Rob Hinchliffe, CFA, portfolio manager for the global focus strategy and head of global sector cluster research at Pinebridge Investments, discusses his insights on global equities in 2023.

Rob Hinchliffe, CFA, at New York-based Pinebridge Investments, a private, global asset manager, believes that alpha will be a bigger driver of global equity returns in the future, with high interest rates and inflation limiting the contribution of beta towards total returns.

“Although beta had driven returns for many years in the lower-for-longer interest rate era, the U-turn in 2022 saw inflation and rates rise dramatically and has caused beta to quickly become a smaller contributor to total returns,” he said in a statement last week. “The evidence is the mostly flat-to-negative performance of global equity markets over the past two years amid heightened volatility,” he added. 

This means finding alpha has become essential. “And with this shift in focus, investors must look past the short term to actively seek companies with the potential to contribute alpha via agile management, strong pricing power, robust financials, and competitive positioning,” he continued. 

“Even amid short-term volatility, key opportunities for alpha from global equities can be found in longer-term structural themes and evergreen investment ideas, including improving the environment, rewiring supply chains, and upgrading productivity via automation and digitalisation,” he said.

“The pandemic and post-pandemic periods have clearly tested companies, and volatility continues to differ from one region to the next, creating varied opportunities at different points in time,” he continued.

He believes that collaboration, knowledge sharing, and debate among a diverse team are critical to consistently identifying the mispriced potential improvements of select companies when looking at a broad opportunity set. Notably, he is finding that the best way to invest in Asia, for instance, may often be through companies listed in developed markets – further reinforcing the value of working with a global opportunity set. 

Wrapping up, Hinchliffe said: “The global equities market remains uncertain, with extreme volatility posing significant risks to short-term investment strategies. As beta has become a smaller contributor to total returns in the wake of rising inflation and rates, investors must seek alpha via companies with agile management, strong pricing power, robust financials, and competitive positioning.” 

“While investing based on a short-term outlook can be risky, an active core strategy offers the opportunity to own a portfolio of high-quality investments that is well positioned for long-term outperformance while also being actively managed for risk,” he added.