Economic and Market Conditions
Amid trade war fears and slowing economic growth, U.S. and global stocks delivered mixed returns for the 12-month period ended August 31, 2019.
U.S. stocks opened the period in positive territory, but soon reversed course amid fears of a global trade war due to President Trump’s imposition of broad new import tariffs. However, U.S. economic data remained largely positive during the period, prompting the U.S. Federal Reserve Board (the Fed) in December 2018 to again raise its benchmark interest rate.
Stocks turned higher in early 2019 as trade fears eased and interest rates remained stable. U.S. equities rose after Fed Chairman Jerome Powell in January signaled a slower pace for interest rate hikes. Meanwhile, U.S. economic indicators sent mixed signals. The job market remained robust with the U.S. unemployment rate dipping below 4%. But retail sales fell, raising concerns about consumer spending. Factory output also declined, dragged down by a large drop in auto production.
U.S. stocks were volatile during the spring of 2019. Heightened trade war concerns drove equity markets lower in May, before easing tensions helped stocks recover in June. Key economic indicators continued to be mixed, with job creation decelerating sharply in May.
While the Fed held interest rates steady through the first six months of 2019, it held out the possibility of a rate cut if economic data weakened. The Fed cut came in July, its first interest-rate reduction in a decade. Stocks, however, pulled back following the Fed move and fell further in the final month of the period amid renewed escalation of U.S.-China trade tensions.
Like U.S. stocks, global markets were volatile during the 12-month period. Besides U.S.-China trade tensions and signs of slowing economic growth, European markets faced the added uncertainty of Brexit, the United Kingdom’s pending exit from the European Union. A manufacturing downturn in the U.K. worsened during the period with a key gauge hitting a six-year low. Global energy demand remained weak, prompting Organization of the Petroleum Exporting Countries (OPEC) to extend crude oil production cuts in hopes of spurring higher prices.
For the 12-month period ended August 31, 2019, the MSCI World Index,2 a proxy for global equities, rose 0.26%. The MSCI EAFE Index of developed-market international equities fell -3.26%, while the MSCI Emerging Markets Index declined -4.36%. In the U.S., the blue-chip Dow Jones Industrial Average® gained 4.12%, while the broader U.S. equity market, as represented by the S&P 500® Index, advanced 2.92%.
Fund Performance
For the 12-month period ended August 31, 2019, Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio) (the Fund) Class A shares at net asset value (NAV) returned 4.35%, outperforming the 0.27% return of the Fund’s primary benchmark, the MSCI World Health Care Index (the Index).
On a global basis, the health care sector performed approximately in line with the broad global equity market during the period. In the United States, however, increasing political and regulatory concerns caused health care stocks as a group to underperform the broad U.S. equity market.
On an industry basis, the main contributors to Fund performance versus the Index were stock selection in pharmaceuticals, stock selection and an overweight, relative to the Index, in health care equipment and supplies, and stock selection in biotechnology. Within pharmaceuticals, relative performance was aided by the Fund’s overweight position relative to the Index in Zoetis, Inc., the largest global provider of animal drugs, vaccines and diagnostic products to veterinarians and livestock farmers. The company demonstrated double-digit revenue growth for the period, with particular strength in products designed for companion animals. Elsewhere in pharmaceuticals, the Fund’s overweight position in Merck & Co., Inc. (Merck), a global pharmaceutical firm with a focus on diabetes and cancer treatments, contributed to relative results versus the Index. Strong year-over-year sales growth of Keytruda, an innovative cancer drug, helped drive Merck stock up during the period. An overweight holding in Edwards Lifesciences Corp. (Edwards), a medical equipment company specializing in replacement heart valves, aided performance versus the Index in health care equipment and supplies. Edwards’ sales of aortic valve replacements accelerated during the period, raising expectations of future earnings growth.
In contrast, stock selection and an underweight in the health care technology industry detracted from performance versus the Index. Not owning Index component Veeva Systems, Inc. (Veeva), a health care technology firm that produces cloud-based software, hurt relative results as Veeva’s sales growth exceeded that of most of its health care peers. Outside of health care technology, several individual stocks were also notable detractors from relative results, including health insurer Humana, Inc. which was sold out of the portfolio during the period. Not owning Index component Express Scripts Holdings Co. (Express Scripts), a pharmacy benefit manager that was acquired by health insurer Cigna Corp. in December 2018, hurt Fund results versus the Index after the merger announcement boosted Express Scripts’ share price.
1. The views expressed in this report are those of the portfolio manager(s) and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance and the Fund(s) disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This commentary may contain statements that are not historical facts, referred to as “forward looking statements.” The Fund’s actual future results may differ significantly from those stated in any forward looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of Fund shares, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the Fund’s filings with the Securities and Exchange Commission.
Fund profile subject to change due to active management
