This isn’t just another market cycle – it’s a structural shake-up. Clyde Rossouw, Head of Quality at Ninety One, explores how an active strategy, built on quality, can weather disruption and uncover opportunity.
There’s no modern precedent for the current level of disruption. We have seen a continuous pace of change – from retaliatory tariffs to shifting alliances and conflicting official statements. Markets are flooded with noise, and volatility has returned, not in brief bouts, but in sustained waves across asset classes and regions.
This is likely more than a short-term dislocation. We are entering a world of higher trade barriers, disrupted supply chains and increasingly unpredictable policymaking. Investors should exercise caution about making short-term calls and instead focus on how portfolios can be constructed to withstand uncertainty. This is not the moment for macro bets or reactionary rotations. Rather, it’s a time for humility, discipline and a clear investment process.
What really matters
Despite years of strong innovation, deep capital markets and corporate profitability providing a fertile hunting ground for investors, recent history highlights the cost of complacency from US exceptionalism. In 2022, fixed income faltered, showing a lack of flexibility. This year, global equity trackers exposed their weaknesses. These strategies thrived when the dollar was rising and tech was booming, but shifts are underway.
Despite current scepticism towards the US, many of firms still offer exceptional compounding potential. The key factor is quality, not geography. Where a company is listed matters less than how and where it earns revenue.
For investors, creating balance on the high wire of global equities requires purposeful diversification across three areas of focus:
- Defensive quality is the ballast, providing stability in tough markets. These are companies with strong balance sheets, recurring revenues and steady cash flows through the economic cycle – offering capital preservation and resilience.
- Durable compounders are the engine, driving long-term growth. These businesses have strategic moats, disciplined capital allocation and strong reinvestment potential, enabling them to steadily build value through cycles.
- Selective growth drivers provide optionality and add upside. Focused outside of overowned mega-cap US tech, these are high-potential businesses with sound fundamentals, scalable models and exposure to structural themes – carefully chosen and appropriately sized.
Quality at the core
In volatile markets, quality is key. Companies that preserve capital – and emerge stronger – have pricing power, low capital intensity, strong governance and a clear strategic edge.
Quality businesses tend to demonstrate more resilient earnings due to structural advantages that help them withstand economic and market shocks. These companies typically have strong competitive moats, pricing power and loyal customer bases, which support stable revenues even in downturns. Their disciplined capital allocation, lower debt levels and asset-light models also provide greater financial flexibility, while recurring revenue streams – often through subscriptions or essential services – create predictability. For investors, resilient earnings mean fewer surprises, smaller drawdowns and more consistent compounding over time.
Our portfolios are skewed towards services-oriented, subscription-based businesses – like software, financials and consumer services – with limited exposure to capital-intensive sectors.
Case Study: Visa – A core holding for structural growth and resilience
As the world’s largest open-loop payment network, Visa’s competitive edge lies in the scale and strength of its global network – connecting consumers, merchants, and financial institutions – reinforced by technology, brand, and powerful network effects. Its long-term growth is fueled by the structural shift from cash to digital payments, with trillions still to be digitised.
Beyond core transaction processing engine, Visa continues to innovate through services like tap-to-pay, Visa Direct, and government-to-consumer disbursements, while deepening its capabilities in security, data, and analytics .In inflationary environments, Visa benefits from a revenue model is tied to nominal transaction values. Combined with its capital-light, high-margin business model, strong operating leverage, it is well positioned to deliver real earnings growth even as costs rise.
Visa exemplifies the kind of durable, adaptable business we seek in uncertain markets. Its dominant position, particularly in ecommerce debit, coupled with disciplined capital allocation and low credit risk, supports consistent compounding. For us, Visa is a core holding – resilient through cycles, positioned for structural growth, and a textbook example of quality at work.
Discipline amidst the noise
The current environment remains fluid and complex, marked by uncertain policy paths and macroeconomic shifts. Clarity and discipline outweigh speed.
We don’t know when this latest bout of volatility will subside. But we do know that markets will likely remain unsettled as trade rules are rewritten, inflation proves sticky, and policies grow more unpredictable. Now is not the time for overconfidence – it’s the time to hold portfolios that can absorb shocks, remain agile and stay anchored in fundamentals. Resilience isn’t optional – it’s essential.
