Bernard Chua

Institutional investors have many ways to access global equities. In recent years, many have used passive strategies to achieve broad market exposure efficiently and at low cost. That trend is understandable, particularly in a category as broad and diverse as global equities.

At the same time, the case for a dedicated active global growth allocation remains compelling. In a global opportunity set, leadership shifts across regions, sectors and individual companies over time. These shifts aren’t always captured efficiently by benchmark-driven approaches.

It’s true that active management has fallen out of favor with some investors, particularly as market performance has become concentrated among a narrow group of companies. However, we believe active management remains a valuable investment strategy with the potential to deliver positive results over the longer term.

Figure 1 demonstrates how one index — the MSCI ACWI, a benchmark for global funds — has outperformed active management recently. If we take a longer view, however, we observe extended periods when the benchmark lagged the median manager.

For investors seeking growth across global markets, the question isn’t simply whether to allocate actively or passively. It is whether their portfolio’s structure provides enough flexibility to identify emerging opportunities, respond to shifting fundamentals and manage the trade-offs inherent in cap-weighted benchmarks.

Why does global growth investing create more dispersion?

Global growth equities offer a broader and more diverse opportunity set than any single market. They span a wide range of countries, industries, business models and economic drivers. This breadth can improve diversification, but it also increases the range of possible outcomes across regions and companies.

Differences in economic cycles, policy environments, capital markets and consumer demand frequently lead to meaningful dispersion in both earnings growth and valuations. As a result, performance can vary significantly not only by region, but also by company within the same region or industry.

The depth and quality of information available to investors also vary across markets. Uneven analyst coverage and differing levels of market efficiency may contribute to pricing discrepancies, particularly in less widely followed segments of the global equity universe.

This breadth is one of the defining advantages of global investing, as shown in Figure 2. It also means that implementation matters. A larger universe offers more potential sources of return, but it also requires a disciplined process for consistently evaluating opportunities across markets.

What are the structural trade-offs of passive global equity exposure?

Passive strategies have traditionally played an important role in institutional portfolios. They can offer cost-efficient access to broad market segments and may simplify governance for allocators seeking benchmark-based exposure.
However, these strategies are shaped by the structure of the indices they track. Most follow market capitalization-weighted benchmarks, which allocate more capital to companies as their market values rise. That can lead to situations where the market-weighted index carries a valuation premium above its equal-weighted version. See Figure 3.

While market prices reflect investor expectations, index construction doesn’t involve an explicit reassessment of whether a company’s fundamentals or valuation continue to justify its growing weight in the portfolio.
That distinction matters. In periods when market leadership narrows, cap-weighted benchmarks can become increasingly concentrated in a relatively small number of companies. Over the last five years, for example, the Magnificent Seven stocks have accounted for roughly 33% of MSCI ACWI performance. In the MSCI EM Index, just three stocks — TSMC, Samsung and SK Hynix — represent roughly 30% of the benchmark.

Over time, this can result in a portfolio that is driven more by index mechanics than by an active view of earnings durability, valuation or business quality.

Index-based strategies can also be slower to adapt as conditions change. Benchmark composition evolves through scheduled reconstitutions, which means passive portfolios may be slower to incorporate emerging companies that are not yet fully represented in the index. At the same time, they may continue to hold companies whose fundamentals or earnings outlooks have deteriorated.

These features may be particularly relevant in a global context. Economic cycles, policy decisions and geopolitical developments don’t affect all regions, sectors or companies equally. When trade regimes shift, capital spending trends change, or political risks rise, the effects can be highly uneven across the global equity universe.

In those environments, passive portfolios continue to allocate primarily based on benchmark rules and market capitalisation. That may preserve broad exposure, but it can also limit responsiveness when investors seek more selectivity.

How can an active global approach add value?

An active global growth strategy approaches the market differently. Rather than treating geography as a set of fixed buckets, it views global equities as a single, integrated opportunity set across markets.

This matters because many of the most attractive growth opportunities aren’t neatly aligned with index weights, regional classifications or incumbent market leadership. A bottom-up process allows investors to compare companies across markets on a consistent basis and allocate capital according to conviction rather than benchmark size.

Active global managers can also reassess holdings as conditions evolve. This includes assessing whether earnings trajectories remain intact, whether competitive advantages are strengthening or weakening, and whether valuation continues to support the investment case. In other words, active management can reevaluate positions in a way that index construction doesn’t.

This flexibility can be especially valuable during periods of rapid change. Technological innovations, shifts in public policy and changes in corporate investment cycles can alter company-level fundamentals before those changes are reflected in benchmark composition.

Consider the wave of investment tied to artificial intelligence (AI). It has created opportunities across semiconductors, infrastructure, software and related industries. It has also introduced risks tied to capital spending intensity, supply chains and the possibility of overinvestment.

An active manager can participate in those opportunities while calibrating exposure as the outlook evolves.

A more integrated view of portfolio construction

Active global management isn’t only about security selection. It is also about seeing the portfolio as a whole.

When allocations are made region by region or country by country, it’s possible to make sound decisions within individual sleeves while still creating unintended concentrations at the total portfolio level. For example, separate decisions to add exposure in two different regions may each be justified on fundamental grounds. Yet together, they may result in an outsized position in a single sector or growth theme.

A global investment process can help address that problem by evaluating region, sector and company exposures simultaneously. It allows portfolio construction decisions to reflect the interaction between holdings, rather than assessing each segment in isolation.

That is particularly relevant in growth investing, where many of the most important drivers of return cut across borders. Supply chains, platform businesses, industrial automation, health care innovation and digital infrastructure aren’t confined to one region. Understanding these linkages can improve both idea generation and risk management.

For institutional investors, this more integrated approach may offer an important advantage. It can help ensure that position-level decisions align with overall portfolio objectives, rather than simply reflecting separate regional calls.

How can an active growth strategy complement passive core exposure?

For many institutions, the most practical role for an active global growth strategy isn’t as a wholesale replacement for passive exposure, but as a complement to it.

Passive strategies can continue to serve as efficient core holdings. A dedicated active global growth allocation can sit alongside that core, expanding the opportunity set beyond what benchmark-driven construction and timing allow. It can provide access to companies that may not yet be meaningfully represented in indices, while introducing greater selectivity around valuation, earnings quality and business durability.

This framing is often more consistent with how institutional portfolios are built. Many allocators already combine passive market exposure with active strategies that target differentiated sources of return. In that context, a global growth sleeve can play a specific role: providing a benchmark-aware yet more selective expression of growth exposure.

For institutions seeking a stand-alone active global equity allocation, the case can also be compelling. A single strategy with a disciplined process and a broad global remit may provide a more cohesive way to access growth opportunities across markets than a collection of regional exposures managed in isolation.

What defines a disciplined global growth process?

Global growth investing isn’t simply about owning more companies in more places. It’s about making informed decisions across a broader and more uneven opportunity set.

We believe this requires research, judgment and an investment framework that can distinguish between durable growth and temporary enthusiasm. It also requires the flexibility to adjust when valuations become stretched, when fundamentals inflect, or when market leadership changes.

Passive strategies remain useful tools for broad market access. But in our view, a disciplined, active global growth approach can offer meaningful advantages in a category defined by breadth, dispersion and change.

For investors building global equity exposure today, that distinction may matter more than ever.

By Brent Puff, senior portfolio manager & Bernard Chua, senior client portfolio manager

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Bernard Chua

The next phase of AI could reshape earnings growth across sectors, not just in tech, possibly creating new opportunities for institutional investors. So far, AI’s impact has largely centered on the large hyperscalers that are investing hundreds of billions of dollars in AI models and infrastructure.

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More details about changes to U.S. tariff policy are emerging, but significant uncertainty remains.

The number of S&P 500 companies mentioning “uncertainty” in their earnings calls more than doubled compared to the previous quarter. Higher tariffs could splinter international supply chains or push companies to postpone capital expenditures and other investments.

However, some firms are highlighting ways to soften the potential impact of tariffs. For example, 3M said it may adjust where and how its goods are produced.

The company could ship semifinished goods to the countries where they’re sold and fully finish them after arrival. Doing so would lower the items’ value and, in turn, reduce their tariff exposure.

2. Europe Proposes New Defence Stimulus

As concerns grow about U.S. reliability, the EU rolled out a framework for boosting defence spending, which could bolster the region’s defence industries.

The EU plan includes a 150-billion euro fund that member nations could tap for defence projects. The fund would direct most disbursements to companies in the EU, the European Economic Area, the European Free Trade Association and Ukraine.

EU countries could also deviate from the bloc’s fiscal rules and put an extra 1.5% of their gross domestic product into defence.

These new policies could generate more than 800 billion euros in additional defence spending.

3. Big Tech Doubles Down on AI in 2025

Some of the largest tech companies are accelerating their investments in artificial intelligence (AI) despite the recent debut of DeepSeek. The creation of this lower-cost AI model raised the question of whether firms would continue spending significant sums on infrastructure.

In February, though, Amazon announced plans to spend more than $100 billion on CapEx, up from $78 billion last year. Most of the money will go toward AI projects related to its cloud business.

Meta also said it would raise its CapEx budget beyond what was previously planned for this year. Instead of spending $60 billion to $65 billion, the new plan calls for an outlay of $64 billion to $72 billion.

Doing so will let the company add capacity faster, allowing it to progress on AI projects that could fuel growth, such as AI-generated advertisements.

4. U.S. Consumers Start to Show Mixed Signals

While consumer sentiment weakened over the first quarter, U.S. consumer spending increased at a slowing rate.

In its most recent earnings call, Visa described consumer spending as resilient and strong, with spending growing fastest among the most affluent households. However, the company said areas such as travel experienced slower growth.

Booking Holdings, the owner of Booking.com, Priceline and other brands, noted signs of a “bifurcated economy” in the U.S. Higher-rated, higher-end hotels tended to fare better than those with fewer stars.

Companies like Pepsico and Starbucks also pointed to signs of a tougher consumer environment. McDonald’s U.S. comparable sales shrank by 3.6% during the quarter.

5. Banks Are Benefiting from Tariff Turmoil

President Donald Trump’s tariff announcements appear to have generated a tailwind for banks during the first quarter. Their trading revenues surged as investors added and trimmed their holdings to adapt to market uncertainty.

A group of the largest Wall Street banks made almost $37 billion from trading, their best results in more than 10 years. And a group of Europe’s five largest banks earned 13 billion euros from trading, their best performance in at least a decade.

Over the long run, though, tariff uncertainty could present a risk if it scares investors into keeping their money on the sidelines.

Earnings Forecast: U.S. and EM Could Outpace Europe, Japan

Analysts expect S&P 500 earnings to expand by 4.77% in the second quarter. The full-year forecast calls for earnings growth of 8.97%, lower than previous estimates.

Growth might end up lower in other developed markets. Analysts predict -17.95% Japanese growth in the second quarter and an increase of 5.94% for 2025. European equities are expected to record 0.80% growth in the second quarter and a gain of 1.69% for the year.

Emerging markets could see 4.44% growth for the second quarter and 10.59% for 2025.

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Financial inclusion means that convenient and affordable access to financial products and services is available to everyone, regardless of income or assets. It benefits underserved groups by helping them manage changing financial circumstances, invest for the future and emerge from poverty. Analyses show that improving financial inclusion rates could significantly boost GDP in various emerging and frontier markets around the world.

Financial inclusion also strengthens the overall financial system by increasing transparency, reducing costs and helping a larger percentage of a country’s population to approach economic stability.

This report examines the state of financial inclusion among the world’s poorest populations and its impact on global economic growth. We note steps taken by governments and industry groups to increase financial participation among the underserved. Finally, we explore how technology is helping to boost financial participation. We believe that encouraging this trend could help achieve U.N. Sustainable Development Goals 1 (No Poverty) and 10 (Reduced Inequalities).

Financial inclusion at-a-glance^[1]:

• 1.7 billion adults worldwide (31% of the total) do not have a bank account
• the world’s 1.7 billion unbanked represent more than 70% of global poverty
• in contrast, only 6.7% of the U.S. adult population is unbanked
• in developing economies, there is a 9% gap in bank account participation between men and women
• in emerging markets, 200 million small- and midsize businesses lack access to financial services.

Financial exclusion leaves many in poverty

Many adults fail to achieve financial stability simply because they lack access to basic financial services and therefore have no easy way to save, invest or borrow to help meet their financial needs and goals. For the same reason, homeownership or building a financial cushion is beyond the reach of many.

And, without access to financial services, few options exist to launch or expand a small business. These conditions are detrimental to these individuals’ well-being and stifle economic growth in their countries.

In addition to being unable to save and invest for the future, the financially excluded are disproportionately exposed to the challenges of economic uncertainty.

Without health insurance or basic property and casualty insurance, they cannot protect themselves, their families or their businesses from financial emergencies. The financially underserved must also contend with the risk and inconvenience of using cash for most financial transactions, including getting paid for work, receiving payments from government programs and paying their bills.

These conditions are particularly prevalent in developing markets (Figure 1), and the economic implications are significant. Economists estimate that improving financial inclusion rates would boost GDP by approximately 14% in large emerging markets, such as India, and up to 30% in frontier markets, such as Cambodia, Morocco and Tanzania.^[2]

Public and private sectors partner to increase financial inclusion

There is growing optimism that financial inclusion can be improved through international agencies, governmental bodies and corporate entities.

Agencies

Several international financial organizations, including the Alliance for Financial Inclusion (AFI), World Bank Group (WBG) and International Monetary Fund (IMF), have initiated programs with governments and corporations designed to increase participation in established financial systems.

The WBG and IMF have created Financial Sector Assessment Programs (FSAPs) that include nine primary policy goals to improve financial access and increase financial inclusion. These FSAPs encourage governments to implement national financial inclusion strategies to:

• improve regulatory environments
• promote government payments through reliable systems
• support technological innovation
• champion financial literacy education.

The AFI, a policy leadership alliance of central banks and financial regulatory organizations, is committed to helping policymakers increase financial inclusion among underserved populations.

Governments

Since 2010, more than 55 nations have committed to improving financial inclusion, and more than 60 have instituted formal national strategies to pursue this goal.^[3] In 2018, the G-20 (an intergovernmental forum of 19 large countries and the European Union that works to address major global economic issues) issued a communiqué detailing high-level principles for digital financial inclusion.^[4] The statement focuses on inclusion for vulnerable groups and small- and midsize businesses to level the playing field.

Helping the unbanked open a transaction account is the first step toward financial inclusion and mandating digital delivery of government payments has significantly increased account adoption. Increasing bank account ownership can reduce corruption and tax evasion and help governments more effectively pay subsidies.

India has been particularly successful in implementing centrally sponsored programs to increase financial inclusion. Under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) program, for example, as of October 2018 participants had opened over 432 million bank accounts, and PMJDY had issued more than 313 million debit cards. The program provides participants with an interest-bearing savings account, debit card, direct benefit transfer card and overdraft protection.^[5]

Establishing and using a transaction account is often a gateway to other financial services, including saving, investing and insurance. Participating in the financial system helps individuals better control their finances, make long-term financial plans and reduce financial uncertainty.

Corporations

Agencies and governments are partnering with the private sector to achieve financial inclusion goals. Many corporations are mindful of the environmental, social and governance (ESG) and U.N. SDG aspects of improving financial conditions in underserved communities.

After evaluating ESG risks and upside return potential, companies have taken the initiative to introduce new financial products and services that are both accessible and profitable.

Traditional banks, non-bank financial institutions, telecoms and fintech firms have all entered the field. Mobile banking and related apps, digital assets, point of sale (POS) digital payments, microlending and microinsurance are helping bring previously excluded individuals and businesses into the financial system.

The switch to digital transactions from cash is happening faster in many emerging markets than in developed economies. For example, from 2020 to 2024 the number of debit and credit cardholders is forecasted to rise by 5.8% in the Philippines and 5.5% in Indonesia, according to the Financial Times. In Vietnam, the Times reports that initiatives aimed at increasing financial inclusion and growth in the use of prepaid cards are expected to drive payment card market penetration close to 50% by 2025.^[6]

Measuring the impact of financial inclusion is challenging

While looking for statistics that link financial inclusion to economic growth is tempting, academic research indicates that individual measures are hard to find. For example, as shown in Figure 2, wide disparities exist within and between regions. The impact of financial inclusion on individual households is often not readily apparent because the “impact of any intervention is likely to be dispersed through the system.”^[7] Nonetheless, research shows the connection between financial inclusion and economic growth is strong.^[8]

Technology supports increased financial inclusion

Technology continues to drive financial inclusion rates higher. This reflects new uses for existing technologies among established institutions and fintech innovators. It is important to note that while a sizable chunk of the world’s adult population is unbanked, about two-thirds of this group own smartphones.^[9]

Understandably, mobile banking accounts have become one of the most successful ways of introducing adults to the financial system (Figure 3).

In Indonesia, Bank Rakyat’s ATM-like financial kiosks and wire transfer offices have helped new account holders deposit, withdraw, borrow and lend money in remote rural locations.

Microfinance institutions (MFIs) that provide microloans and other financial services in impoverished areas are expanding microlending and microtransfers, often through digital devices. The ability to obtain credit and make micropayments is a great boost to small businesses that had previously lacked access to essential working capital management tools.

Fear of fraud and a lack of trust are among the greatest hurdles to adopting digital finance tools. Advances in fintech, such as biometrics and blockchain, are helping to reduce security risks and allow secure peer-to-peer (P2P), business-to-consumer (B2C) and business-to-business (B2B) transactions. Growing confidence in the system helped the mobile payments market to surpass US$500 billion in 2020.^[10]

In summary, technology’s role in expanding financial inclusion involves several critical steps on the part of traditional financial institutions, either alone or in partnership with newer digital entrants:^[11]

• creating a bespoke, customer-focused digital experience
• generating tech-focused solutions to introduce financial products and services to the underserved
• tapping into artificial intelligence and Big Data to better understand and offer customized digital solutions
• fostering trust and loyalty with safe and secure processes, such as blockchain and biometrics.

By Bernard Chua, CFA, Vice President, Client Portfolio Manager

———

References:
[1] Sources: Data as of 12/31/2017. Sources: World Bank’s Global Findex Database 2017 and the U.N. Secretary-General’s Special Advocate for Inclusive Finance for Development (accessed January 5, 2022).
[2] Luca Ventura, “World’s Most Unbanked Countries 2021,” Global Finance, February 17, 2021.
[3] “Financial Inclusion,” The World Bank, October 2, 2018.
[4] Communiqué, Third G20 Meeting of Finance Ministers & Central Bank Governors, July 21-22, 2018, Buenos Aires, Argentina.
[5] “Scheme Details,” PMJDY Program, Department of Financial Services, Ministry of Finance, Government of India. Accessed January 5, 2022.
[6] Nick Huber, “Emerging markets ‘leapfrog’ the west in digital payments race,” Financial Times, November 30, 2021.
[7] Timothy Ogden, “Learning from Financial Inclusion Research: What Should We Expect?” CGAP Blog, April 3, 2019.
[8] Alexander Popov, “Evidence on finance and economic growth,” European Central Bank Working Paper No. 2115, December 2017.
[9] World Bank, Global Findex Database 2017.
[10] Damjan Jugovic Spajic, “Mobile Banking Statistics That Show Wallets Are a Thing of the Past, DataProt, March 17, 2021.”
[11] Alexander Jones, “How Technology is Boosting Financial Inclusion Around the Globe,” International Banker, June 14, 2021.

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However, there are signs of green shoots in some regions and sectors.

Mr Chua said high levels of uncertainty continue to plague companies including the extent to which COVID-19 will impact short-term consumer demand and business volumes.

“Earnings guidance and expectations remain very uncertain, and there’s a wide gap in expectations compared to history. Guidance from companies themselves is far more qualitative and short-term focused.

“Despite this, many stocks are benefitting from the COVID crisis, such as technology, e-commerce and healthcare companies,” he said.

Mr Chua believes many companies are starting to focus more on post-pandemic trading conditions, and the impact of government stimulus packages which have been propping up economies worldwide.

“Fiscal stimulus has provided a bridge between COVID and post-COVID worlds in avoiding a total collapse of activity. Some high frequency indicators have suggested economic activity is recovering, such as increased freight trends, improved Apple mobility data, restaurant reservations and traffic congestion in China,” he said.

Equity markets have been led by a small group of stocks with sustained earnings growth. At some point, on the other side of the health crisis, especially when we are able to find a vaccine, we expect economic growth to gain momentum and stock market participation to broaden, making a strong case for active management.

“We’re not just focused on the absolute level of growth, or those traditional high growth companies, but we also look at the direction of growth which is a more powerful predictor of stock price performance.

“Identifying when businesses are in an early stage of inflecting in growth rate on the S curve, with multiple catalysts, leads to a sustained period of acceleration in price growth.

“Healthcare is a great example. If several companies are providing solutions for many unmet medical needs and these companies are successful at commercialising these businesses, it could be a driver of sustained growth,” he said.

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