The impact of quantitative tightening (QT) by major central banks on financial markets is difficult to predict under stable conditions, but in today’s volatile landscape, market conditions could be pushed to a breaking point. High inflation, steep rate hikes, and rising recession risks have created a fragile environment.

As a new chapter begins, monetary and fiscal stimulus will no longer support equity returns. Positioning a portfolio to withstand various outcomes and capitalize on dislocations that may arise during periods of market stress is easier said than done. Investing in quality companies with business models that are resilient to macroeconomic factors is a sensible defensive strategy. At the same time, businesses that are innovators and leaders in their industries also offer opportunities for growth. Many of these companies are listed outside the U.S., which means a compelling investment story is unfolding in the international markets.

Figure 1: Major Central Bank Assets Are Decreasing Total Assets of U.S. Fed, ECB, BOJ (Yearly % Change)

Source: Haver Analytics, as of March 28, 2023.

European Companies are Reinventing the Luxury Goods Experience

Consumer discretionary companies have historically shown resilience during economic declines. Luxury goods businesses in particular are less impacted by inflation given their pricing power and tendency to fare better than other retailers during economic downturns due to their exposure to high-income consumers. Another source of resilience is the luxury industry’s heightened focus on customer-centricity and the multi-touchpoint ecosystem that has been developed in recent years. Among the top 100 luxury companies, the top 10 account for 56.2% of sales and almost 85% of net profits, indicating a concentrated market.1 Notably, this space is dominated by European companies.

Figure 2: Top 100 Luxury Goods Companies - Share by Country (FY 2021)

Results reflect top 100 companies headquartered in each country.
Source: Deloitte Touche Tohmatsu Limited, Global Powers of Luxury Goods 2022. Analysis of financial performance and operations for financial years ending within the 12 months from January 1 to December 31, 2021, using company annual reports, industry estimates, and other sources.

U.S. luxury companies don’t compare to European luxury companies, which attract higher prices and are more defensive given their longer histories. Even Tiffany’s, the iconic luxury jewelry brand in the U.S., is now owned by French luxury goods leader LVMH, which accounts for 32% of sales of the top 10 companies.1 LVMH transformed Tiffany’s by hiring a more effective management team, developing a winning marketing strategy, and creating a new jewelry collection. The result was a doubling of profits in the past two years and an increase in sales from $4.4 billion in 2019 to $5.65 billion in 2022. The company still has more growth levers to pull with expansion planned in Europe and China.

Italian luxury automaker Ferrari N.V. intentionally pursues a low production volume strategy to maintain the brand’s reputation for exclusivity and scarcity among customers, which has resulted in superior margins and returns on capital. Combined with consistent performance and technology upgrades, Ferrari was able to steadily increase prices over the long run. The company’s performance metrics illustrate how this approach has paid off.

Figure 3: Ferrari N.V. Performance Metrics


12+ month order
backlog in 2023



~23% average return
on capital invested



over the last 10 years



0.03x net debt*


Source: Company Filings, FactSet. *Industrial Net Debt: Excludes net debt related to financial services activities. ** As of March 31, 2023.
Past performance is no guarantee of future results.

The growth story of European luxury companies goes far beyond iconic brands and exclusive products. Luxury companies are innovating and embracing sustainability by offering a secondary market for products and using environmentally friendly materials. Further, some are finding new opportunities by engaging customers in the digital world – or metaverse.

European Companies are Leading Rapid Growth in Pharmaceuticals Outsourcing 

Even before COVID-19, the healthcare industry has demonstrated its potential for resilience in volatile markets, thanks to powerful secular drivers. One major trend is the shift toward outsourcing in the pharmaceutical industry led by contract development manufacturing organizations (CDMOs), companies that provide medication development and manufacturing services to the sector.

Outsourcing helps smaller companies that lack manufacturing capabilities and allows larger companies to focus more on core activities, while compressing timelines for drug development processes overall. The CDMO market is projected to more than double to $278.98 billion by 2026 from $130.8 billion in 2018.2 This rapid growth is driven by a rising incidence of chronic diseases and an expanding geriatric population, as well as the increased demand for novel therapies. The development is fueling European companies that are emerging as leaders in the space.

Lonza Group AG is a Swiss CDMO that focuses on biological drugs (biologics). This class of drugs is seeing solid secular growth, as they become an increasing proportion of overall drug industry production. Lonza is a market leader that has traditionally focused on more challenging and differentiated drug substances. We believe this leaves the company well positioned to consolidate what is still a relatively fragmented CDMO industry.

Greater Geographic and Business Model Diversification

While investors can get exposure to revenues outside the U.S. from S&P 500® index funds and active managers that invest in U.S. companies with a global presence, an international equity strategy can offer even further geographic diversification. This point is illustrated in this comparison of the geographic sources of revenue for the S&P 500 Index and the Virtus Vontobel Foreign Opportunities Fund, an actively managed portfolio of international stocks.

Figure 4: Revenue Exposure: S&P 500 Vs. an Actively Managed International Portfolio

Source: FactSet. As of March 31, 2023.

An international strategy can also provide a gateway to globally dominant companies with business models that cannot be found in the United States. Companies that fit this bill include Taiwan Semiconductor Manufacturing Company (TSMC), which pioneered the dedicated foundry industry, and has a patented manufacturing processes, limiting the ability of competitors to copy its success. Also, iconic French brand Hermes International is a best-in-class luxury goods company with a 183-year history that specializes in apparel, leather goods, jewelry, and watches. Lastly, Canada-based Constellation Software, a conglomerate of small to mid-sized mission-critical software companies with high barriers to entry, also stands out.

International Equities at Attractive Valuations

International equities are more attractively valued than U.S. stocks. The S&P 500’s price-to-earnings ratio is expensive and above its long-term average, while multiples for international equities are more attractive than U.S. equities and below their long-term average.

Figure 5: P/E Multiples Have Contracted Towards Historical Averages with the U.S. at a Premium

Source: FactSet, as of March 31, 2023.

A Narrative for Today’s Markets

While investors can get exposure to global businesses and consumers through multinational companies listed in the U.S., we believe a truly international approach — one that encompasses Europe, Japan, and emerging markets — is the best way to access companies that are world leaders with no U.S. equivalent. And with international equities priced at a wide discount to U.S. shares and below long-run averages, today’s story in international equity markets is both timely and compelling.

1 Deloitte, The Global Powers of Luxury Goods 2022
2 Fortune Business Insights, CDMO Market Size, Share, Growth, Trends

The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

Past performance is no guarantee of future results.

All investments carry a certain degree of risk, including possible loss of principal.

Please consider a Fund’s investment objectives, risks, charges, and expenses carefully before investing. For this and other information about any Virtus Fund, contact your financial professional, call 800-243-4361, or visit for a prospectus or summary prospectus. Read it carefully before investing.