During the second quarter of 2026, international stock markets experienced a substantial recovery, with the ClearBridge International Growth ADR Strategy surpassing its MSCI EAFE Index benchmark. This impressive performance was largely fueled by a resurgence in growth-oriented companies and advancements in artificial intelligence (AI) technology. The strategic focus involved increasing investments in sectors benefiting from the burgeoning AI infrastructure, such as semiconductors, data storage, networking, and optical equipment. These areas demonstrated significant outperformance, driven by growing demand and developing supply chain limitations, which contributed to enhanced pricing power for key industry players.

Furthermore, the strategy adjusted its positioning to leverage the evolving economic landscape in Japan. The country's market showed promising structural growth prospects, influenced by ongoing governance reforms and an increasing integration of AI technologies. This shift underscored a proactive approach to capitalize on improving fundamental conditions within the Japanese market. Concurrently, the portfolio underwent adjustments in its financial sector holdings, reallocating investments from slower-growth entities to those with more attractive long-term growth trajectories and valuations, ensuring alignment with the overall growth-focused investment philosophy.

The investment landscape is continually reshaped by innovation, particularly in AI, which is transitioning from specialized technology platforms to a pervasive force impacting global supply chains. This evolution creates unique opportunities, especially for companies that can address the emerging bottlenecks in advanced computing manufacturing. By focusing on these critical areas and adapting to regional economic shifts like Japan's renewed growth, the strategy aims to maintain its competitive edge and deliver sustained value. Embracing diversification and a long-term perspective are crucial in navigating market fluctuations and ensuring that the portfolio captures the full potential of these transformative trends.