Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 53 FIGURE 5 : MSCI Brazil Equity Index vs CRB Commodity Index Index Level Index Level 100 150 200 250 300 350 400 450 500 15 25 35 45 55 65 75 85 95 105 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 Sep-18 Sep-20 Sep-22 MSCI Brazil Equity Indext (Left) CRB Commodity Index (Right) Source: Bloomberg as of June 5, 2023 . Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. FIGURE 6 : European Energy Shares Trade at a Discount to US Peers -100 -80 -60 -40 -20 0 20 40% '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23 Fwd P/E Premium / Discount European Energy Premium/Discount to US Energy Source: Factset as of May 15, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. For the past 20 years, European energy companies have been trading at a discount to their US energy counterparts ( FIGURE 6 ) . After reaching lows in 2021, European energy valuations have rallied a bit but remain at a 40% discount to US energy firms. This valuation difference is unjustified as European and US energy companies are similar in many ways. Part of the valuation discount could be due to general European companies falling out of favor with investors. We see this as an arbitrage opportunity favoring investment in non-US firms, a strategy that is consistent with our view that the US dollar has peaked. Green is the new brown The European energy companies have been leaders in making structural changes to strengthen balance sheets to deploy capital on long-term projects, including a focus on a green energy transition. We believe these changes will make EU energy companies more valuable, boosting earnings and share prices.