4Q 2020 Global Equity Outlook: Identifying Long-Term Beneficiaries of Structural Shifts
Portfolio Manager David Souccar talks about managing portfolio risk by finding a balance between aggressive and defensive sectors.
International equity markets are holding up, despite the constant flow of bad news. Earnings were weak for the first half of 2020 compared to a year ago, but were better than expected. Improvements in Covid-19 treatments and good prospects for a vaccine in the next 6 to 12 months supported equities. And loose monetary policy continues to fuel demand for risk assets.
Investors with passive exposure solely to the US market are overweight technology and the dollar. Over the long term, sector leadership can change, and the dollar can depreciate as well as appreciate. There are unique businesses around the world in sectors including luxury, technology, health care and industrials. International exposure is a tool to create diversification.
Japan is becoming more relevant for International investors. There have been meaningful improvements in corporate governance in Japan. Companies are now focused on margins, returning cash to shareholders, and disposing of non-core assets. There are opportunities in sectors like consumer staples, health care, software and industrial automation.
We believe we are finding quality in new areas. Hong Kong’s Techtronic Industries, which makes the Ryobi and Milwaukee power tools, is long-term focused. The company has a unique relationship with distributors, specifically Home Depot, which was an essential business during lockdown. Techtronic pursued a business-as-usual strategy and was able to gain shelf space.
Asian Paints, a market leader in the Indian paint industry, was hit initially by the Indian lockdown, but saw demand recover sharply as people started repainting their homes in confinement. In this environment, it is important to know your companies and to look through disruption at the longer-term view.
Uncertainty is the only certainty these days. The key is to manage portfolio risk by finding a balance between aggressive and defensive sectors, such as technology and consumer staples. And to identify quality companies – like Techtronic and Asian Paints – with different growth drivers. We feel this served us well this year.