How would you describe your approach to investing in global equities?

We focus on companies that are dominant in their field and are driving innovation and change through disruptive technologies, products or business models. One of the key attributes we look for is a wide moat, which means a company has distinct attributes that are difficult for competitors to copy. In our view, these wide moats are key to a company’s ability to sustain its competitive advantages and grow market share globally over time.

What biases do you see in today’s market?

We think there is a significant amount of loss aversion in markets currently, which is manifested in the form of truncated investment time horizons. Historically, longterm investing meant a five- or 10-year timeline; today, it seems more like 10 months or, on some days, 10 hours. Investors are so worried about minimizing losses that they are rapidly moving in and out of stocks, driving market volatility.

We also see an element of herd mentality. Rising interest rates and multidecade-high inflation created an unfamiliar – and uncomfortable – paradigm for investors. Uncertain about the future, many investors seek safety in the crowd, which contributes to momentum-driven market moves. But over the course of our long investing careers, we found oftentimes the most dangerous place you can be is in a crowd. In our view, over the long term, investors benefit more from thinking originally and independently than following the herd.

What do you think investors should be doing in the current market environment?

We think it’s especially important to pay attention to the resilience of companies. When rates are rising and capital markets are tight, it is critical for firms to have strong competitive positions and balance sheets. Valuation is also important. In past years, negative rates – both real (inflation-adjusted) and nominal (non-inflation-adjusted) – turned traditional financial valuation approaches on their heads by making future cash flows more valuable than near-term ones. The result was to cause valuations of many stocks to become distorted. With central banks now rapidly hiking rates to combat inflation, stock prices are adjusting to account for the rise in rates, both real and nominal. In turn, global equity indices sold off and could continue to be challenged over the coming months as this adjustment process persists. The price you pay for a stock and the quality of the underlying company matter greatly, more so than in recent years.

Where are you finding some of these opportunities?

The selling in U.S. equities was widespread in the first half of 2022, even impacting what we view as highquality companies. Many firms possess healthy balance sheets, attractive profit margins and good earnings power, which should help carry them through a potential economic slowdown.

In Europe, the Russian invasion of Ukraine increased the odds of stagflation (a combination of high inflation and high unemployment) for the region. Even so, many domestic European companies – having long dealt with low levels of demand – are efficient operators and therefore could be resilient in a slow-growth period. The weakening of the euro and British pound also creates a cost advantage for the region’s exporting companies, which could support earnings growth. In addition, Europe is home to many cyclically oriented companies, such as energy producers and miners, which are experiencing strong revenue growth as a result of supply shortages.

China’s draconian response to COVID-19 negatively impacted the country’s growth this year while an increased focus on fair trade and the shifting of supply chains out of China were additional headwinds. But China is still the world’s second-largest economy and is now deploying expansionist government policies to combat weak economic activity. Moreover, China’s stock market is inexpensive relative to other regions, creating what could be an attractive entry point for investors.

In your view, why should investors consider adding a global equity fund to their portfolio?

A global equity fund can help diversify the stock portion of an investor’s portfolio, which is often concentrated in equities of companies domiciled in the investor’s home country or region (what’s known as a home bias). We have the flexibility to invest in what we think are the best 40 to 70 companies across the globe, as well as across market capitalization and style (growth versus value). This broad mandate gives us leeway to focus on finding what we think are the best examples of companies whose free-cash-flow growth is mispriced by the market. The approach aims to drive strong risk-adjusted performance over a full market cycle and avoid biases that could erode long-term investment returns.