International Growth Fund 20Q1Rvw · 2020-04-17 · considerations, including currency...

International Growth Fund Portfolio Review

March 2020

Simon Fennell, Partner Kenneth J. McAtamney, Partner Portfolio Managers

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William Blair International Growth Fund Important Disclosures March 2020

Risks: The views expressed in this report and the information about the holdings are as of the date of this material, unless otherwise noted, and are subject to change. Information about the Fund’s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay invested in any one particular sector. Holdings are subject to change at any time. The Fund’s returns will vary, and you could lose money by investing in the Fund. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Investing in emerging markets can increase these risks, including higher volatility and lower liquidity. Investing in smaller and medium capitalization companies involves special risks, including higher volatility and lower liquidity. Small and mid-cap stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. The Fund invests most of its assets in equity securities of international growth companies where the primary risk is that the value of the equity securities it holds might decrease in response to the activities of those companies or market and economic conditions. Diversification does not ensure against loss. Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call 1‐877‐962‐5247, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load. Class I and Class R6 shares are available only to investors who meet certain eligibility requirements. This content is for informational and educational purposes only and is not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines and restrictions. Most recent month-end performance information for the Fund is available by visiting the William Blair Funds Web site at www.williamblairfunds.com, or by calling the William Blair Funds at 1-800-742-7272. Please carefully consider the Fund’s investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Fund’s prospectus and summary prospectus, which you may obtain by calling +1 800 742 7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss. Copyright © 2020 William Blair & Company, L.L.C. “William Blair” is a registered trademark of William Blair & Company, L.L.C. Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

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William Blair International Growth Fund Summary & Outlook March 2020

Market Review Global equities plunged and volatility spiked in the first quarter amid heightened anxieties surrounding the rapid spread of the novel coronavirus (COVID-19) and its impact on the global economy. The MSCI ACWI IMI ended the quarter down 22.44% in USD terms. The selloff began at the end of February and continued through March as the number of daily new cases continued to surge globally. Governments urged individuals to shelter in place and businesses to shut down in the hopes of curtailing the virus, while also promising massive fiscal stimulus. Major central banks announced various forms of quantitative easing in an attempt to maintain financial system stability. The collapse in oil prices further compounded investor anxieties following Russia’s decision to walk away from its informal alliance with Saudi Arabia and other OPEC countries. The WTI oil price plummeted 67%—the worst quarter on record. The longest bull market in US history came to an abrupt halt with US equities falling 21.06%, the worst quarterly loss since 2008. The Federal Reserve issued two emergency rate cuts and began aggressively purchasing Treasuries as a means to prevent a liquidity crisis. The government’s fiscal response of approximately $2 trillion dollars included checks to supplement individual wages, bailouts for major airlines, and aid for small businesses. Emerging markets equities broadly declined (-24.40% as measured by the MSCI Emerging Markets IMI) for the quarter amid soured investor sentiment towards riskier assets, plunging commodity prices, and a strengthening US dollar. Latin America suffered the most (-46.30%), driven by weakness in Brazil and Colombia (-50.82% and -49.77% in US dollar terms). In contrast, China’s performance relative to global markets was resilient (-10.31%), supported by sizable

stimulus measures pledged by the government as a way to offset the effects of COVID-19 in an already slowing economy. The daily new virus cases in China significantly declined towards the end of the quarter and economic activity modestly improved. From a global sector perspective, energy sharply declined (MSCI ACWI IMI Energy -45.31%) as the oil price war between Russia and Saudi Arabia intensified. The Airlines industry also plunged -49.59% as mass flight cancellations started to mount. Conversely, more stable and defensive sectors such as Healthcare (-12.05%) and Consumer Staples (-14.33%) outperformed on a relative basis. Performance Outperformance of the International Growth Fund (Class N) versus the MSCI AC World ex US IMI (net) index was primarily driven by positive stock selection across most sectors. The Financials, Communication Services and Consumer Discretionary sectors were the most significant contributors to relative return. Within Financials, AIA Group and London Stock Exchange (LSE) propelled relative performance. AIA Group, a leading provider of life insurance throughout Asia, has witnessed a temporary disruption to new business sales due to the COVID-19 pandemic. While the speed of recovery will depend on the duration and severity of the outbreak and associated containment measures, the value proposition of protection policies has become stronger as a result of the virus. The opportunity remains significant with AIA, as it should continue to benefit from the strong structural growth trends of rising affluence and low insurance penetration given its strong brand and distribution. Tencent, within the Communication Services sector, also added to returns

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primarily due to the financial strength of the business and the short-term benefits of more people staying indoors due to the pandemic. Tencent’s market dominance of the online Chinese ecosystem drives its ability to monetize engagement across its platform, which has resulted in a sustained growth rate of greater than 20% despite its large $50B revenue base. New content launches and higher monetization rates should continue to drive growth over the long-term. We believe it can continue to manage ad growth at a relatively high level while adding relevant ads to users, supporting our investment thesis. TAL Education Group, a leading K-12 tutoring services provider in China within the Consumer Discretionary sector, was an additional source of outperformance. TAL Education helps prepare students in core academic subjects through one-on-one tutoring, small classes and online courses to help them improve their GPA and prepare for important entrance exams for middle school, high school, and college. With a brand known for improving student performance, we believe TAL will continue to be a consolidator in this highly fragmented industry. Additionally, the strength of the business model was demonstrated this quarter as it was able to shift students from offline to online classes during the viral outbreak in China, further strengthening its competitive advantage. Partially offsetting these effects was an underweight to Japan and an underweight to the Consumer Staples sector coupled with negative stock selection. Approximately 2/3 of the underperformance due to stock selection in Consumer Staples was attributable to not owning Nestle, which outperformed due to the defensive nature of the business. Other detractors in the sector were Hindustan Unilever, FeverTree and Bid Corp. Stock selection was positive in all other sectors.

Positioning During the period, Information Technology exposure increased as a result of the purchase of Disco and Infineon Technologies, both in the semiconductor industry. A classic razor/razor blade model, Disco sells semi equipment used in dicing and polishing of semi wafers, part of the manufacturing process to make chips. Along with the equipment, they sell consumables (blades and chemicals) used in their machines to do the actual cutting and polishing. We believe the current stock price is reflecting near-term issues of overall semi demand weakness in 2019 and broad stock market weakness in Q1 2020, rather than the long term opportunity. Infineon, a semiconductor company based in Germany, is a leader in structural opportunities in automotive and power markets. This should continue to enable superior growth driven by content gains and supportive regulation. Financials exposure declined during the period due to the sales of Toronto Dominion Bank and Macquarie Group. The backdrop for banks has become more challenging with lower interest rates and the declining GDP outlook. From a geographic perspective, notable adjustments were increases to Emerging Asia offset by decreases to Canada and Latin America. Market Outlook This commentary has been adapted from our April 2 client webinar COVID-19 Implications: Navigating the Path Forward. We continue to analyze the global pandemic crisis in multiple contexts including the nature of the virus and the status of our collective health risk, the societal and economic impact, and in turn, the effects on markets and our portfolios. As the virus has spread from China to Europe to the US and over 150 countries, we have experienced market volatility and a downturn unlike any since the Global Financial Crisis,

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and by some measures since the 1930s. Governments around the world have begun to wrap their arms around the magnitude of the contagion and have acted meaningfully to suppress the infection curve by effectively shutting down massive swaths of the global economy. This has coincided with unprecedented levels of monetary and fiscal stimulus measures to ease the effects on displaced workers and the impact to businesses. The stimulus response has been particularly strong in developed markets, while emerging market governments overall may be more limited in their ability to stimulate. From an economic impact perspective, we are expecting a very deep recession to be met with continued strong policy responses, supporting a steep sequential recovery later this year. While the recovery will likely be strong, we acknowledge it could take 8 to 10 quarters before growth normalizes to pre-crisis levels. For China, the full brunt of the economic decline is likely to be borne in the first quarter of 2020, while Europe and US economic activity levels are likely to trough between March and May. This means that GDP contraction (i.e. economic recession) is likely to be spread over the first and second quarters of 2020. Projections for the drop in second quarter US GDP vary widely, and include the potential for the largest sequential decline in the history of recorded data. The duration and the durability of lockdowns are key to gaging the subsequent reopening of the economy, and by extension, the advent of the recovery. Our base case today assumes that lockdowns remain in place at least through the end of April. However, if coronavirus testing that is now being rolled out on a massive scale proves to be insufficient such that lockdowns need to be extended, this will delay the recovery and introduce a more bearish element to it.

Fiscal stimulus measures announced to date have been significant. But the challenges of implementing the stimulus—in terms of channeling it to the right individuals and businesses in a timely manner—will result in bankruptcies and massively higher unemployment, which is already evident. The speed and vigor of the recovery will largely depend on how quickly the newly unemployed can be reabsorbed into the economy and how quickly businesses can reopen. These are key elements to dimensioning the bear, bull and base case scenarios, and they are incredibly fluid. We are beginning to understand the scale of the unemployment problem, but we do not yet have any clarity on the extent of potential bankruptcies. Beyond unemployment and bankruptcies, we continue to closely track high-frequency survey indicators—including purchasing managers’ indices and their subcomponents—to help assess the magnitude of corporate order book deterioration, supply chain challenges and pricing pressures. All of these questions are elucidated on a monthly basis through the survey data. We have remained steadfastly focused on seeking opportunities to add to our best ideas in this tumultuous environment, looking beyond transitory virus-related business effects. In particular, we are interested in quality growth companies that have been out of our reach purely from a valuation perspective, as well as high-quality cyclicals that have witnessed significant declines but have the wherewithal to navigate the crisis. In order to mitigate risk, we are paying special attention to two specific concerns. The first are portfolio companies that may have previously benefitted from the steady, albeit low growth outlook. These are now more at risk of being exposed for being less in control of their own destiny than we previously thought. The second area, and its related area of 5 10047315


research, are the companies in our portfolios with more fragile balance sheets and increased solvency risk resulting from pandemic-related cash flow pressures. We likely have few of these risks, but in those few instances the outcomes could be severe. It has been encouraging for us to see the market differentiate those companies that are tied to more structurally advantaged themes amid the downturn. Technology-enabled growth areas like distributed computing, 5G telecom, ecommerce, online education and telemedicine have outperformed more traditional, “old economy” industries, regardless of valuation differentials favoring the latter. Our conviction in portfolio companies tied to these growth areas is actually increasing in this environment, as their competitive positions are likely to strengthen amid the downturn. At the same time, we are being diligent in reassessing cyclically-oriented companies within our quality growth universe that have been heavily penalized in recent weeks. These include automotive and travel-related companies, and select financials where share prices may be discounting overly bearish revenue and profit scenarios. From a geographic perspective, we came into 2020 expecting that improving relative growth rates of non-US economies would help non-US developed and emerging markets equities begin to narrow the performance gap versus the US. The pandemic-induced recession has abruptly altered this outlook, with the US economy, bolstered by its technology sector leadership, now likely better positioned to endure the significant near-term growth headwinds. Looking beyond the US, China’s performance has been impressively resilient. This has been supported initially by sizable government stimulus measures to offset the detrimental effects of the virus, and more recently by the

downward trend in daily new virus cases that has led to a gradual reopening of the economy. Interestingly, many of the aforementioned structural growth themes are flourishing in China as the government prioritizes investment in higher value added, technology-enabled areas. Our research process continues to uncover attractive Chinese companies that not only have attractive growth rates, but high quality attributes in terms of financial performance and innovation, which we think are underappreciated by many investors. More broadly across Asia, we are attracted to the relative stability of markets like South Korea and Taiwan, where new virus cases have already peaked and economies are more resilient, supported by relatively strong fiscal positions, stable currencies and prominent technology sectors that have become increasingly integral to global supply chains. In recent weeks we have been diligent in speaking with as many portfolio companies as we can: in March alone we had over 125 corporate touchpoints. We wish we were getting more reassurances on demand and client activity from management teams, but we recognize that their visibility remains extremely limited given uncertainties surrounding the pandemic. What we are learning from them, however, is their preparedness and their ability to navigate through the crisis in terms of protecting client relationships, effective resource management, and execution around their strategy. As in all crises, the best will not only survive, but will actually emerge stronger, with improved competitive positioning and more enduring growth prospects. This is where we are continuing to focus. 6 10047315


Over the last several weeks we have received many inquiries about the state of our firm, our investment team, and our investment process. I must say that I’ve been inspired, but not surprised, by the energy and the commitment of our investment professionals and all team members in this very challenging time. The collaborative, engaged nature of our investment process has prepared us remarkably well for this more decentralized, virtual form of work and connectedness. The content of our research has never been richer. And the engagement and the commitment of the team have never been stronger. We are collaborating on the development of new tools and

frameworks to help us collectively assess the impact of the virus on the economy as well as industry and company growth rates. This exercise is not just a triage for the current crisis, but an opportunity for deeper, reflective work on its longer-term growth implications. This has provided cohesion and consistency to our process. It’s actually been very rich and rewarding work in these trying times. In fact, I would describe our work culture as not one of panic, but one of tremendous productivity. Ken McAtamney, Partner Head of Global Equity Team

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Market Performance March 2020

AC World (DM+EM) -22.4 26.4 -10.1 23.9Developed Markets (DM) -22.2 27.5 -9.4 22.4Pacific ex JP -28.4 18.3 -11.2 25.9Japan -17.4 19.6 -13.5 25.3Europe ex UK -23.3 25.0 -15.7 28.0UK -30.0 23.2 -15.0 23.7Canada -28.9 27.9 -17.6 15.6USA -21.1 30.4 -5.7 20.6Emerging Markets (EM) -24.4 17.6 -15.0 36.8Asia -18.9 17.8 -15.9 41.8EMEA -34.1 15.8 -16.8 24.1Latin America -46.3 19.4 -7.2 24.8Frontier Markets (FM) -26.1 13.8 -16.6 29.9Large Cap -20.3 26.7 -8.6 23.9Small Cap -30.2 24.7 -14.4 23.8Communication Svcs -16.9 24.2 -10.9 8.2Discretionary -23.7 26.8 -9.8 25.0Staples -14.3 20.8 -10.5 18.0Energy -45.3 11.6 -14.9 5.2Financials -32.1 22.9 -15.7 23.1Healthcare -12.0 23.2 1.2 22.0Industrials -27.3 26.7 -15.5 26.1IT -14.6 46.5 -6.2 41.0Materials -28.0 20.0 -17.3 29.3Real Estate -26.0 24.6 -7.8 16.2Utilities -15.4 21.3 0.9 15.2Quality 7.1 5.6 13.9 4.3Valuation -11.6 -0.1 2.4 5.2Etrend 6.7 5.2 5.4 7.8Momentum 11.1 4.9 3.4 13.2Growth 8.1 4.1 -3.0 6.7Composite 1.8 4.3 11.9 9.6

QTD 2019 2018 2017

Reg

ions

Styl

eSi

zeSe

ctor

s

Past performance is not a reliable indicator of future results Regional performance is based on IMI region/country indexes. Sector and style values are based on the MSCI ACWI IMI Index. Size values are based on the MSCI ACWI Index. Style values reflect the Quintile 1 minus Quintile 5 spread of William Blair’s proprietary quantitative models. Sectors are based on Global Industry Classification (GICS) sectors. Large Cap and Small Cap based on MSCI Global Investable Market Index Methodology. Data in blue reflects the top 20% (highest) values by region, country, sector, and style. Data in red reflects the bottom 20% (lowest) values by region, country, sector, and style. A direct investment in an unmanaged index is not possible. Name change from Telecommunication Services to Communication Services effective after close of business on 9/28/18; industry and subindustry reclassifications effective 10/1/18.

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William Blair International Growth Fund Performance March 2020

Periods ended 3/31/2020 March Quarter 1 Year 3 Year 5 Year 10 Year

Since Inception* International Growth Fund (WBIGX) – Class N -14.03% -19.91% -8.17% 1.06% 0.26% 4.19% -- International Growth Fund (BIGIX) – Class I -13.99% -19.85% -7.84% 1.39% 0.57% 4.50% -- International Growth Fund (WBIRX) – Class R6 -13.99% -19.82% -- -- -- -- -10.43% MSCI AC World ex US IMI (net) -15.11% -24.11% -16.32% -2.34% -0.66% 2.14% -18.56% Class N inception: 10/1/1992 Class I inception: 10/1/1999 *Class R6 inception: 5/2/2019

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call 1‐877‐962‐5247, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load. Class I and Class R6 shares are available only to investors who meet certain eligibility requirements. International Growth Fund Expense Ratios: Gross Net Class N Shares 1.46% 1.45% Class I Shares 1.13% 1.13% Class R6 Shares 1.05% 1.05% Expenses shown are as of the most recent prospectus. The Fund’s Adviser has contractually agreed to waive fees and/or reimburse expenses to limit fund operating expenses until 4/30/20. A direct investment in an index is not possible. The MSCI All Country World ex-US IMI Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US.

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William Blair International Growth Fund Performance Analysis (by sector) March 2020

The table below shows the calculated sector attribution of the International Growth Fund vs. its benchmark. International Growth Fund vs. MSCI AC World ex US IMI (net)

01/01/2020 to 03/31/2020 International Growth Fund MSCI AC World ex US IMI (net) Attribution Analysis

GICS Sector

Average Weight

Total

Return

Contrib to

Return

Average Weight

Total

Return

Contrib to

Return

Allocation

Effect

Issue Selection

Effect

Total Effect Communication Services 4.0% -1.7% -0.1% 6.6% -15.4% -1.0% -0.2% 0.5% 0.2% Consumer Discretionary 13.4% -22.7% -3.1% 11.8% -25.8% -3.1% 0.0% 0.4% 0.4% Consumer Staples 6.0% -19.2% -1.1% 9.3% -14.9% -1.3% -0.3% -0.3% -0.6% Energy 1.8% -20.9% -0.3% 5.5% -39.6% -2.4% 0.7% 0.4% 1.0% Financials 14.3% -26.5% -3.7% 19.4% -31.1% -6.2% 0.4% 0.7% 1.2% Health Care 11.5% -7.4% -0.8% 9.1% -9.8% -0.9% 0.3% 0.2% 0.6% Industrials 21.2% -25.9% -5.6% 12.7% -27.4% -3.5% -0.3% 0.4% 0.1% Information Technology 19.9% -17.1% -3.4% 10.0% -18.5% -1.8% 0.6% 0.3% 0.8% Materials 2.6% -14.9% -0.4% 7.5% -27.9% -2.2% 0.2% 0.3% 0.5% Real Estate 2.7% -15.7% -0.4% 4.4% -27.8% -1.2% 0.1% 0.3% 0.4% Utilities 1.6% -9.8% -0.2% 3.6% -16.6% -0.6% -0.1% 0.1% 0.0% Cash 1.1% - 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.3%

Total 100.0% -19.2% -19.2% 100.0% -24.1% -24.1% 1.6% 3.3% 4.9% Past performance does not guarantee future results. Performance cited represents past performance and current performance may be lower or higher than the data quoted. Gross investment performance assumes reinvestment of dividends and capital gains, is gross of investment management fees and net of transaction costs. Attribution by segment is based on estimated returns of equities held within the segments listed. All stocks held during a measurement period, including purchases and sales, are included. Cash is not allocated among segments. Calculations are for attribution analysis only and are not intended to represent simulated performance history. The actual returns may be higher or lower. We calculate attribution using our proprietary attribution system. Our proprietary attribution system runs transactions-based attribution, taking into account all trading activity. Interaction effect is reallocated into Selection effect. Sectors are based on Global Industry Classification (GICS) Sectors. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk.

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William Blair International Growth Fund Performance Analysis (by region) March 2020

The table below shows the calculated regional attribution of the International Growth Fund vs. its benchmark. International Growth Fund vs. MSCI AC World ex US IMI (net)

01/01/2020 to 03/31/2020 International Growth Fund MSCI AC World ex US IMI (net) Attribution Analysis

Region

Average Weight

Total

Return

Contrib to

Return

Average Weight

Total

Return

Contrib to

Return

Allocation

Effect

Issue Selection

Effect

Total Effect Pacific Ex Japan 5.1% -22.2% -1.1% 7.8% -28.4% -2.2% 0.1% 0.3% 0.4% Japan 12.5% -14.6% -1.9% 17.0% -17.4% -2.9% -0.4% 0.3% 0.0% Europe+ME Ex U.K. 40.1% -18.5% -7.3% 31.4% -24.0% -7.5% 0.0% 2.2% 2.2% U.K. 13.2% -26.9% -3.7% 10.1% -28.3% -2.9% -0.2% 0.2% 0.1% W Hemisphere 5.8% -21.5% -1.2% 6.7% -28.9% -1.9% 0.1% 0.4% 0.5% EM Asia 18.8% -13.8% -2.5% 20.3% -19.0% -3.7% -0.1% 0.9% 0.8% EMEA 0.9% -34.1% -0.3% 3.8% -34.3% -1.4% 0.3% 0.0% 0.3% Latin America 2.5% -46.1% -1.1% 2.9% -46.2% -1.5% 0.2% 0.0% 0.2% Cash 1.1% - 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.3%

Total 100.0% -19.2% -19.2% 100.0% -24.1% -24.1% 0.5% 4.4% 4.9% Past performance does not guarantee future results. Performance cited represents past performance and current performance may be lower or higher than the data quoted. Gross investment performance assumes reinvestment of dividends and capital gains, is gross of investment management fees and net of transaction costs. Attribution by segment is based on estimated returns of equities held within the segments listed. All stocks held during a measurement period, including purchases and sales, are included. Cash is not allocated among segments. Calculations are for attribution analysis only and are not intended to represent simulated performance history. The actual returns may be higher or lower. We calculate attribution using our proprietary attribution system. Our proprietary attribution system runs transactions-based attribution, taking into account all trading activity. Interaction effect is reallocated into Selection effect. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk

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William Blair International Growth Fund Top Contributors/Detractors March 2020

The tables below show the top contributors and detractors for the International Growth Fund vs. its benchmark. Top Five Contributors (%) for the Period: 01/01/2020 to 03/31/2020 Issuer Sector Country Contribution To

Relative Return Lonza Group AG Health Care Switzerland 0.53 Coloplast A/S Health Care Denmark 0.24 Tencent Holdings Ltd Communication Services China 0.23 Keyence Corp Information Technology Japan 0.21 Novo Nordisk A/S Health Care Denmark 0.20 Top Five Detractors (%) for the Period: 01/01/2020 to 03/31/2020 Issuer Sector Country Contribution To

Relative Return Airbus SE Industrials France -0.44 MTU Aero Engines AG Industrials Germany -0.27 Safran SA Industrials France -0.19 Amadeus IT Group SA Information Technology Spain -0.19 Melrose Industries PLC Industrials United Kingdom -0.16 Index: MSCI AC World ex US IMI (net) Past performance does not guarantee future results. Performance cited represents past performance and current performance may be lower or higher than the data quoted. Gross investment performance assumes reinvestment of dividends and capital gains, is gross of investment management fees and net of transaction costs. Performance results will be reduced by the fees incurred. Attribution by is based on estimated returns of all equities held during a measurement period, including purchases and sales. We calculate attribution using our proprietary attribution system. Our proprietary attribution system runs transactions-based attribution, taking into account all trading activity. Sectors are based on Global Industry Classification (GICS) Sectors. Individual securities listed in this report are for informational purposes only. Holdings are subject to change at any time. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended and you should not assume that investments in the securities identified were or will be profitable

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William Blair International Growth Fund Positioning March 2020

Regional Exposure Sectoral Exposure

4.113.2

40.412.5

4.722.7

0.71.3

0.3

7.318.3

31.59.8

6.321.1

3.52.3

--

Asia Ex-JapanJapan

Europe+ME Ex U.K.United Kingdom

Western HemisphereEM Asia

EMEALatin America

Cash & EquivalentsInternational Growth Fund MSCI AC World ex US IMI (net)

-0.90.60.3

-1.0-1.1

5.5-0.4

-1.5-1.5

Portfolio Diff Prev QTR

4.812.9

6.71.6

10.914.1

20.121.7

2.52.71.7

--0.3

7.111.7

10.14.8

18.110.312.3

10.47.3

4.23.7

0.0--

Communication ServicesConsumer Discretionary

Consumer StaplesEnergy

FinancialsHealth CareIndustrials

Information TechnologyMaterials

Real EstateUtilities

OtherCash & Equivalents

International Growth Fund MSCI AC World ex US IMI (net)

1.3-0.3

0.60.0

-4.03.1

-2.02.7

-0.20.10.20.0

-1.5Portfolio Diff Prev QTR

Source: William Blair. Cash & Equivalents includes: cash and dividend accruals.

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William Blair International Growth Fund Top Holdings by Market Cap March 2020

The table below shows the International Growth Fund’s largest holdings as of 3/31/2020 by market cap as well as the sub-totals by market cap for the portfolio and index. The stocks are listed by country and by the sector that defines each one’s role in the portfolio. Country Sector

% of Total Net Assets in

Portfolio

% of Total Net Assets in

Index* Large Cap(>$15b) 60.7% 53.3% Alibaba Group Holding Ltd China Consumer Discretionary 2.7% 1.7% Tencent Holdings Ltd China Communication Services 2.6% 1.4% Lonza Group AG Switzerland Health Care 2.1% 0.2% Taiwan Semiconductor Manufactu Taiwan Information Technology 2.1% 1.1% ASML Holding NV Netherlands Information Technology 2.1% 0.6% Mid Cap($4-15b) 25.1% 23.9% Hexagon AB Sweden Information Technology 0.9% 0.1% MediaTek Inc Taiwan Information Technology 0.9% 0.1% Halma PLC United Kingdom Information Technology 0.8% 0.0% Partners Group Holding AG Switzerland Financials 0.8% 0.1% Capgemini SE France Information Technology 0.8% 0.1% Small Cap(<$4b) 14.2% 22.8% TeamViewer AG Germany Information Technology 0.4% 0.0% Nihon M&A Center Inc Japan Industrials 0.4% 0.0% TIS Inc Japan Information Technology 0.4% 0.0% Centre Testing International G China Industrials 0.3% 0.0% Greggs PLC United Kingdom Consumer Discretionary 0.3% 0.0%

*Index: MSCI AC World ex US IMI (net) Market cap calculations are based on the free float adjusted market cap and exclude cash equivalents. Sectors are based on Global Industry Classification (GICS) Sectors. Individual securities listed in this report are for informational purposes only. Holdings are subject to change at any time. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended and you should not assume that investments in the securities identified were or will be profitable.

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William Blair International Growth Fund Top Portfolio Changes March 2020

Top Portfolio Changes During the Period: 01/01/2020 to 03/31/2020 Security Name Country Sector

New

Pu

rcha

ses Straumann Holding Ag-Reg Switzerland Health Care Disco Corp Japan Information Technology Infineon Technologies Ag Germany Information Technology Sea Ltd-Adr Thailand Communication Services Foshan Haitian Flavouring -A China Consumer Staples

Liqu

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Wolters Kluwer Netherlands Industrials Toronto-Dominion Bank Canada Financials Koninklijke Philips Nv Netherlands Health Care Check Point Software Tech Israel Information Technology Credicorp Ltd Peru Financials Sectors are based on Global Industry Classification (GICS) Sectors. Individual securities listed in this report are for informational purposes only. Holdings are subject to change at any time. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended and you should not assume that investments in the securities identified were or will be profitable.

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William Blair International Growth Fund Characteristics March 2020

International Growth Fund MSCI AC World ex US IMI (net) Difference Quality Return on Equity (%) 20.2 14.1 43% Cash Flow ROIC (%) 18.8 14.5 30% Debt/Equity (%) 62.8 88.7 -29% Growth Long-Term Growth (%) 12.6 9.7 30% 5-Year Historic EPS Growth (%) 16.8 11.4 47% Reinvestment Rate (%) 13.8 8.7 59% Earnings Trend EPS Revision Breadth (%) -30.1 -25.9 -4.2 Valuation P/E (next 12 months) 21.3 12.0 77% Other Float Adjusted Weighted Average Market Cap ($m) 45,369 45,310 0% Number of Holdings 193 6,593 Active Share (%) 83 --

The index is comparable to the strategy in terms of investment approach but contains significantly more securities. Calculated in FactSet, with the exception of market cap and active share, which are calculated in Eagle. From a portfolio perspective, the portfolio P/E ratio and EPS Growth Rate are weighted averages of the individual holdings’ P/E ratios and EPS Growth Rates.

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William Blair International Growth Fund Holdings March 2020

As of 3/31/2020. Information about the Fund’s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay in any one particular sector. Holdings are subject to change at any time. Cash includes cash equivalents and accruals.

Portfolio Portfolio Portfolio Weight Weight Weight

Pacific Ex Japan 4.13 Japan (continued) Europe+ME Ex UK (continued) Australia 2.00 Japan (continued) France 9.81 Csl Ltd 1.31 Technopro Holdings Inc 0.23 Lvmh Moet Hennessy Louis Vui 1.42 Goodman Group 0.33 Benefit One Inc 0.17 L'Oreal 1.41 Aristocrat Leisure Ltd 0.29 Zenkoku Hosho Co Ltd 0.16 Kering 0.97 Macquarie Group Ltd 0.06 Sushiro Global Holdings Ltd 0.15 Airbus Se 0.96 Hong Kong 2.06 Ns Solutions Corp 0.13 Dassault Systemes SA 0.88 Aia Group Ltd 1.87 Persol Holdings Co Ltd 0.12 Safran SA 0.87 Galaxy Entertainment Group L 0.19 Meitec Corp 0.12 Capgemini Se 0.81 New Zealand 0.08 En-Japan Inc 0.06 Teleperformance 0.76 Auckland Intl Airport Ltd 0.08 Ut Group Co Ltd 0.05 Worldline SA 0.62

Japan 13.24 Europe+ME Ex UK 40.42 Hermes International 0.43 Japan 13.24 Belgium 0.37 Orpea 0.28 Keyence Corp 1.85 Warehouses De Pauw Sca 0.26 Sartorius Stedim Biotech 0.25 Smc Corp 1.48 Melexis NV 0.11 Rubis 0.15 Hoya Corp 1.34 Denmark 6.15 Alten SA 0.01 Daikin Industries Ltd 1.03 Novo Nordisk A/S-B 1.81 Germany 4.33 Terumo Corp 0.94 Orsted A/S 1.01 Sap Se 1.05 Shiseido Co Ltd 0.91 Dsv Panalpina A/S 0.97 Vonovia Se 0.91 Omron Corp 0.67 Coloplast-B 0.94 Mtu Aero Engines AG 0.72 Disco Corp 0.60 Genmab A/S 0.65 Infineon Technologies AG 0.45 Nomura Research Institute Lt 0.54 Chr Hansen Holding A/S 0.39 Teamviewer AG 0.40 Asahi Intecc Co Ltd 0.48 Royal Unibrew 0.22 Puma Se 0.39 Nihon M&A Center Inc 0.40 Tryg A/S 0.14 Carl Zeiss Meditec Ag - Br 0.28 Tis Inc 0.39 Netcompany Group As 0.03 Kion Group AG 0.13 Shimadzu Corp 0.37 Faroe Islands 0.13 Ireland 1.86 Misumi Group Inc 0.31 Bakkafrost P/F 0.13 Kerry Group Plc-A 0.66 Harmonic Drive Systems Inc 0.25 Finland 0.92 Kingspan Group PLC 0.62 Monotaro Co Ltd 0.24 Neste Oyj 0.92 Icon PLC 0.58 Gmo Payment Gateway Inc 0.24

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Portfolio Portfolio Portfolio Weight Weight Weight

Europe+ME Ex UK (continued) Europe+ME Ex UK (continued) UK (continued) Israel 0.47 Switzerland 6.68 United Kingdom (continued) Wix.Com Ltd 0.25 Lonza Group Ag-Reg 2.13 Intermediate Capital Group 0.23 Cyberark Software Ltd/Israel 0.23 Sika Ag-Reg 1.29 Big Yellow Group PLC 0.22 Italy 1.20 Partners Group Holding AG 0.83 St James's Place PLC 0.21 Enel Spa 0.56 Straumann Holding Ag-Reg 0.73 Softcat PLC 0.18 Amplifon Spa 0.20 Temenos Ag - Reg 0.61 Beazley PLC 0.18 Moncler Spa 0.19 Logitech International-Reg 0.39 Rotork PLC 0.18 Banca Generali Spa 0.18 Tecan Group Ag-Reg 0.29 Renishaw PLC 0.16 Technogym Spa 0.07 Vat Group AG 0.25 Wh Smith PLC 0.14 Netherlands 3.23 Belimo Holding Ag-Reg 0.16 Abcam PLC 0.13 Asml Holding NV 2.06 UK 12.51 Ssp Group PLC 0.10 Adyen NV 0.88 United Kingdom 12.51 Unite Group Plc/The 0.09 Euronext NV 0.22 Experian PLC 1.20 Fevertree Drinks PLC 0.09 Basic-Fit NV 0.07 London Stock Exchange Group 1.10 W Hemisphere 4.66 Norway 0.23 Diageo PLC 1.08 Canada 4.66 Tomra Systems Asa 0.23 Compass Group PLC 0.95 Canadian Natl Railway Co 1.11 Spain 0.88 Halma PLC 0.85 Canadian Pacific Railway Ltd 0.88 Amadeus It Group SA 0.88 Relx PLC 0.82 Brookfield Asset Manage-Cl A 0.79 Sweden 4.17 Segro PLC 0.68 Lululemon Athletica Inc 0.72 Atlas Copco Ab-A Shs 1.69 Spirax-Sarco Engineering PLC 0.65 Alimentation Couche-Tard -B 0.65 Hexagon Ab-B Shs 0.91 Rentokil Initial PLC 0.57 Kinaxis Inc 0.18 Evolution Gaming Group 0.41 Intertek Group PLC 0.50 Toromont Industries Ltd 0.15 Fabege AB 0.20 Croda International PLC 0.39 Enghouse Systems Ltd 0.14 Indutrade AB 0.20 3i Group PLC 0.36 Parkland Fuel Corp 0.04 Nibe Industrier Ab-B Shs 0.19 Greggs PLC 0.33 EM Asia 22.74 Nolato Ab-B Shs 0.17 Aveva Group PLC 0.31 China 15.64 Lifco Ab-B Shs 0.16 Avast PLC 0.31 Alibaba Group Holding-Sp Adr 2.65 Aak AB 0.14 Hiscox Ltd 0.26 Tencent Holdings Ltd 2.61 Vitrolife AB 0.10 Victrex PLC 0.24 Tal Education Group- Adr 1.38

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Portfolio Portfolio Portfolio Weight Weight Weight EM Asia (continued) EM Asia (continued) Latin America (continued)

China (continued) India (continued) Brazil (continued) Ping An Insurance Group Co-H 1.36 Hexaware Technologies Ltd 0.09 Notre Dame Intermed Par SA 0.21 China Merchants Bank-H 1.14 Indonesia 1.01 Lojas Renner S.A. 0.12 Netease Inc-Adr 0.98 Bank Central Asia Tbk Pt 1.01 Localiza Rent A Car 0.12 Li Ning Co Ltd 0.59 South Korea 0.66 Mexico 0.12 Kweichow Moutai Co Ltd-A 0.57 Samsung Sdi Co Ltd 0.41 Grupo Aeroportuario Sur-Adr 0.12 Country Garden Services Hold 0.36 Kakao Corp 0.26 Cash 0.30 China Mengniu Dairy Co 0.34 Taiwan 3.25 Total 100.00 Centre Testing Intl Group-A 0.33 Taiwan Semiconductor-Sp Adr 2.10 Shenzhou International Group 0.33 Mediatek Inc 0.86 Foshan Haitian Flavouring -A 0.33 Globalwafers Co Ltd 0.20 Hangzhou Tigermed Consulti-A 0.30 Eclat Textile Company Ltd 0.09 Aier Eye Hospital Group Co-A 0.29 Thailand 0.68 Shenzhen Mindray Bio-Medic-A 0.25 Sea Ltd-Adr 0.37 A-Living Services Co Ltd-H 0.24 Tisco Financial-Foreign 0.16 Topchoice Medical Corporat-A 0.21 Airports Of Thailand Pcl-For 0.15 Offcn Education Technology-A 0.21 EMEA 0.66 Shenzhen Goodix Technology-A 0.20 Russia 0.42 Wuxi Biologics Cayman Inc 0.20 Yandex Nv-A 0.42 Naura Technology Group Co-A 0.20 South Africa 0.24 Huazhu Group Ltd-Adr 0.19 Bid Corp Ltd 0.10 Wuxi Apptec Co Ltd-A 0.18 Mr Price Group Ltd 0.07 Tencent Music Entertainm-Adr 0.11 Bidvest Group Ltd 0.07 Vitasoy Intl Holdings Ltd 0.10 Latin America 1.34 India 1.49 Argentina 0.19 Reliance Industries Ltd 0.65 Globant SA 0.19 Hdfc Bank Limited 0.37 Brazil 1.03 Pidilite Industries Ltd 0.19 B3 Sa-Brasil Bolsa Balcao 0.32 Titan Co Ltd 0.19 Magazine Luiza SA 0.25

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Glossary - Terms

1 Month EPS Revision Breadth: 1-month factor representing the trend in the direction of estimate changes. Range from -100% to +100%, it is calculated as the number of positive revisions minus the number of negative revisions divided by the total number of estimates. Active Share: A measure of the percentage of equity holdings in a portfolio that differ from the benchmark index. It is calculated by taking the sum of the absolute value of the differences of the weight of each holding in a portfolio versus the weight of each holding in the index and dividing by two. Alpha: A measure of a portfolio’s return in excess of the market return, after both have been adjusted for risk. It is a mathematical estimate of the amount of return expected from a portfolio above and beyond the market return at any point in time. For example, an alpha of 1.25 indicates that a stock is projected to rise 1.25% in price in a year over the return of the market, or the return when the market return is zero. When an investment price is low relative to its alpha, it is undervalued, and considered a good selection. Beta: A quantitative measure of the volatility of the portfolio relative to the overall market, represented by a comparable benchmark. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile, and could be expected to rise and fall more slowly than the market. Cash Flow Return on Invested Capital (ROIC): A measure of how effectively a company generates cash flow based on legacy capital investment. Developed Markets: Using the Morgan Stanley Capital International (MSCI) geographic definition, this region includes: United Kingdom, Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Spain, Sweden and Switzerland), Japan, Pacific Asia (Australia, Hong Kong, New Zealand, and Singapore) and the Western Hemisphere (Canada and other Americas). Debt to Total Capital Ratio: This figure is the percentage of each company’s invested capital that consists of debt. Companies with a high Debt to Total Capital level may be considered more risky. From a portfolio perspective, the portfolio Debt to Total Capital Ratio is a weighted average of the individual holdings' Debt to Total Capital Ratio. Emerging Markets: Using MSCI’s geographic definition, this region includes: Emerging Markets Asia (China, India, Indonesia, Malaysia, S Korea, Taiwan, and Thailand), Emerging Markets Europe, Mid-East and Africa (Czech Republic, Hungary, Poland, Russia, Turkey, Egypt, Morocco, and S Africa), and Latin America (Argentina, Brazil, Chile, Columbia, Mexico, Peru and Venezuela). EPS (Earnings Per Share) Growth Rate (Projected): This measure represents the weighted average of forecasted growth in earnings expected to be experienced by the stocks within the portfolio over the next 3-5 years. From a portfolio perspective, the portfolio P/E ratio and EPS Growth Rate are weighted averages of the individual holdings’ P/E ratios and EPS Growth Rates. Data calculated in FactSet. EPS Growth Rate - 5-Year Historic: The weighted average earnings per share growth for stock within the portfolio over the past 5 years. EV/EBITDA: (Enterprise Value / Earnings Before Interest, Taxes and Depreciation-Amortization): The EV/EBITDA ratio is useful for global comparisons because it ignores the distorting effects of individual countries' taxation policies. It's used to find attractive takeover candidates. Enterprise value is a better measure than market cap for takeovers because it takes into account the debt which the acquirer will have to assume. Therefore, a company with a low EV/EBITDA ratio can be viewed as a good takeover candidate. EV/IC: (Enterprise Value / Invested Capital) Ratio: Enterprise Value (EV), which is market capitalization minus cash plus debt divided by Invested Capital (IC), which is the sum of common stock, preferred stock and long-term debt. This number will get you a simple multiple. If it is below 1.0, then it means that the company is selling below book value and theoretically below its liquidation value.

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Glossary - Terms

Information Coefficient: A measure of the correlation between expected and actual returns. Information Ratio: A measure of risk-adjusted return. The annualized excess return of the portfolio relative to a respective benchmark, divided by the annualized tracking error relative to that same benchmark. The higher the measure, the higher the risk-adjusted return. PBV: (Price/Book Value) Ratio: The PBV Ratio measures the value of a company's common stock relative to its shareholder's equity. A price-to-book multiple above one means that the price of the company's common stock is higher than its common shareholder's equity. A price-to-book multiple below one means that the price of the company's common stock are less than its break-up value, and the shares may be undervalued. PCF: (Price/CashFlow): Some analysts favor the price/cash flow over the price-earnings (PE) ratio as a measure of a company’s value. Cash flow is a measure of a company's financial health. It equals cash receipts minus cash payments over a given period of time. P/E: (Price/Earnings) Ratio: This is the most common measure of how expensive a stock is. Simply, it is the cost an investor in a given stock must pay per dollar of current annual earnings. A high P/E generally indicates that the market is paying more to obtain the stock because it has confidence in the company’s ability to increase its earnings. Conversely, a low P/E often indicates that the market has less confidence that the company’s earnings will increase rapidly or steadily, and therefore will not pay as much for its stock. R-squared: A measurement of how closely the portfolio’s performance correlates with the performance of its benchmark, such as the MSC AC World Free ex US Index. In other words, it is a measurement of what portion of a portfolio’s performance can be explained by the performance of the overall market or index. Ranges from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation. Risk (Standard Deviation): A measure of the portfolio’s risk. A higher standard deviation represents a greater dispersion of returns, and thus a greater amount of risk. The annualized standard deviation is calculated using monthly returns. Sharpe-Ratio: A risk-adjusted measure calculated using standard deviation and excess return (Portfolio return – Risk Free Rate) to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historic risk-adjusted performance. Tracking Error: Tracking Error measures the extent to which a portfolio tracks its benchmark. The tracking error of an index portfolio should be lower than that of an active portfolio. The tracking error will always be greater than zero if the portfolio is anything other than a replication of the benchmark. Trailing 1-Year Turnover: This figure reflects the portfolio’s trading activity by calculating the amount of the portfolio’s holdings bought or sold over the prior year, expressed as a percentage of the portfolio’s average market value. Turnover figures may be related to the amount of trading costs experienced by the portfolio. Weighted Average Market Capitalization: Market capitalization refers to the total market value of each company's outstanding shares. The Weighted Average Market Capitalization for a portfolio is calculated as the average market capitalization of the stocks within the portfolio, weighted by the amount of each stock owned. Weighted Median Market Capitalization: This calculation represents the median market capitalization of the stocks in the portfolio, weighted by the amount of each stock owned.

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International Growth Fund 20Q1Rvw · 2020-04-17 · considerations, including currency...

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Transcript of International Growth Fund 20Q1Rvw · 2020-04-17 · considerations, including currency...