The top individual contributor to relative performance was non-benchmark holding Nine Dragons Paper, which manufactures and sells packaging paper, recycled printing and writing paper, and high-value specialty paper products in China. The company rose more than 48% on the back of strong fiscal 2017 results, with strong year-over-year revenue and net profit growth driven by rising average selling prices and margin expansion. The Chinese government’s increased environmental inspection and enforcement led to a demand-supply dynamic change that helped paper makers like Nine Dragons regain pricing power.
French luxury goods company Kering and car manufacturer Peugeot were also among the top contributors, returning more than 17% and 19%, respectively. Kering reported better-than-expected earnings for the first half of the year, driven by resurgent sales for its Gucci brand. Peugeot, aka Groupe PSA, which owns automobile brands Peugeot, Citroën and DS, completed its acquisition of the Opel and Vauxhall brands from GM, now making it the second largest car manufacturer in Europe.
European chipmaker STMicroelectronics—which designs, develops, manufactures and markets a range of semiconductor solutions, including discrete and standard commodity components and application-specific integrated circuits for analog, digital and mixed-signal applications—was another top contributor, gaining more than 35%. The company posted solid second-quarter results driven by widespread strength across its portfolio, and expects all segments to grow in the second half of 2017. ST has begun to ramp up its new facial-recognition image sensor for Apple’s iPhone X ahead of its upcoming launch, which is expected to provide a boost in the fourth quarter.
The largest detractor from performance this quarter was Japanese glass manufacturer Asahi Glass, which dropped almost 12%. The company reported mixed results for the first half of 2017, with positive operating profit surpassing market expectations. Sharp declines in the glass and electronics segments were offset by sharp growth in the chemicals segment, benefits from the consolidation of an acquisition, and higher shipment volume across multiple segments. The glass segment suffered from the sluggish production of automotive glass in Europe and higher fuel costs, while weakness in electronics was attributed to lower prices for LCD substrate glass.
German pharmaceutical company Merck was another large detractor, declining almost 8%. Merck’s second-quarter results disappointed, with earnings down despite sales being up. Growth in its life science segments was offset by decline in healthcare and performance materials. Merck also announced a strategic review of its consumer health division as it faces increased competition.
Spain’s Aena, which is primarily engaged in the operation of airports, and Japanese social media networking company mixi also detracted from relative results with respective declines of more than 7% and 12%. Aena reported solid results for the second quarter that were broadly in-line with expectations, but uncertainty mounted due to a sharp quarter-to-quarter decline in revenues per passenger in its commercial subdivision.
Benchmark holdings that are not approved for investment by the Domini Funds also affected relative results. The Fund benefitted from not owning Swiss food and beverage company Nestlé, which declined almost 4%, but this benefit was mostly offset by not owning British-Dutch oil and gas company Royal Dutch Shell, which gained more than 16%.