In 2023, global markets are facing challenges, including the largest inflation shock in a generation, heightened geopolitical tension, and international fragmentation. According to Aviva Investors, this prompts inquiries into the strategies that investors of global equities employ to build resilient and diversified portfolios.

“In broad terms, global equity markets have seen moderate growth this year…We witnessed some of the largest US bank defaults in history; the hype around generative AI propelled markets upward; and the rise of Danish pharma company Novo Nordisk to become the most valuable company in Europe,” writes Francois de Bruin, Portfolio Manager, Global Equities at Aviva. 

“All of this has taken place in the context of the highest interest rates for over a decade,” he adds. Faced with this, Bruin advises that managing investments requires a deep understanding of the fundamental drivers of individual holdings.

Both portfolio managers also stress the importance of competitive advantages, including brand strength, switching costs, and network effects. “But the most attractive competitive advantage in our view is network effects, the idea that the more customers a company has, the higher the value of its products and services for each customer,” says Bruin. 

Meanwhile, Richard Saldanha, Senior Portfolio Manager at Aviva, suggests that industries such as health insurance, insurance broking, and pest control feature robust companies. They are trading at appealing valuations, capable of navigating the unpredictable economic landscape, he adds. 

Additionally, Aviva identifies companies like Visa, MasterCard, S&P Global, Moody’s, Google, and Microsoft as well-positioned in challenging conditions due to their monopolistic positions and strong balance sheets.

The portfolio managers also touch on the potential risks associated with market concentration in a few dominant companies. While concentration risk is acknowledged, the focus is on valuation as a crucial factor. The managers stress the importance of understanding why certain stocks perform well and assessing whether valuations align with growth opportunities.

In terms of portfolio adjustments, both Bruin and Saldanha emphasise the importance of prioritising downside protection while recognizing the long-term potential of global equities.

They also talk about their benchmark-agnostic approach focusing on cash flow growth and finding mispriced resilience at appropriate valuations. 

Besides, Aviva also talks about opportunities in the ESG arena. “People often focus on ESG as a risk-mitigation tool, but there are also opportunities in companies that provide solutions to environmental and societal challenges,” contends Saldanha. 

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