Who Are The Best Investment Managers for Global Equities?

Dividend investing strategies are starting to regain their investor appeal in the current economic environment. Particularly amongst Private Banking clients. Here are the key reasons why:

- Global equity market performance is down around 25% year-to-date (as of 30 Sep 2022).
- 2023 Global economic growth is expected to drop to ~4%, which is one third less than 2021.
- Interest rates are rising across the globe in response to double digit and continuously rising inflation.

This data does not look supportive for traditional Growth Investing strategies. The popular fast growing growth stocks of the bull market relied on cheap easy money and strong macroeconomics. Both of which are currently out of stock globally.

Whilst value investing strategies have staged a strong comeback, the are fundamental differences with dividend investing strategies. These core differences suggest that the outlook for dividend stocks in the current volatile environment is where new money into the equity market may flow.

Recessions put the Corporate C-Suite to the test. When the world is growing, rates are low and inflation under control, steering the Cruise Ship into sunny harbours is easy. But when a macroeconomic tempest takes hold, and your port of call becomes innaccessible, calmer waters and a new destination has to be found. So what is the smart C-Suite doing?

Capital Expenditure is the fuel that powers future earnings. Directing that investment into the themes that will determine the company's success over the next decade is where the thought capital is now being deployed. Two mega themes that touch almost every company globally are Deglobalisation and the Energy Transition. But which leadership teams are embracing change and and investing for tomorrow today? So who are being recognised as the best CEO's of Listed Companies?

Take a look at the case studies inside RFPnetworks drawn from investment managers across the globe.

One way to outperform an index is not to underperform the index? This is a sine qua non, but in no way useful. Or is it?

Manager Selectors are notorious for looking at performance. But are they looking at the right performance? And what it the right performance? An Information Ratio? A Sharpe Ratio? 3 years? 5 years? 10 years?

This question is of fundamental interest today. With the VIX breaking 30, the S&P 500 hitting it's lowest close since Nov 2021, and year to date global equity indices glowing red, the characteristics of investment manager's performance track records is getting more attention.

And in particular, the usefulness of adding products to their multi-manager portfolios that exhibit up and down market capture in proportions that are different to their existing manager line up.

If you are looking to out perform a specific index, start your search on RFPnetworks. You will find the investment managers you need.

The trend towards globalisation follows classic microeconomic theory. Firms wish to maximise revenues and minimise costs and create an inelastic demand curve for a product for which they are the sole supplier. And whilst many firms have not reached this optimal existence, the journey there has embraced globalisation. But 3 things have changed:

1. The era of free money that globalised the flow of capital has taken a turn. Banks answer to capital markets. Rates are rising, and credit ratings are being scrutinised ahead a pending recession.

2. Unfavourable demographics in developed countries, and the restricted migration of labour across borders is leaving job vacancies unfilled.

3. And the production and distribution of both inputs and final goods are backlogged and stuck in ports of cities still recovering from COVID-induced lockdowns.Globalisation is failing. Geopolitical risks are rising. And products are no longer being produced and delivered Just-In-Time.

Governments and corporations are therefore re-imagining their supply chains in a deglobalised world. And institutional investors, whose equity portfolios and performance are highly leveraged to globalisation, are worried about the solution.

How can supply chains be dismantled and solved against the current backdrop of global country and company interdependence? Does deglobalisation only bring disadvantages - Higher costs and a worsening experience for consumers.

Or are there advantages and opportunities to be uncovered across the global equity universe? And if so, where?

The stagflationary backdrop for equities is challenging. And investors are starting to feel the pain of negative YTD performance in their portfolios. Whilst the long term credo of 'stick to the plan' has historically been proven as the right thing to do, on this occasion fixed income markets do not have their back. In our investment research feeds last week, the #1 search query was "Defensive Equity Strategies".

Go inside RFPnetworks to review all Global Defensive Equity investment manager insights.

With volatility running high, sentiment swaying and markets dropping, professional investors are debating whether specific countries are now in a bear market.

But what is the official definition of a bear market? Does it signal a recession lies head? And what was the typical length and depth of previous bear markets?

Read the latest analysis from investment managers inside RFPnetworks.

The stagflationary backdrop for equities is challenging. And investors are starting to feel the pain of negative YTD performance in their portfolios. Whilst the long term credo of 'stick to the plan' has historically been proven as the right thing to do, on this occasion fixed income markets do not have their back. In our investment research feeds last week, the #1 search query was "Defensive Equity Strategies".

Interestingly, the search results display asset managers pointing in different directions. What does defensive equity investing actually mean? There are several routes that investors can take.

In this market environment, you may need defensive equities. Here's what you need to know.

Several asset manager papers point to factor investing. And specifically the benefits of low-vol strategies that are de-sensitised to interest rate changes.

Others point to value investing which, in contrast to what most assume to be true, tend to be concentrated in more defensive industries. It's not all about financial and energy companies as many investors still may think!

The growth managers are also quick to respond. They argue that beyond the de-rated high growth companies, and the collapse of future expectations from the FAANG cohort, lie a wide body of highly profitable, high quality growth companies, that can weather all storms.

And finally there are the traditionalists. These asset managers argue that given the strength of many corporate balance sheets, dividend-focused investing provides the best of both worlds - a hedge that captures up-markets and provides a stable source of income in uncertain times.

ESG Ratings are big business. Given the flow of capital into ESG related funds and strategies, asset managers have responded with differing degrees of sophistication. And many still rely upon off-the-shelf third-party ESG rating agencies. Is that sufficient?

The usefulness of third-party ESG rating agencies depends on what you are trying to achieve. From a marketing perspective to retail investors it may be sufficient, and mask any shortcomings in an asset managers investment process.

For professional investors, an outsourced solution that integrates ESG ratings into a stock buy/sell decision is less convincing. A thorough understanding of the scope and construct of third-party ESG ratings uncovers a myriad of limitations that explains why.

To find the best ESG investment managers, investors need to dig deeper into the investment process. And try to differentiate between the tangible value-add of externalised ESG rating reliance, and proprietary internally generated ESG ratings. Adding to this complexity is ESG rating subjectivity as investors consider emerging markets.

To find the best ESG managers, external ESG rating providers may not provide sufficient insights across all sectors and countries. But this will only become apparent to manager selectors as they perform their investment due diligence.

As performance dispersion across stocks, sectors, and countries widens in tandem with volatility, professional investors are revisiting the alpha generating capabilities of portfolio managers that prefer to run concentrated portfolios.

The rationale being  that concentrated portfolios allow more flexibility to outperform 'hard to beat' benchmarks. And given the global macro backdrop and resultant alpha opportunities, this could be the right time to relax investment guidelines and put some passive money to work.

But can idiosyncratic risk be diversified away using a limited number of stocks?

Buying the dip relies on markets reverting to their mean after a selloff. In theory it is not a bad strategy. However it also relies on two unknowns, which may make the strategy unprofitable.

Firstly, choosing the right entry point. Have you bought the dip? Or is the dip getting deeper?

And secondly, what caused the dip and can mean reversion be expected as this factor subsides?

Not all dips are the same and mean reversion may be clouded by other noise and factors that impact the dip. The dip could be sustained longer than expected for reasons unrelated to your rationale for buying the dip in the first place.

The challenges of "buying the dip" is well illustrated by Global Equity Markets in March: One the one side, extreme geopolitical risks could be identified as a primary causal factor for the sell off. But on the other side, commodity price inflation, supply chain disruption, rising interest rates and the threat of a recession or even stagflation, suggest the dip may be sustained.

In other words, buying the dip requires deep insight and patience.

With Growth stocks struggling in the current volatile, rising rate & inflationary market environment, Dividend stocks have quietly started to outperform their racier peers, by a substantial margin.

Looking back to 1Q 2021 a similar rotation occurred, only to be short lived as Growth stocks regained their popularity.

With reporting season well underway, popular Growth Stocks have so far disappointed the market. Factor in challenging prospects for global economic growth in 2022, this latest rotation may continue, and remains a trending topic for investors looking to diversify their income streams.