Navigating Volatility, Cultivating Growth: A Strategic Investment Journey

Second Quarter 2025 Performance: A Resilient Advance Amidst Global Shifts

In the second quarter of 2025, the ClearBridge Global Value Improvers Strategy recorded a noteworthy outperformance against its benchmark. This achievement was largely attributed to astute stock selection within the industrial and information technology sectors, which capitalized on favorable macroeconomic conditions. The global equity markets experienced a period of positive returns, fueled by new trade agreements in the United States and the anticipation of increased government spending across Europe. This optimistic environment helped mitigate initial concerns arising from tariff fluctuations, signs of economic deceleration, and ongoing geopolitical tensions. The core MSCI World Index advanced significantly, benefiting from a weaker dollar, and exceeded the performance of the S&P 500 Index. The resurgence of technology stocks, particularly those linked to artificial intelligence, marked a shift in market leadership, with growth stocks regaining prominence after a value-dominated first quarter.

Adapting to Market Dynamics: Tariffs, Stimulus, and Central Bank Policies

The quarter began with heightened market sensitivity following the imposition of new U.S. tariffs, which were more extensive than anticipated. However, a subsequent White House announcement of a tariff delay promptly sparked a market recovery. In Europe, announcements regarding infrastructure and defense spending initiatives boosted market sentiment, raising hopes for an economic revitalization within the eurozone. Central banks globally, including the U.S. Federal Reserve and the European Central Bank, adopted more accommodative monetary policies in response to easing inflation and moderating economic growth, further bolstering international equities, particularly in rate-sensitive sectors. Despite these positive developments, significant uncertainties lingered, including cautious consumer and business spending in the U.S., the potential for short-term surges in Chinese production driven by tariff deadlines, and persistent geopolitical instability in the Middle East, necessitating a flexible and responsive investment approach.

Portfolio's Strength: Industrial and IT Sector Contributions

The ClearBridge strategy's strong performance during the quarter was significantly bolstered by its holdings in the industrial sector. These high-quality industrial enterprises demonstrated resilience and continued to benefit from secular trends such as electrification, the global energy transition, and infrastructure development. Companies like Siemens Energy, a German leader in power generation equipment, and Nexans, a French manufacturer of cable systems for renewable energy projects, showcased robust operational and financial improvements. Similarly, the IT sector delivered positive contributions, with Microchip Technology excelling due to strong quarterly results and positive revenue forecasts. Oracle also saw its stock price climb, driven by solid earnings, a booming cloud business, and significant AI momentum, underscoring the strategy's effective participation in the burgeoning AI market through strategic investments in essential enabling technologies.

Navigating Challenges: Healthcare Sector Headwinds and Strategic Adjustments

Conversely, the healthcare sector presented challenges during the quarter, as tariff concerns, uncertainty surrounding trade policies, and rising funding costs led to a more conservative spending climate. This pressure was acutely felt by companies like Gerresheimer, a German manufacturer of pharmaceutical packaging, which grappled with sales stabilization amidst an industry-wide inventory surplus and unresolved takeover attempts. In terms of portfolio adjustments, the strategy exited its position in Uber Technologies, recognizing that recent price appreciation had diminished its upside potential. The proceeds were strategically reinvested into Corcept Therapeutics, a biotech firm specializing in cortisol level management. Corcept's existing profitable drug and the promising development of its new product pipeline were seen as strong drivers for expanding its market reach and reinforcing its competitive position.

Future Outlook: Converging Trends and ESG Integration

Looking ahead, the investment team anticipates several structural shifts influencing the ESG landscape. While the momentum behind ESG policy has somewhat moderated in both the U.S. and Europe, leading to more selective capital allocation, compelling opportunities are emerging where multiple structural forces converge. These include the demand for renewable energy and energy storage solutions, driven by the need for clean energy, energy security, and surging power consumption from AI and data centers. Companies focused on energy efficiency, such as Vertiv and Johnson Controls, are also well-positioned to thrive in this new environment, as efficiency becomes a critical competitive advantage. Investments in grid modernization are deemed essential for decarbonization, long-term energy cost reduction, and enhancing system resilience against climate-related disruptions, aligning economic, environmental, and strategic priorities. The fund's continuous engagement with companies on ESG matters, particularly concerning climate strategy and its business implications, remains a cornerstone of its investment philosophy, ensuring a comprehensive and forward-looking approach.

Commitment to ESG: Research, Impact, and Practical Application

ClearBridge Investments demonstrates a long-standing commitment to integrating environmental, social, and governance (ESG) considerations into its fundamental investment strategy. Company engagements are pivotal, serving to deepen understanding of ESG issues impacting investment theses and to encourage specific changes aligned with sustainability best practices. These engagements span a wide range of climate-related topics, with a particular focus on high-emitting sectors. The firm's model for ESG integration fosters thoughtful and comprehensive discussions between analysts and company management, ensuring that climate strategies are intrinsically linked to business objectives. Examples include engagements with Amazon.com on its comprehensive net-zero initiative, where cost and carbon reduction are highly correlated, and with Microsoft, concerning its responsible approach to powering AI and its commitment to carbon negativity, despite increasing energy demands. This proactive engagement underscores ClearBridge's dedication to sustainable investment practices and its role in driving corporate responsibility.