The Touchstone Non-US Equity Fund experienced a challenging first quarter in 2026, failing to meet the performance of its benchmark, the MSCI ACWI ex-U.S. Index. This period was marked by both strategic successes and notable setbacks within the fund's holdings. Samsung Electronics emerged as a strong performer, benefiting from increased demand for memory and improved pricing power, particularly in its semiconductor divisions, driven by data center needs. Conversely, Nintendo's stock saw a downturn, attributed to the strong console launch cycle concluding and concerns over escalating memory prices, alongside a temporary lull in new game releases. In a significant portfolio adjustment, the fund initiated an investment in Ferrari N.V., foreseeing superior delivery numbers and profitability into 2026, with potential for enhanced earnings in 2027. Simultaneously, the fund liquidated its position in Novo Nordisk, citing reservations about the competitive efficacy of its weight loss medications.

A critical analysis of the fund's first quarter performance reveals a complex interplay of market dynamics and strategic portfolio adjustments. The outperformance of Samsung Electronics underscored the robust demand in the memory sector, with data center expansion fueling a need for advanced semiconductor solutions. This trend translated into favorable pricing and increased revenues for Samsung, contributing positively to the fund's holdings. However, the underperformance of Nintendo highlights the cyclical nature of the gaming industry, where product launch timelines and component costs can significantly influence stock valuations. The fund's decision to exit Novo Nordisk was rooted in a careful evaluation of the pharmaceutical landscape, particularly the intense competition in the weight loss drug market. This move reflected a proactive stance to mitigate risks associated with potential competitive disadvantages. The inclusion of Ferrari N.V. signifies a long-term strategic bet on companies with strong brand equity and a history of consistent financial growth, aligning with the fund's objective of identifying quality compounders.

The fund's investment philosophy emphasizes a bottom-up security analysis, integrating fundamental and sector-specific research to pinpoint businesses demonstrating high or improving returns. This methodical approach guides decisions regarding portfolio construction and rebalancing in response to evolving market conditions. The initiation of a position in Ferrari exemplifies this strategy, focusing on companies with tangible growth prospects and a track record of resilient performance. Such investments are carefully vetted to ensure they align with the fund's long-term capital growth objectives. The divestment from Novo Nordisk, on the other hand, illustrates the fund's commitment to continuously assess the competitive landscape and adjust holdings when a company's prospects appear less favorable compared to industry peers. These strategic maneuvers are crucial for navigating the complexities of non-U.S. equity markets and optimizing returns for investors.

Looking ahead, the fund remains focused on identifying and investing in non-U.S. companies that offer promising long-term capital appreciation. The insights gained from the first quarter's performance will inform future investment decisions, particularly regarding sector allocations and individual stock selections. The fund's managers will continue to monitor global economic trends, technological advancements, and competitive dynamics to proactively position the portfolio for success. Emphasizing adaptability and rigorous research, the fund aims to capitalize on emerging opportunities while mitigating potential risks in the international equity landscape, ensuring a resilient and growth-oriented investment strategy.