International equities as measured by the MSCI World ex-USA IM Index returned 5.86% in the third quarter. The value style modestly outperformed growth, while large-cap stocks outpaced small caps. Sector returns were generally strong, but the most robust gains occurred within the energy, materials and information technology sectors. Health care and consumer staples lagged but nevertheless produced gains of 1.0% and 1.4%, respectively. Emerging market returns were particularly strong.
The Active M International Equity Fund exceeded the Index’s return with a gain of 6.37%. Robust issue selection — especially in Japan and Continental Europe — was the key driver of outperformance. A 14% non-benchmark allocation to the emerging markets also aided results. Three of the Fund’s four sub-advisers outperformed their respective benchmarks, highlighted by the value sub-advisers Causeway and Cambiar, and the small-cap sub-adviser Victory. WCM Investment Management underperformed, as its growth bias represented a headwind to stock selection within the United Kingdom and North America.
We made changes to the Fund’s sub-advisers at the end of the quarter for portfolio construction reasons. We removed Cambiar’s relative value strategy from the Fund and redeployed the proceeds early in the fourth quarter to Brandes Investment Partners International Small-Mid Cap Equity and Wellington International Large Cap Contrarian Value.
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