David Souccar, co-portfolio manager of the Virtus Vontobel Foreign Opportunities Fund, talks about managing portfolio risk by finding a balance between aggressive and defensive sectors.
Key highlights discussed:
- International equity markets are holding up, despite the constant flow of bad news. Earnings were weak for the first half of 2020 compared to a year ago, but were better than expected. Improvements in COVID-19 treatments and good prospects for a vaccine in the next 6 to 12 months supported equities. Also, loose monetary policy continues to fuel demand for risk assets.
- Investors with passive exposure solely to the U.S. market are overweight technology and the dollar. Over the long term, sector leadership can change, and the dollar can depreciate as well as appreciate. There are unique businesses around the world in sectors including luxury goods, technology, healthcare, and industrials. International exposure is a tool to create diversification.
- Japan is becoming more relevant for international investors. There have been meaningful improvements in corporate governance in Japan. Companies are now focused on margins, returning cash to shareholders, and disposing of non-core assets. There are opportunities in sectors like consumer staples, healthcare, software, and industrial automation.
- We believe we are finding quality in new areas of the market. For example, Hong Kong’s power and hand tools company Techtronic Industries is long-term focused. The company has a unique relationship with distributors, specifically Home Depot, which was an essential business during lockdown. Techtronic pursued a business-as-usual strategy and was able to gain shelf space.
- Asian Paints, a market leader in the Indian paint industry, was hit initially by the Indian lockdown, but saw demand recover sharply as people started repainting their homes in confinement. In this environment, it is important to know your companies and to look through disruption at the longer term view.
- Uncertainty is the only certainty these days. We believe the key is to manage portfolio risk by finding a balance between aggressive and defensive sectors, such as technology and consumer staples. In addition, we seek to identify quality companies – like Techtronic and Asian Paints – with different growth drivers.
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 not a guarantee of future results.
All investments carry a certain degree of risk, including possible loss of principal.
Important Risk Considerations:
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk. Market Volatility: Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus.