The universe of high-quality growth investments outside the United States is expanding. Are you in a position to seize these potential opportunities?
Mike: Hi, everybody. Mike Corcoran with Institutional Investor. Thanks for joining us today. We’re joined by Alaina Anderson. She’s a partner and portfolio manager on the International Leaders strategy at William Blair. We’re going to be talking about international investing and the opportunities under that topic. And I’m going to start by asking Alaina, do you think the investors are handicapping their portfolios without sufficient international exposure?
Alaina: Thanks, Mike, for the question. Our data shows that the universe of high-quality growth investments outside the U.S. is broad and broadening. We call these high-quality growth candidates “sustainable value creators,” and we find them increasingly outside the U.S.
Additionally, we think that the intermediate-term outlook for growth in industries that we like suggests accelerating demand and emerging business models abroad.
Lastly, I’d note that the regulatory environment in many jurisdictions outside the U.S. is conducive to the proliferation of disruptive business models. There’s quite a lot of FinTech operators that are popping up across Europe, and that’s because of a regulatory environment that’s conducive to the proliferation of those kinds of companies.
All of those combined lead us to believe that offshore investing, and investing outside the U.S., is definitely something investors should consider.
Mike: Alaina, I wonder if, as we continue this conversation, you might just put things in context for us—the international opportunity in the context of the sort of current low-growth, high-rate environment. How does that impact the potential?
Alaina: The current environment is certainly dynamic. I would say that over the intermediate- to long-term, we think that the opportunity set to invest offshore in international markets is quite attractive for the reasons that we discussed before regarding the high-quality growth universe being strong and dynamic, and the environment for the proliferation of new business models being quite supportive.
However, you asked a question about current low-growth and current interest rate environment and outlook. I would say that if we take those separately, from an interest rate perspective, we think that central banks will be able to be on hold a bit in the near-term because of the geopolitical events that are taking place, and the inflationary impact of those geopolitical events that will feed through to growth.
So we actually think the growth part of the equation is more volatile at the moment. We expected going into 2022 that the U.S. was facing high-growth expectations, and the stocks had high valuations, and we expected that gross domestic product (GDP) growth will be softening in 2022, presenting a better opportunity to invest outside the U.S. Certainly now, we’re seeing that the current conflict in Russia and Ukraine is impacting our base case, such that the growth outlook, not only in developed Europe but in a lot of developed markets, is a bit impaired.
With that outlook, tactically, over the near-term, there is a bit of a growth headwind when you’re thinking about investing outside the U.S. Over the long-term, however, the structural case remains—a very large pool of strong candidates who sustainably create value, and markets that are supportive of the proliferation of disruptive business models and accelerating growth.
Mike: That’s interesting stuff. When we come back, I'd like to talk to Alaina some more. She's going to talk to us about how she identifies who those leaders are and how investors benefit from that.