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Global equities: The need for balance in uncertain times

With the long-term opportunities in global emerging markets being the best they have been in years, an active, differentiated, style-neutral portfolio is best placed to generate alpha, say Anik Sen, global head of equities, and Robert Hinchliffe, CFA, portfolio manager and head of global sector cluster research at PineBridge Investments.
Global equities: The need for balance in uncertain times

The market is in constant debate about the durability of inflation and the monetary response.  While our conversations with management teams suggest that inflation may have already peaked, official data for August spooked the market. That said, the US labour market remains strong, with job openings picking up in August and layoffs remaining steady. US Q2 earnings reports have shown that companies have generally been able to navigate the complex environment well. It appears that pricing power remains robust across most end markets, and supply chain pressures are easing on the margin. However, guidance has remained conservative given ongoing uncertainties.

Corporate profits-to-GDP ratio remained high and margin protection is still working

Source: U.S. Bureau of Economic Analysis, retrieved from FRED, Federal Reserve Bank of St. Louis;, retrieved 19 September 2022. Corporate profits are after tax (without inventory valuation adjustment and capital consumption adjustment). Quarterly, seasonally adjusted data.

Outside the US, China’s July industrial output rose 3.5% year over year, which lagged forecasts but constituted the third consecutive month of acceleration. Zero-Covid policy remains a headwind and is causing an uneven recovery. It is too early to predict the path of the conflict in Ukraine, which has lost some of its recent intensity, but it’s noteworthy that more cargo ships are leaving port due to the grain export deal. We remain of the view that long-term opportunities in global emerging markets are some of the best that we have seen in years. And across global equities, tailwinds such as increased global capex spend offer the potential for attractive investment opportunities over the medium-term given the market pullback. 

Alpha for the same risk as the benchmark

In these challenging markets, how can investors achieve above benchmark returns without exceeding the benchmark’s total risk? The key to investment success, we believe, is having a differentiated portfolio than the benchmark and peers, to allow for uncorrelated returns while minimizing exposure to unremunerated risks. Benchmarks are top-heavy, and thus may not deliver the desired diversification benefits. For example, the top 10 constituents represent close to 28% of the S&P 500 Index and 16.29% of the MSCI ACWI.[1]

We aim to consistently generate alpha across all market conditions with a highly active, differentiated, style-neutral portfolio that benefits from investment idea generation through effective collaboration across our global equities team. We focus on identifying mispriced positive company change, constructing our portfolio to keep risk at a level similar to the benchmark with a low turnover.   

While the direction of the world  economy remains uncertain, we remain focused on long-running themes that we believe will bring sustained alpha for years to come such as corporate transformation, global capex investment, technology enablers, and global affluence. The key is to find where significant changes are taking place, and then to identify the stocks that benefit most from them and can potentially generate alpha from the mispricing of this corporate change over time. Taking a global, multi-cap approach allows the managers to consider how a trend seen in one part of the world might benefit companies elsewhere. The market pullback presented us with opportunities to invest in such companies, which are typically richly valued. We believe there will be more such opportunities as markets remain in flux.

To learn more about PineBridge’s global equity offerings, visit

[1] Source: S&P Dow Jones Indices and MSCI as of 31 August 2022. Indexes used are in USD.

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