Harding Loevner's International Small Companies Equity Performance in Q1 2026 — Quick Take — Quick Take

Instructions

This report provides a detailed analysis of Harding Loevner's International Small Companies Equity composite's performance during the first quarter of 2026. It highlights key factors contributing to its underperformance compared to the MSCI ACWI ex US Small Cap Index, particularly the impact of the software and services sector. The report also discusses strategic portfolio adjustments made in response to emerging risks, such as the influence of artificial intelligence on IT services, and identifies strong performing sectors like energy.

Navigating Global Small-Cap Dynamics: A Quarterly Review of Equity Performance

Understanding the First Quarter's Investment Landscape

During the initial quarter of 2026, the International Small Companies Equity composite managed by Harding Loevner saw a reduction of 4.0% before fees. This result contrasted with a more modest decrease of 0.4% observed in the MSCI ACWI ex US Small Cap Index, indicating a period of underperformance for the composite.

The Significant Influence of Software and Services on Portfolio Returns

A major factor behind the composite's underperformance was the collective impact of its software and services investments. This segment was responsible for over three-quarters of the observed shortfall in performance, reflecting significant challenges within these industries.

Strategic Divestitures Amidst AI-Driven Market Shifts

In response to evolving market conditions, particularly the immediate risks that artificial intelligence poses to IT-services firms relying on time-and-materials contracts, Harding Loevner made strategic decisions to exit certain holdings. Notable divestitures during the quarter included Alten, based in France, and Globant, an Argentine company.

Energy Sector's Robust Growth Amidst Geopolitical Tensions

In stark contrast to the challenges faced by technology-related sectors, the energy sector emerged as the strongest performer, experiencing a substantial 25% increase. This surge was primarily driven by heightened geopolitical events, specifically airstrikes on Iran, which led to a significant spike in Brent crude prices, exceeding 60% in March.

Expanding Industrial Holdings with Strategic Indirect Exposure

The firm strategically enhanced its Industrials portfolio by adding Ferreycorp, a new holding. Ferreycorp, a Peruvian distributor of Caterpillar mining and construction equipment, offers indirect exposure to the dynamic metals industry, aligning with the firm's broader investment objectives.