Wasatch Global Investors 2025 mid-year investment outlook: Global equities Renaissance Global Small Cap Fund

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[Wasatch Global Investors 2025 mid-year investment outlook: Global equities Renaissance Global Small Cap Fund]

[Featuring Ken Applegate, CFA, CMT Portfolio Manager, Wasatch Global Investors]

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>>Ken Applegate: Hi. I'm Ken Applegate portfolio manager of Wasatch, Global Investors, Global Small Cap Fund. In the first half, there was some pretty significant volatility, and this uncertainty is unlikely to end soon. A key thing has occurred this year is that the US dollar has weakened, and in conjunction with that, you've seen US stocks underperform. We talked about this with you all at the beginning of the year, and we had been shifting into international markets over the last year, and this really helped performance in the first half.

Now, what do we expect for the balance of this year? More importantly, we're actually starting to think about 2026 and beyond, simply put, more of the same. There's been some pretty material changes that have occurred here over the last year or so. To start, the trend of international assets outperforming is likely to continue for quite some time. This is the first time in more than a decade that we can confidently say that markets work in cycles, and the probability suggests that international assets will lead equity returns in the next five or maybe 10 years, as they have done many times in history. Now, the big change internationally comes from Europe. The punch line here, it's cheap and has a catalyst.

But Germany, they had an election back in February, and they subsequently announced a fiscal and infrastructure package. This is a pretty big deal. What's significant is how quickly it was approved. They can do it. They've got one of the lowest debt to GDP ratios amongst all the major economies in the world, and they have the will and desire to do it. These positive impacts tend to have a long tail to them, which can really invigorate those animal spirits. That's exactly what we're seeing and hearing on the ground from our CEOs.

There's a number of positives all around the world when it comes to international small cap investing. In fact, international small caps are now outperforming international large caps. Now, that's not the case in the US, where the small caps have been lagging. But as we mentioned before, as a small cap specialist manager, we've been shifting our assets from the US to international investments over the last 12 to 18 months.

Now, some of the other positives around the world include the UK, where they've been implementing some pro-growth policies, and there's been a number of governmental cabinet changes which are much more pro-business. The regulation has really stunted the UK economy since Brexit, and the pendulum is now swinging back.

Japan is beating to a different drum, where inflation, there is actually a positive thing. The local growth on the ground remains strong. There's nothing new per se, but domestic Japan is moving back into the spotlight again. Now, there are a number of positive things that are all aligning at the same time for international assets, but to be clear, we can always find exceptional investments within the US, and we're maintaining a little bit more than half of our assets within the US, within this portfolio, but that allocation just happens to be less than it has been in the past.

Finally, tariffs. Given they dominate the headlines, we thought we should address this, and they do pose a risk. But small caps, which tend to be much more domestic demand oriented, are more insulated, so they're not as directly impacted as many of the large companies, where their exposures tend to be a lot broader. This is one key reason why we believe International small caps have been outperforming international large caps.

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