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Delivering Long-Term Value in International Markets

August 13, 2018

Key Takeaways
  • After a decade-long period of growth leadership in international equities, we believe the pieces are in place for a rotation into value stocks.
  • The ClearBridge International Value Strategy has historically outperformed the MSCI EAFE Index in periods when value is in favor.

We believe the elements are in place for a value rebound in international equity markets. Asset prices and interest rates are normalizing as quantitative easing programs wind down and individual company fundamentals begin to matter again. Growth is becoming synchronized across most global economies while evidence of inflation continues to build across commodity markets. While the timing of a transition from growth to value leadership is difficult to predict, increasing exposure to value equities in international markets can be beneficial for long-term investors.

Over its 25-year track record, the ClearBridge International Value Strategy has historically outperformed in market environments where value is favored over growth, as defined by periods where the MSCI EAFE Value Index bests the MSCI EAFE Growth Index.

In a normal market environment where value was in favor about two thirds of the time (1993-2006), the Strategy outperformed the MSCI EAFE Index by 4.1% on an annualized basis (Exhibit 1).

 

Exhibit 1: Strong Performance in Value-Driven Markets

Excess return over MSCI EAFE Index through December 31, 2017. Source: FactSet.

 

During this period from the Strategy’s inception, value outperformed growth in 10 out of 14 years. For the 10 years when value led in international markets, the Strategy outperformed the MSCI EAFE by 5.50% annually. In the last decade through 2017, when value significantly underperformed growth, the Strategy still bested the MSCI EAFE Index by 0.77% annually. The Strategy has outperformed both the MSCI EAFE Index1 since inception and its primary benchmark, the MSCI All Country World (ACWI) ex-U.S. Index, which incepted in 20012

We believe active managers that adhere to a consistent value discipline can deliver significant alpha over time. The key to that consistency is the ability to outperform during value markets and to keep pace in environments less favorable to value.

Paul Ehrlichman

Head of Global Value, Portfolio Manager
35 Years experience
10 Years at ClearBridge

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  • All opinions and data included in this commentary are as of August 13, 2018 and are subject to change. The opinions and views expressed herein are of Paul Ehrlichman and may differ from other analysts, or the firm, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Neither ClearBridge Investments nor its information providers are responsible for any damages or losses arising from any use of this information

  • Past performance is no guarantee of future results.

  • Performance source: Internal. Benchmark source: Morgan Stanley Capital International. Neither ClearBridge Investments, LLC nor its information providers are responsible for any damages or losses arising from any use of this information. Performance is preliminary and subject to change.

    Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. Further distribution is prohibited. 

  • 1

    The MSCI ACWI ex-U.S. Index includes common stocks of companies in both developed and emerging markets outside the U.S. while the MSCI EAFE Index includes only common stocks in developed markets outside the U.S. and Canada.  

  • 2

    The ClearBridge International Value Composite has delivered an average annual excess return of 0.90% over its primary benchmark, the MSCI ACWI ex-U.S. Index, since the inception of index performance on Feb. 1, 2001 through Dec. 31, 2017. Over that period, the Composite produced an average annual return of 6.13% compared to 5.23% for the MSCI ACWI ex-U.S. Index.