Seven reasons to expect another good year for global equities

Here’s an unpopular opinion: next year will be pretty good for risk assets like equities. Tailwinds of resilient economic growth, inflation returning to comfortable levels, and rising real disposable incomes will support equity prices in 2024. Global equities have returned 21% year-to-date, as the most forecasted recession in living memory continue to fail to materialise.

Of course, there will be volatility and uncertainty – there isn’t a year that this isn’t the case. In this environment, the benefits of a high-conviction, concentrated investment approach in equities comes to the forefront, providing investors with a strategic advantage in aiming to reach their long-term investment goals.

Here’s seven reasons a high conviction, concentrated approach makes sense in 2024:

1. Falling Inflation and Selective Equity Investment

In a period of falling inflation, a high-conviction approach allows investors to be selective and discerning in their equity investments. By focusing on companies poised to outperform in a lower inflation environment, investors can capitalise on opportunities that align with the evolving economic landscape. This targeted approach enhances the potential for sustained returns.

2. Lower Interest Rates and Capital Allocation

With the backdrop of lower interest rates, a concentrated investment strategy enables efficient capital allocation. Investors can strategically deploy capital into high-conviction positions approach minimises the drag of excessive diversification and maximises the impact of well-researched, strategic investments.

3. Solid Global Growth and High-Conviction Themes

Amidst solid global growth, a high-conviction investment strategy allows investors to align their portfolios with overarching positive change themes driving the economy. Whether it be health and wellbeing, decarbonisation, or innovative sectors, concentrating investments in themes with long-term secular tailwinds positions portfolios to capture the full potential of global growth trends.

4. Resilience Against Geopolitical Challenges

Geopolitical turbulence remains a constant concern, even in optimistic economic environments. A concentrated approach, grounded in thorough bottom-up analysis, provides resilience against macro-level uncertainties. By focusing on individual companies rather than broad geographic allocations, investors can build portfolios that weather geopolitical challenges more effectively.

5. Strategic Underweight Decisions in a Shifting Landscape

In a high-conviction framework, strategic decisions to be underweight in certain regions, such as Asia, become more deliberate. Investors can tailor their portfolios based on opportunities rather than adhering to conventional allocations. This flexibility allows for agile capital allocation in response to changing economic conditions and potential headwinds.

6. Capturing Alpha Through Concentrated Portfolios

As the economic landscape evolves, a high-conviction strategy can capture alpha by investing in companies with the potential for significant outperformance. A concentrated portfolio, built on rigorous research and conviction, positions investors to benefit from the success of a select few companies rather than being diluted across a larger number of holdings.

7. Forward-Looking Investment in Technological Advancements

In an era of technological advancements driving growth such as artificial intelligence, a high-conviction approach ensures that investors are forward-looking in their equity investments. By concentrating on companies at the forefront of innovation, investors can harness the transformative power of technology and position themselves at the vanguard of evolving industries.

A Strategic Approach to Economic Optimism

As investors navigate the promising economic landscape of 2024, a high-conviction, concentrated investment approach emerges as the strategic choice. By aligning portfolios with falling inflation, potentially lower interest rates, and resilient growth trends, investors can unlock the full potential of the economic opportunities that lie ahead. This forward-looking strategy offers a path to resilience, agility, and alpha generation in a dynamic and evolving market.

See you on the Trail in 2024.

For more information on the Firetrail S3 Global Opportunities Fund (ASX: S3GO) (including portfolio holdings and weights), please visit (VIEW LINK)