Investors are navigating an increasingly complex environment. Inflation uncertainty, geopolitical tensions, rising government debt and rapid technological change are all reshaping markets and challenging many of the assumptions that underpinned investing over the past decade.
At the same time, traditional relationships between asset classes are becoming less reliable. Assets historically viewed as defensive have not always behaved as expected during periods of market stress, while areas once considered cyclical or higher risk have at times provided resilience.
Against this backdrop, the challenge may be less about predicting the next macro event and more about constructing portfolios that can navigate a broad range of potential outcomes.
Speaking recently as part of a multi-asset panel, portfolio managers Alec Cutler and Mark Dunley-Owen, who manage the Orbis OEIC Global Balanced and Global Cautious funds, argued that attempting to position portfolios for singular geopolitical events is rarely a sustainable strategy.
“It’s super hard not only to get the exact risk right but get the timing right and anticipate the reaction properly,” said Cutler.
Instead, the multi-asset team focuses on broader structural risks and long-term themes, such as inflation, rising geopolitical tensions and the increasing importance of energy, food and national security.
That perspective has shaped how the team interprets recent market behaviour. Traditional safe havens such as gold and government bonds have not necessarily provided the protection many investors expected during recent bouts of geopolitical stress, while energy-related assets have held up more robustly.
Inflation remains an important consideration
Another significant shift facing investors is the re-emergence of inflation risk.
For much of the post-financial crisis era, markets operated in an environment characterised by low inflation, low interest rates and abundant liquidity. That backdrop supported long-duration assets, particularly growth equities and government bonds.
According to Dunley-Owen, the team has for several years “thought inflation would be higher than the market expected, and higher than it has been in the previous two decades”.
The implications for portfolio construction are significant. In fixed income, Orbis has maintained an underweight position in developed market government bonds for several years, preferring shorter-duration bonds and inflation-linked securities to help mitigate inflation risk. Within equities, higher inflation environments can place greater pressure on companies whose valuations rely heavily on earnings far into the future. By contrast, businesses generating strong cash flows today may prove more resilient if discount rates remain elevated. That backdrop has reinforced the team’s focus on valuation discipline and businesses with strong free cash flow generation and more modest valuations.
Dunley-Owen said the multi-asset team continues to favour companies trading on more modest valuation multiples relative to their long-term earnings potential. Samsung, for example, remains attractive to the team despite strong share price performance, with Dunley-Owen noting that the business still trades on what he described as relatively modest valuation multiples despite benefiting from powerful AI-related tailwinds. Importantly, the team’s approach is not about avoiding growth themes altogether. Rather, it reflects a focus on ensuring investors are adequately compensated for the risks they are taking.
AI may reshape markets, but not always where investors expect
Artificial intelligence remains one of the most significant long-term investment themes globally. However, the most compelling investment opportunities may not necessarily sit where investors initially expect.
While much of the market’s attention has focused on software businesses and mega-cap technology companies, Cutler argued that the infrastructure underpinning AI may ultimately prove equally important. “You don’t have AI without electricity. You don’t have electricity without natural gas,” he said.
AI infrastructure requires enormous amounts of computing power, semiconductor capacity and energy. That dynamic has reinforced the team’s conviction in areas such as semiconductors, natural gas infrastructure and broader energy security themes.
Cutler noted that while renewable energy and nuclear power may become increasingly important over time, natural gas remains one of the few scalable energy sources capable of meeting rapidly growing demand in the near term.
For several years, many portfolios significantly reduced exposure to traditional energy businesses as ESG considerations became more prominent. Yet energy security is now re-emerging as a strategic priority for governments and markets alike. The global economy still relies heavily on dependable energy infrastructure, and recent geopolitical tensions have reinforced how vulnerable supply chains remain. “Countries are going to have to act in their self-interest... The bottom of the pyramid of needs is about energy security, not energy price,” Cutler said.
Software winners and losers
While AI creates opportunities, it also introduces considerable uncertainty.
Dunley-Owen said the multi-asset team has become cautious around software companies because AI has significantly widened the range of possible outcomes across the sector.
“Some of these companies’ business models are broken...” he said. “But for others, AI may improve productivity and make the future look better.” Rather than aggressively allocating capital across software more broadly, the team is focusing heavily on research and selectively exploring opportunities where businesses possess more durable competitive advantages, including proprietary data assets or regulatory positioning.
“We’re spending a lot of time leaning into the research side of AI, exploring it and understanding it,” Dunley-Owen said.
Emerging markets may deserve a second look
Another area attracting renewed attention is emerging markets.
Historically, investors often approached emerging markets cautiously due to concerns around political instability, weak institutions and macroeconomic volatility. However, Dunley-Owen argued that in many cases, several emerging economies now exhibit stronger fiscal discipline and healthier balance sheets than parts of the developed world.
He added that what had “always struck me about emerging markets is that you can find very good companies” at a reasonable price.
Latin America is one area where the team continues to find selective opportunities. Brazil, for example, offers attractive real yields in fixed income markets alongside selected equity opportunities. Dunley-Owen highlighted Brazilian hospital operator Rede D’Or as an example of a high-quality business that the team believes has the potential for a long runway for growth in an underpenetrated healthcare market.
At the same time, the opportunity set across emerging markets is far from uniform, reinforcing the importance of selectivity. Markets such as Korea and Taiwan continue to provide important exposure to semiconductor and AI-related supply chains, while India’s long-term growth potential appears compelling, but comes at higher valuations.
The growing importance of resilience
A recurring theme throughout the discussion was that resilience may matter more than precision forecasting.
Markets are increasingly shaped by forces that are difficult to predict, from geopolitical conflict to technological disruption and shifting inflation dynamics. Attempting to position portfolios for any single outcome inevitably carries risk.
Instead, the Orbis approach focuses on constructing portfolios capable of navigating a broad range of scenarios through diversification, valuation discipline and long-term thinking. As Dunley-Owen concluded: “We’re trying to build a portfolio that will do relatively well for our clients in a wide range of scenarios”.
In a more uncertain world, that mindset may prove increasingly valuable.
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