Madison International Stock Fund Q2 2024 Investment Strategy Letter

seekingalpha07-25

The Madison International Stock Fund (Class Y) underperformed the MSCI ACWI ex-US index in the second quarter.The MSCI ACWI ex-US index performance for the 2nd quarter of 2024 was up 0.96%.In ...

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The leading geographic region this quarter was Emerging Markets, while the lagging area was Japan. Performance of Economic Sectors varied, with Information Technology leading and Consumer Discretionary lagging. While macroeconomic factors such as inflation, monetary policy, and geopolitical conflicts continued to have an impact on capital markets, this quarter saw attention turn to recent and upcoming political elections. Central Banks around the world generally attempt to cater monetary policy towards solving domestic problems like inflation and unemployment. Inevitably, however, their actions must be cognizant of the divergence away from the current U.S. Federal Reserve policy positions. If they attempt to lower interest rates too early or too far from the Fed’s stance, then they risk affecting the value of their currencies. This quarter we saw declines in the Brazilian Real, Mexican Peso, and Japanese Yen that diminished returns of stocks denominated in these currencies. Most global investors are currently focusing attention on whether and when the Fed decides to start lowering interest rates. If this event were to occur, it may trigger a decline of the U.S. Dollar. Portfolio Performance Review The Madison International Stock Fund (Class Y) underperformed the MSCI ACWI ex-US index in the second quarter. Only one of the five regions that make up the index contributed from relative performance, led by North America (Cameco (CCJ)) because of a positive stock selection effect. Conversely, Europe (Kion (OTCPK:KNNGF), Airbus (OTCPK:EADSF)) and Emerging Markets (Walmex, Femsa) led the underperformance due to negative stock selection, with an additional negative impact from allocation and currency effect in Emerging Markets, especially from a weak Mexican Peso. From a sector perspective, a majority of the underperformance came from Industrials (Airbus, Kion), Financials (Itau Unibanco (ITUB)), Consumer Staples (Walmex, Femsa) and Information Technology (Lasertec (OTCPK:LSRCF)), out of the seven underperforming sectors driven by negative stock selection, currency impact and with no allocation to Japanese and Value Financials that continue to outperform relatively. The four outperforming sectors were led by Energy (Cameco) and Communication Services (Tencent Holdings (OTCPK:TCEHY), Deutsche Telekom (OTCQX:DTEGF)) because of a positive stock selection effect. Other contributors to performance included Taiwan Semiconductor (TSM), AstraZeneca PLC (AZN), and HDFC Bank (HDB). Cash had a slightly negative impact because of positive index performance. Performance data shown represents past performance. Investment returns and principal value will fluctuate, so that fund shares, when redeemed, may be worth more or less than the original cost. Past performance does not guarantee future results and current performance may be lower or higher than the performance data shown. Visit Madison Funds or call 800.877.6089 to obtain performance data current to the most recent month-end.\nClick to enlarge Market Outlook And Portfolio Strategy In international markets, a new factor has emerged recently: elections. Election years are often maximum hype years as incumbent politicians are motivated to stimulate economies to increase their odds of re-election. Also, the advertising cycle tends to peak as opposition politicians broadcast their prescriptions. Elections often coincide with Olympic years and the semiconductor cycle too. Elevated hype and uncertainty can impact sentiment and cause capital markets to divorce from economic fundamentals, so that snap-backs to reality can accentuate volatility. This year, we have already experienced consequential elections in India and Mexico in Emerging Markets; in Developed countries, France, the UK and later the U.S. will continue to make this an eventful year for politics, macroeconomics, and stock markets. A few Central Banks around the world (Switzerland, Canada, Europe) have started to lower rates ahead of the U.S. Federal Reserve. Our expectation is that for those jurisdictions, the consequence will likely be the depreciation of their currencies. If, or when, the Fed starts to ease monetary policy, then there could be a ricochet with the U.S. Dollar depreciating, having lower support from higher relative interest rates. If this were to occur, then international equity investments denominated in rising currencies would benefit from a positive currency effect. For recent elections around the world, fiscal policy has not received the attention it deserves because almost no party of any stripe seems to want to cut spending – so inflation and interest rates may likely remain higher for longer. Lastly, geopolitics in the form of international conflicts, while fading from headline news, continue to linger dangerously in the background. Markets are incredibly dynamic, and for this reason, our investment process is designed to deal with multi-faceted information flows. All these macro considerations and others are being considered and integrated into our risk assessment at the company and stock levels as well as being addressed within our portfolio construction framework. Unlike inflation, at least elections actually do tend to be transitory. Most of the hype surrounding elections is front-end loaded; a considerable amount of uncertainty is resolved post election. So perhaps, this more recent disruption will settle down and markets can focus more on fundamentals of companies and economies. Sincerely, Thomas Tibbles | Patrick Tan | Alyssa Rudakas  Disclosures “Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer, and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300. Any performance data shown represents past performance. Past performance is no guarantee of future results. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only, and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets countries (excluding the US) and 23 Emerging Markets countries. The index covers approximately 85% of the global equity opportunity set outside the US. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Consider the investment objectives, risks, and charges and expenses of Madison Funds carefully before investing. Each fund’s prospectus contains this and other information about the fund. Call 800.877.6089 or visit Madison Funds to obtain a prospectus and read it carefully before investing. Investing in foreign markets involves additional risks, including exchange rate changes, political and economic unrest, relatively low market liquidity and the potential difference in financial and accounting controls and standards. The portfolio may invest in small, mid-sized, or emerging companies, which are susceptible to greater risk than is customarily associated with investing in more established companies. The portfolio may invest in high yield or lower-rated securities, which may provide greater returns but are subject to greater-than average risk. Although the information in this report has been obtained from sources that the firm believes to be reliable, we do not guarantee its accuracy, and any such information may be incomplete or condensed. All opinions included in the report constitute the authors’ judgment as of the date of this report and are subject to change without notice. Madison Asset Management, LLC does not provide investment advice directly to shareholders of the Madison Funds. Opinions stated are informational only and should not be taken as investment recommendation or advice of any kind whatsoever (whether impartial or otherwise). Madison Funds are distributed by MFD Distributor, LLC, member FINRA. Madison-571483-2024-07-11 \nClick to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2454841964"}