With the Fund Seminar Session of 17 May in mind, the Vontobel Quality Growth boutique team answered three questions about their Global Equity Fund. What is the dominant trend in global equity? How does this possibly affect performance/portfolio characteristics? And what is Vontobel AM’s added value? Read the full Q&A below for answers.
What is the dominant (market) trend in global equity?
Since 1 January 2019 most markets have seen double-digit gains. Worries about the U.S. Federal Reserve continuing with a regular pace of monetary tightening have abated. The possibility of a less aggressive Fed has encouraged investors globally to commit again to equity markets. In addition, the risk of a longer-lasting trade war between the US and China has also fallen as the two sides work to find a compromise.
Yet there are still reasons to be cautious:
- A) As the U.S. enters its new election cycle, markets are sure to be spooked by extreme campaign rhetoric on either side of the aisle. Fiscal policy will be a focus as the massive budget deficit in the U.S. is not sustainable over the long run.
- B) Europe continues to struggle with a dysfunctional labor market, which has resulted in depressed productivity and slow growth. Structural reform is needed in countries such as Italy and France. The outcome of Brexit is still uncertain and its resolution will have widespread knock-on effects, not only in the UK, but also across the EU.
- C) In emerging markets, the volatility and political headline risk that dominated Mexico and Brazil leading up to their high-profile elections have subsided. The two countries, nevertheless, must find ways to achieve faster economic growth. India is in the midst of elections for a new government. And upcoming elections in other emerging countries may, in some cases, be consequential to their economic policy.
How does this trend possibly affect performance/portfolio characteristics?
As noted above markets have generally performed well since beginning-2019. Their continued good performance is now being tested by quarterly results, and markets have reacted disproportionately to news of shortfalls or disappointments.
We are always on the lookout for any potential threats. We seek to invest with conviction in solid businesses that are consistently profitable and not dependent on a strong economy, and we steer clear of highly cyclical, heavily indebted boom-bust companies. Our focus on companies with predictable and sustainable growth helps protect our clients’ assets on the downside, and can also generate faster cumulative earnings growth over the longer term.
What is Vontobel AM’s added value?
Our investment approach is to pursue quality growth companies, which we broadly define as stable franchises with solid fundamentals, durable earnings power, skilled management teams and attractive growth prospects at reasonable valuations. Our research focuses on the resilience of our companies to a changing regulatory and competitive landscape. If global growth slows and margins compress, it is all the more important to own stocks of better quality companies with secular earnings growth drivers. Even if the cycle turns down, we see opportunities for structural growth to drive earnings at many of our holdings, thus helping to provide our investors downside protection for their portfolios. In tough economic times, this protection is a hallmark of our investment style and a compass for portfolio construction.