Capital Ideas^TM

Economic uncertainty and higher yields on cash and other low-risk assets have driven investors to reduce equity exposures within their portfolios. 

One-year cumulative global fund flows

We remain in an uncertain macroeconomic environment but there are reasons to believe that we are close to a turning point in rates that will pivot the opportunity more towards equities.

Timing turning points is notoriously challenging, however, and how you rebuild exposure can be as important as when. This involves a more detailed understanding of equity market dynamics and sector level opportunities.

Following the narrowness of equity market returns year-to-date and an uncertain future, an active approach based on fundamental research can offer quality and resilience.

Since the start of the year to end August, global equities have risen 14.8% compared to 3.6% for cash and 1.7% for short-term bonds. However, it has been well documented that most of these gains have come from the so-called "Magnificent 7" companies, with Tesla, Apple, NVIDIA, Microsoft, Amazon, Meta, and Alphabet, contributing more than 50% of the total return alone. Looking beneath the surface, we find that most of the gains for these companies have come from re-rating rather than earnings per share (EPS) growth.

While the growth prospects for these seven may remain strong in future, we believe there are still many opportunities for companies with attractive fundamentals in other areas.