Harding Loevner International Small Companies Equity Q4 2024 Report

2025-02-18 09:15:00 ET

Summary

• US stocks outperformed international markets in Q4 2024, driven by growth-oriented large-cap stocks and optimism around Trump's business-friendly policies.
• International small caps fell 7.6% in Q4, largely due to currency weakness, despite a 3.9% gain for the year in dollar terms.
• The portfolio underperformed due to weak stocks in Health Care, Industrials, and IT sectors, especially in Emerging Markets, with notable detractors like CellaVision and LEM Holdings.
• Despite recent underperformance, the portfolio's high-quality, growth-oriented companies have strong fundamentals, creating attractive future return opportunities as valuations have become more reasonable.

What Happened

International markets finished the final quarter of 2024 on a down note, while US stocks significantly outpaced the rest of the world, in both the quarter and the year, boosted by strong returns from growth-oriented heavyweights in the large-cap index. International small caps were down 7.6% for the quarter, although they were still up 3.9% for the year.

Donald Trump's victory in the US presidential election gave US equities an extra bump, as investors looked forward to some business-friendly policies, such as tax cuts and deregulation, while perhaps overlooking the consequences to US companies of some potentially less business-friendly ones. International equity markets took a more cautious view of the incoming administration, as did US bond investors, who sent bond prices lower presumably anticipating further fiscal largesse. The ICE US Treasury Core Bond Index, which maintains exposure to Treasuries ranging from one- to thirty-year maturities, fell 4% after peaking in mid-September....

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