally, the inverted yield curve between the 10-year Treasury and the 3-Month T-bill suggests that the market still perceives a risk of further economic slowdown. Overall, while there have been positive developments in the global economy, recent indicators point to a slowdown and potential risks ahead. In our view, if employment remains strong, and the global economy stays afloat, the pace at which the U.S. Federal Reserve can cut rates will be slowed, resulting in pressure from higher interest rates and constrained credit. We expect the Fed to remain vigilant on inflation. Rate cuts appear more likely in the Eurozone; however, the pace is less certain given inconsistent growth rates across the region.
On that note, the Portfolio maintains an investment theme of “less cyclicality”, which is due to worries about where we are in the economic cycle. Given the positioning in banks, energy and Japanese manufacturing, we have intentionally limited cyclicality in the remainder of the Portfolio. This shows up more on a stock-by-stock analysis than in the overall sector weightings. Thus, we are underweight industrials, but more to the point, the industrials we own tend to not have traditional cyclical exposure. Similarly, while we are overweight materials (a sector considered highly cyclical), our holdings tend to be far less cyclical than the sector overall. Finally, the same case can be made for our holdings in consumer discretionary (where we are moderately overweight) – the stocks we own tend to have less of a traditionally “discretionary” exposure than the broader sector.
Market Outlook and Positioning
In Japan, we are overweight relative to the benchmark by investing in companies that we believe can benefit from the weaker Yen and an improved competitive position to export across the globe. With the weak Yen, producing in Japan has become much more competitive. We are finding great opportunities in the nascent re-industrialization that is resulting from this newfound competitiveness, and in companies that are implementing reforms designed to boost returns and enhance shareholder returns.
In Europe, despite weaker economic output, we have invested in an array of companies that we believe have attractive valuations relative to their earnings power. This includes a higher weight to over-capitalized banks that focus on traditional banking services and reduced exposures to banks with credit concerns. Despite recent weakness in this sector, our view is these events do not represent a permanent impairment of capital, but instead represents a period of market noise that will normalize. Many of these companies are global leaders in their fields, and simply have lower valuation than their global peers because their headquarters and listing happen to be in Europe. We are happy to take advantage of the mis-pricing of these companies, given their potential ability to generate strong returns for investors, even as we maintain a less cyclical overall exposure to economic activity in Europe.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.