International and Global Markets Commentary & Investment Outlook


An era of low inflation and low interest rates has ended. Inflation is running at its fastest pace in decades in many places, and a range of central banks are pushing rates quickly higher. The war in Ukraine has only intensified the picture. It has been the geopolitical wild card, and it has further disrupted critical energy and food supplies. More likely, interest rates will probably need to stay high enough for some time to meaningfully weigh on the economy.

For these reasons, 2022 was an extremely difficult market environment, and there looks to be more choppiness ahead. While portfolios underperformed their respective equity benchmarks in the past year due to a broad rotation to value stocks, they were not far behind. But more striking, portfolios significantly outperformed the growth styles of their respective equity benchmarks, due to a consistent application of our investment process that not only considers growth, but also returns on capital and valuation.

Our investment philosophy emphasizes businesses that benefit from secular trends and possess strong competitive advantages and market positions. Additionally, portfolio companies are purposefully selected that earn attractive profit margins, carry strong balance sheets, and generate cash on a consistent basis. We expect these attributes to hold tack even if the macro backdrop is deteriorating. For these reasons, portfolios can outgrow market growth rates over the long-term.

In this inflationary environment, we have also managed by making ongoing adjustments to emphasize holdings that are well-suited to transmit pricing power or are valued more attractively. These attributes should help protect against two of the most pernicious effects of inflation for equity investors, namely the compression of profit margins and the compression of valuation multiples.