The Navigator® ADR/International Equity remains positioned in approximately 17.4% in emerging markets with the balance in developed economies. Our weight in Japan has been reduced to 11.5% from ~20% at the height of the pandemic as we exited Nippon Telegraph as pressure mounts to reduce subscriber fees among the telephone oligopoly there, thus hurting likely future cash flows.

During the quarter, the portfolio added Canadian trucking company TFFI, Garmin and building materials company Masonite (DOOR) as economic prospects, mobility and home investment trends improve. In addition to Nippon Telegraph, ADR exited VIPS Shops, Essent, and Royal Bank of Canada during the quarter as either business momentum slowed, or credit conditions remained a concern.

Financials and Technology remain our largest sector weights with Japan, Switzerland, Britain, and Canada our largest country weights. While US security selection has been concentrated in the large-cap growth area this year, performance is broadening internationally. The portfolio’s quality characteristics, as measured by earnings variability and gross and net margins, have now tilted towards a barbell of what we believe are high quality, high margin and high yielding companies. We believe that the strong antifragility characteristics score of its holdings will help keep portfolio volatility low.

The Navigator® International Equity/ADR strategy delivered annualized gains of 8.08% gross (4.90% net) vs. the gains of 4.00% for the MSCI All Country World ex-USA Index over ten years ending September 30, 2020. For the third quarter of 2020, the strategy had a gain of 6.22% gross (5.44% net) versus the 6.25% gain in the MSCI All Country World ex-USA Index. For the 10 years ending June 2020, International Equity/ADR is in the top 3% of Morningstar peer group managers in the Foreign Large Blend category. Additionally, since inception, the strategy is in the top 2% of the same Morningstar peer group.

Our positioning in Information Technology and Healthcare helped relative performance while positioning in Consumer Discretionary and communication services acted as a drag. Our holdings in SolarEdge Technologies and Taiwan Semiconductor helped performance in the quarter while positions in KDDI Corporation and CNOOC dampened performance.

From a country perspective, the portfolio benefited from strong performance in our positions in Israel and Taiwan while performance in China and France lagged. The value characteristics of the strategy remain compelling compared to both its U.S. and international benchmarks as the current P/E of 20.7 is less than that of the S&P 500 (26.0) and in-line with EAFE (20.2) with similar quality and business growth characteristics.

Top 5 Contributors

Ticker Quarter Ending September 30, 2020 Average Weight (%) Contribution to Return (%)
SEDG SolarEdge Technologies, Inc. 2.19 1.36
TSM Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR 2.95 0.99
INFY Infosys Limited Sponsored ADR 2.84 0.98
CNI Canadian National Railway Company 2.05 0.38
SNE Sony Corporation Sponsored ADR 3.19 0.33

Top 5 Detractors

Ticker Quarter Ending September 30, 2020 Average Weight (%) Contribution to Return (%)
KDDIY KDDI Corporation Unsponsored ADR 2.17 -0.37
LUKOY Oil company LUKOIL PJSC Sponsored ADR 1.86 -0.32
BNPQY BNP Paribas SA Sponsored ADR 0.44 -0.30
CEO CNOOC Limited Sponsored ADR 2.26 -0.29
VIPS Vipshop Holdings Ltd Sponsored ADR 1.50 -0.26

The views expressed are those of the author(s) and do not necessarily reflect the views of Clark Capital Management Group. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.
The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards and political and economic risks. These risks are enhanced in emerging market countries.
Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.
The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75 of U S equities.
The MSCI All Country World ex USA Total Return (MSCI ACWI) is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International and is comprised of stocks from both developed and emerging markets.
The ISM Non-Manufacturing Index (NMI) is an economic index based on surveys of more than 400 non-manufacturing (or services) firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM).
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