The changing nature of global economic growth requires a new look at global equity investing, away from traditional silos based on region and capitalization size.
“The case for global investing has changed, and it's no longer just getting exposure to different economic outcomes that might be less correlated with each other,” said Ken McAtamney, partner and portfolio manager of the $2.5 billion William Blair Global Leaders Strategy. “It's more about opening up a broad opportunity set to find the best investment ideas anywhere in the world, regardless of region or country of domicile or, frankly, any constraint that a narrower mandate might have.”
McAtamney said that approach requires active stock selection from a global set of companies, with less emphasis on their location or market cap — elements that are traditional in other growth equity strategies. Having a portfolio that can access growth irrespective of its location, and constraining the manager to own only the best companies (companies that are true drivers of innovation and value creation), is the next stage in equity investing, he said.
“Historically, investing in equities outside of the U.S. gave someone exposure to an economy that was maybe on a different cycle than the U.S. economy, a diversity of companies or regions of the world that might be moving out of sync with each other, so you got the diversification benefit,” McAtamney said. “And I think, in large part, that was the primary benefit you received when you invested outside the U.S. Today, that benefit has decreased because the world is more tightly integrated.”
That change in view is the result of several decades of change in the world economy that has made the world “a much flatter place than it used to be,” McAtamney said. “What has happened has been a flattening of the global commercial market and higher correlations across different markets, as they're all trading partners with each other. Consumption habits in Asia that are increasingly similar to consumption habits in the United States, for example.”
“And we see supply chains that are global,” McAtamney added. “Much has been made about the supply chain behind, say, a smartphone that might be designed in California, but the raw materials for that phone might cross borders between Asia and the U.S. several times before it becomes a finished product that can be shipped anywhere in the world.“
Competition for companies has also intensified, he said, and “there's been a weeding out of the average and below-average companies, and weaker business models. I think the gap between winners and losers globally has been tremendous. And that could be in markets, but also, importantly, it can be across markets.”
The nature of innovation and disruption is changing as well. “As equity growth investors, we're very attracted to companies that can innovate and change the economic landscape,” he said. “And what's clear is the nature of incumbency has changed — and there's that much more pressure from the competition than we've seen before.”