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Money Manager Focus
Phil Hoffman, Global Equity Portfolio Manager
Phil Hoffman
Global Equity Portfolio Manager
Russell Investment Group
The Globalization of the World's Capital Markets
It's a small world after all; and when it comes to international investing, it's getting even smaller. In light of the globalization of corporate competition, companies are expanding their influence on economies and capital markets across international borders.
The globalization of the international markets is one of the greatest factors changing the investment industry today. Globalization creates a greater need to recognize which industry sectors are growing profitably on an international scale. Returns on a global portfolio reflect an investment manager's ability to research, analyze, and select the most attractive companies within those sectors, across national and regional borders. This emphasis on global sector selection is evident in the decline of country selection as a risk driver over the past decade. Simply put, it is important to be invested in the right foreign company or industry, rather than just the right foreign country.
Russell's recognition of this trend has led to exciting changes in our international investment strategy. Phil Hoffman, a Russell portfolio manager specializing in global equities, explains why investors should have a global component in their portfolios. "The globalization of markets means that companies are increasingly driven by global themes and trends. A great example of this theme is the emergence of China and its impact on other markets and specific sectors such as Energy (particularly oil) and Materials. Investors are better able to exploit such trends as they may have the freedom to invest anywhere in the world," says Hoffman.
"While globalization has been happening for several years, it has taken time for money managers to put in place the investment teams to capitalize on this way of investing, and even longer for them to develop the necessary knowledge and expertise of global markets to be able to do so successfully. Only now is it possible to build a multi-manager strategy with truly effective global managers."
China is one of the regions where many investment experts expect to find future opportunities. Asia as a whole is expected to account for a significant portion of the world's demand for energy in the next few years. This increase in demand creates promising investment potential.
"The emergence of China will have significant long-term repercussions for companies that will participate in its industrialization and infrastructure build out. Asian industrial companies may possibly benefit from the huge amount of capital expenditure that Chinese and western companies will undertake to build China's manufacturing capacity. Companies in the resource sectors stand to benefit most from the huge demand for materials and energy resources," says Hoffman.
"Also, many western firms will seek to cut costs through outsourcing to China. For instance, western producers of goods and services, from textiles to financial services, will increasingly benefit from the lower costs of labour that they can exploit through outsourcing to countries such as China and India."
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