Quality Approach

We believe emerging markets (EM) are reasserting themselves as a compelling source of long-term growth. This article explores the structural forces driving the resurgence, why quality investing has historically outperformed in EM, and why a forward-looking, active approach is essential for identifying tomorrow’s enduring compounders.

Investing has no perpetual motion machine. Just as energy comes at a cost, growth comes with risk. The AI boom highlights this trade-off: while AI-related stocks are driving returns, future payoffs remain uncertain. Quality investing seeks to maximize growth per unit of risk through disciplined portfolio construction and balance.

China’s luxury market is being reshaped: ultra-high-end brands remain resilient, while mid-tier players face pressure from premium and domestic competitors. Consumers are shifting spending toward experiences and local brands, with uneven recovery and opportunities emerging in platforms and adaptable operators.

Portfolio manager Ed Walczak shares his thoughts on his trip to the Berkshire Hathaway annual meeting, his 30 th visit. He focuses on investing versus speculating in today’s AI-obsessed market, and how sticking to a discipline might be harder but more important than ever.

Like oil once powered the industrial era, chips have become a key input powering broad economic activity, with expectations for demand to continue through 2026 and into 2027. In our view, “picks-and-shovels” companies should benefit regardless of which model, hyperscaler, or foundation lab ultimately wins.

Galderma is a pure play dermatology company with steadily growing aesthetics and skin care franchises. Galderma’s Dysport is taking share from Botox, while Nemluvio, its novel itch biologic, is gaining traction. We believe the company may see long term revenue and profit growth ahead. Turns out, demand for better skin is remarkably durable.

Markets today resemble Aesop’s fable The Boy Who Cried Wolf, with many investors conditioned to dismiss risks after years of shallow, short-lived downturns and swift recoveries fueled by central bank interventions. We believe this complacency has led to higher valuations and reduced defensiveness, creating structural fragility.

Artificial intelligence (AI) may be one of the greatest technological breakthroughs, but it’s too early to tell. History shows that investment returns don’t always match innovation hype. However, we do know that economic fundamentals have not changed, which means that investments must become self-financing and deliver adequate returns to be sustainable.

Vontobel’s Ed Walczak is among a small number of portfolio managers active today who were also managing money during the dot-com bubble. Ed compares the two time periods and explains how having zero exposure in tech and telecom in the dot-com era, while unpopular, rewarded his investors.

While the promise of AI remains compelling, its market dominance and reliance on external financing create vulnerabilities. By seeking opportunities in areas of predictable growth and resilience – both within and outside the AI ecosystem – we believe investors can better navigate the uncertainties ahead.

Leaders in the video game industry, such as Tencent Holdings, NetEase, and Capcom, offer a distinct blend of predictability and growth through a combination of "Evergreen" titles and new game pipelines. These firms have generated recurring revenues and compounded earnings at approximately 20% annually over the past decade.

AI-driven momentum trades and non-US value dominated markets in 2025. However, the sustainability of these trends remains uncertain, particularly given unproven ROI of AI investments. Amid this backdrop, quality stocks emerge as a prudent choice, offering both resilience and steady growth potential.