While much of the market’s attention is focused on a narrow group of companies and themes, including AI, the global investment universe remains vast. Some compelling opportunities can be found by continuing to explore sectors, geographies and business models beyond the market’s immediate focus.
Some of the most interesting investment opportunities arise when investors continue to look beyond the areas already attracting the most attention. Global investors have access to a remarkably broad opportunity set. Across the US, Europe, Japan, Latin America and emerging markets, thousands of listed businesses operate under different economic conditions, serve different industries and benefit from different drivers of growth. Yet markets often focus in one direction at a time. When that happens, it becomes easy to forget how many opportunities exist elsewhere. For active investors, the question is not only where the market is already looking, but also what opportunities might be outside its immediate field of vision.
The global investable universe is enormous. The US alone offers investors access to thousands of listed companies. Japan has nearly 4,000, while Europe and the UK add almost 6,000 more before investors even begin exploring emerging markets.
One example comes from the industrials sector, specifically, aerospace. Several years ago, we identified an opportunity in Rolls-Royce, the aircraft engine manufacturer. At the time, the company was emerging from the pandemic’s disruption and was priced as if it were going out of business, despite evidence to the contrary. Alongside this was a longer-term structural shift in Europe, where defence spending was becoming increasingly important. Together, these factors created an attractive opportunity.
What happened next is more revealing than the initial investment itself. Rather than viewing Rolls-Royce in isolation, we began exploring the broader ecosystem around the company. If Rolls-Royce manufactures aircraft engines, where do the critical components come from? Which businesses supply them? Which companies produce the materials required to manufacture them?
That process led us to Howmet Aerospace, a specialist manufacturer of highly engineered precision components for aircraft engines. Our research then moved a step further to Carpenter Technology, a producer of specialised metals and materials capable of withstanding extreme heat, pressure, and corrosion. More recently, we added ATI, another advanced materials company benefiting from many of the same aerospace trends.
What is striking is that these opportunities did not arise from starting with a predetermined market theme. They were uncovered by asking questions, exploring supply chains and following the evidence.
We’ll look at competitors, and we’ll start looking at the supply chain and the companies that feed into that. That’s how we sometimes find these alpha-generating opportunities.
The lesson is simple: some of the most compelling investment ideas are discovered not by searching for a theme, but by following the evidence, wherever it leads.
Financial services offer another example of opportunities emerging from vastly different parts of the world.
The lesson is simple: some of the most compelling investment ideas are discovered not by searching for a theme, but by following the evidence, wherever it leads.
Among the businesses we have found attractive are Credicorp, Peru’s largest financial services group; Mitsubishi UFJ Financial Group in Japan; Banco Latinoamericano de Comercio Exterior, a Panama-headquartered bank focused on trade finance across Latin America, and Bank of New York Mellon, which focuses on institutional financial services rather than consumer banking. Importantly, these businesses succeed not because of a single global theme, but because of different local drivers.
In Japan, rising interest rates have supported bank profitability, while corporate governance reforms have encouraged companies to become more shareholder-focused. Historically, many Japanese businesses held large cash balances and delivered relatively low returns on equity. Reforms aimed at improving capital allocation have encouraged higher dividends and increased buybacks.
In parts of Latin America, drivers are different. Stronger nominal growth across several emerging market economies has supported businesses in financial services and trade. In the case of Bladex, the opportunity has been linked to financing commerce and cross-border trade throughout the region.
The broader lesson is that attractive investment opportunities can arise for different reasons in different places. Different geographies have different economic drivers; industries face different opportunities; and companies benefit from different structural trends. The task is not to find a single theme that explains everything, but to understand what is driving each opportunity on its own merits.
The examples given above show that attractive investment opportunities need not come from fashionable sectors to deliver strong outcomes.
Many of the businesses we find compelling are simply executing effectively on their existing opportunities. They are growing earnings, executing on their core capabilities, and benefiting from industry-specific tailwinds that may have little connection to the stories dominating financial headlines.
A company can perform well and execute successfully against its opportunity set without being in a particularly flashy sector. In many cases, the most important factor is a strong business continuing to do what it does well.
Many of the businesses we find compelling are simply executing effectively on their existing opportunities. They are growing earnings, executing on their core capabilities, and benefiting from industry-specific tailwinds that may have little connection to the stories dominating financial headlines.
That does not mean investors should ignore major themes or markets. Innovation remains important, and investors should not overlook markets such as the US, or AI, for that matter. The point is simply that the opportunity set extends far beyond whatever presently dominates the conversation.
For South African investors, this matters because the local market represents only a small fraction of the global investment universe. South Africa accounts for a small share of global market capitalisation and an even smaller share of global GDP. Limiting investment opportunities to a single market is restrictive.
The real benefit of global investing is not access to a single theme. It is access to a far broader opportunity set across industries, geographies and economic drivers.
It allows investors to participate in industries unavailable locally, gain exposure to different growth drivers, and compare opportunities across geographies. It also creates the freedom to choose between companies exposed to similar trends but operating under different conditions.
Market narratives will continue to change. New themes will emerge, attract attention and eventually give way to something else.
For long-term investors, the opportunity lies in retaining the flexibility and curiosity to keep searching across the broader global investment universe. The advantage of a global opportunity set is not that investors must avoid the market leaders; it is that they do not have to stop looking once they have found them. Market narratives will come and go, but the breadth of global opportunity remains. Often interesting opportunities are found where few investors are looking.
• Hayward is a fund manager at Flagship, a specialist global asset manager, where he manages global investment strategies, with a particular focus on global equity research and portfolio construction.
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