Investing in tomorrow’s acronyms today: Time to rethink global equity allocations?
Global equity allocations can come with challenges. Portfolio managers Richard Clode and Nick Harper consider the best way to gain exposure to exciting new themes through high conviction stock picking balanced with optimised portfolio construction.
6 minute read
Key takeaways:
- Some traditional active global equities strategies have struggled to deliver given concentrated market leadership, while thematic funds often lack consistency, not offering commensurate higher return for the greater volatility.
- Active stock picking and discovering new alpha is key given market leadership often shifts over time exacerbated by AI disruption, to capture emerging winners and diversify sources of performance.
- A high-conviction approach fully aligned with and plugged into thematic change with a portfolio optimisation overlay could provide an exciting and compelling alternative approach to global equity investing.
The case for investing in global equities remains solid, with strong performance versus other asset classes.1 It offers a broad opportunity set, regional and sector diversification, and the ability to capture growth drivers as they evolve. However – increasingly, investors are finding that returns aside, some of the benefits are being diminished.
Why traditional global equity strategies can fall short
Global equity investors continue to navigate a complex investment landscape fraught with uncertainty and evolving risk factors. Among these are elevated valuations and concentrated exposure due to the dominance of a handful of technology and AI-driven stocks in the US market. This has reached unprecedented levels, with the top ten stocks representing circa 40% of the S&P 500’s market capitalisation.2 For a portfolio benchmarked to the MSCI World Index, investors face similar concentration issues, given US exposure is more than 70% of the index, with the top ten holdings taking up almost 30% of the index’s total market capitalisation.3
Rising geopolitical risks and regional conflicts are increasing risk premiums and adding uncertainty to global trade flows. Meanwhile, shifting fiscal and monetary policies, regulatory unpredictability, lingering inflation, and persistently high debt-to-GDP ratios all cloud the investment decision-making environment.
In today’s fragmented and uncertain global equities landscape, investors are seeking clarity and conviction. A differentiated approach built around high conviction stock picking harnessing transformative themes within clear portfolio optimisation guardrails could help discover new alpha. It could also offer investors the chance to benefit from stocks well positioned to lead the markets of the future and become tomorrow’s acronym.
Thematic investing – but with a difference
An alternative approach could be to look beyond the short-term noise and focus on global opportunities well positioned to benefit from transformative long-term growth themes. We believe this is best done by reflecting portfolio manager conviction in a highly concentrated portfolio focused on the real stock winners from secular themes. Whereas traditional thematic equity funds typically have a narrow focus, we see benefits to retain the freedom to pick from any sectors offering the opportunity to diversify sources of performance.
Through portfolio construction optimisation, a best ideas portfolio can be built under strict constraints, with biases minimised for factors like style, sector and region. This ensures that stock selection is the main driver of returns, rather than macro or style factors.
A different way forward to address key investor challenges
This approach has the benefit of addressing key traditional limitations of global equities in three ways:
1. Mitigating valuation challenges
Leveraging bottom-up fundamental research to identify companies with underappreciated earnings growth can address the challenges of stock valuation in more exciting and rapidly-developing areas of the market.
2. Enhancing portfolio resilience and geographic diversification
Implementation of guardrails via optimised portfolio construction allows a focus on best ideas, while at the same time retaining diversification by sector, geography, and style. This should create a more resilient portfolio that is less exposed to market gyrations than narrower thematic strategies but without overly diversifying away the stock alpha as many global funds with hundreds of stocks risk doing.
3. Boost the potential of active stock picking
Market leadership is constantly evolving; the standout stocks of previous decades, like the ‘Nifty Fifty’, or Dotcom darlings may not necessarily be the winners of tomorrow. An active high conviction portfolio can avoid the pitfalls of generalist approaches (e.g. passive investments like exchange traded funds) that may have failed to capture select stocks that have driven global equity returns and have been skewed by increasingly concentrated market indices.
Seven transformational themes with the potential to drive investment returns
We identify seven transformative multi-year themes that we believe could power long-term returns within a global thematic equities portfolio:
1. Smarter Automation
AI is moving from deployment of software into the physical world, as it evolves from generative to agentic and eventually physical AI, where we will see a shift from software-based intelligence to embodied cognition. This is powering humanoid robots, smart cities, and autonomous infrastructure. Investments in Radio Frequency Identification (RFID), smarter automation, and industrial innovation are enhancing productivity, precision, and cost-efficiency across healthcare, logistics, and manufacturing.
2. Mobility
The convergence of AI, electrification, and autonomous systems is redefining how we move people and goods. This is reshaping transportation, supporting the shift to electric vehicles, autonomous fleets, and AI-driven logistics – enabling cleaner, smarter, and more decentralised movement.
3. Lifestyle 2.0
Agentic AI, digital finance, online platforms, virtual experiences and other immersive technologies are redefining how we live and work, enabling highly personalised, digital-first lifestyles. This includes areas such as personalised content platforms, food delivery, digital banking, and remote working.
4. Sovereignty
Geopolitical fragmentation has led to growing emphasis on national self-reliance in technology, supply chains, and data infrastructure. Deglobalisation, supply chain localisation, and strategic resource control, including sovereign AI and defence innovation are building resilience through reshoring and industry-specific strategic moves.
5. Longevity
Ageing populations are driving economic and societal shifts within healthcare, financial services and real estate – supporting independence, wellness and economic sustainability. This is being enabled by automation and assistive technologies in areas such as health diagnostics, mobility, insurance and senior living.
6. Biotechnology
At the frontier of therapeutics innovation, biotech innovation is facilitating breakthroughs in drug development to solve unmet medical needs and improve the standard of care. Advances in AI, genomics, and molecular engineering are accelerating the pace of discovery, improving trial efficiency, and enabling more precise, scalable and cost-effective interventions.
7. Net Zero 2.0
A pragmatic approach to climate transition is being enabled by nuclear energy, smart grids, and advanced materials. Next-generation materials, net zero solutions, and differentiated stocks in climate technology are supporting sustainable growth without compromising energy reliability.
Conclusion
Investors in global equities today have to contend with an increasingly complex investment landscape. While there are obvious benefits of a global approach, as noted, overconcentration issues in US markets and the historically narrow focus of thematic equities can present challenges. But rather than getting caught out by inaction and holding cash as the world changes, we believe a high-conviction approach fully aligned with and plugged into thematic change could provide an exciting and compelling alternative approach to global equity investing.
1Deutsche Research Long-Term Asset Study, 27 October 2025.
2 Goldman Sachs Global Investment Research, S&P Global, Compustat, CRSP as at 31 October 2025.
3 MSCI.com; MSCI World Index Index Factsheet as at 31 October 2025.
Agentic AI: An AI system that uses sophisticated reasoning and iterative planning to autonomously solve complex, multi-step problems. Vast amounts of data from multiple data sources and third-party applications are used to independently analyse challenges, develop strategies and execute tasks.
Alpha: A measure used to help determine whether an actively-managed portfolio has added value relative to a benchmark index, taking into account the risk taken.
Bottom-up, best ideas portfolio: A highly focused and actively-managed portfolio comprising a relatively small number of a fund manager’s highest-conviction stock picks that have been selected via bottom-up investing, which focuses on the analysis of individual securities rather than broader macroeconomic or market factors in order to identify the best opportunities in an industry, country, or region.
Concentrated portfolio/concentration risk: Investing in a smaller number of stocks typically carries greater risk than investing in a broader range of stocks (diversification), given that an adverse event could result in significant volatility or losses, but the potential to outperform is also greater.
Decarbonisation: The process of reducing the amount of carbon, mainly carbon dioxide (CO2), sent into the atmosphere, to combat global warming and climate change.
Diversification: A way of spreading risk by mixing different types of assets or asset classes in a portfolio on the assumption that these assets will behave differently in any given scenario.
High conviction: A strategy where a portfolio holds a select number of stocks that represent the portfolio manager’s best opportunities for outperformance. Fewer holdings means each stock has a larger impact on under/outperformance. A high-conviction approach can also lead to higher volatility or risk.
Market capitalisation: The total market value of a company’s issued shares. It is calculated by multiplying the number of shares in issue by the current price of the shares. The figure is used to determine a company’s size and is often abbreviated to ‘market cap’.
Net zero: A state in which greenhouse gases, such as Carbon Dioxide (CO2), being released into the atmosphere are balanced by their removal from the atmosphere. To avert the worst impacts of climate change and preserve a liveable planet, global temperature increase needs to be limited to 1.5°C above pre-industrial levels.
Nifty Fifty: This was a group of 50 large-cap stocks on the New York Stock Exchange in the 1960s and 1970s, characterised by their consistent earnings growth and high P/E ratios, including household names such as General Electric, Coca-Cola, and IBM.
Thematic investing: A growth potential-focused investment approach that relies on research to explore long-term macroeconomic, geopolitical and technological trends. Thematic equities offer diversified sources of risk and return and good sector diversification when investing in multiple themes.
Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment.
6 minute read
Key takeaways:
- Some traditional active global equities strategies have struggled to deliver given concentrated market leadership, while thematic funds often lack consistency, not offering commensurate higher return for the greater volatility.
- Active stock picking and discovering new alpha is key given market leadership often shifts over time exacerbated by AI disruption, to capture emerging winners and diversify sources of performance.
- A high-conviction approach fully aligned with and plugged into thematic change with a portfolio optimisation overlay could provide an exciting and compelling alternative approach to global equity investing.