Global equity income fund manager Richard Saldanha explains why it’s time to be the tortoise, not the hare, when approaching today’s evolving and volatile market.
Read this article to understand:
- Why equity investors need to strap themselves in and mitigate some risk
- Why the US and the Magnificent Seven are no longer the only game in town
- The appeal of income-paying equities globally right now
After some exceptional returns from the S&P 500 in recent years, volatility returned with a vengeance in 2025. This has led many to ask if we should call time on so-called “US exceptionalism”, the idea that the country has distinctive advantages and will persistently outperform.
The two charts in Figure 1 show the performance of the MSCI World Index and how the tables have turned in recent months. The dark green line shows the index’s performance including the US and the light green excludes the US.
Figure 1: The end of US exceptionalism? (index value)
Past performance is not a reliable indicator of future returns.
Note: Data shown for the MSCI world index, including and excluding the US.
Source: Aviva Investors, Bloomberg. Data as of June 18, 2025.
Looking at the positive returns in the US index so far this year, you’d be forgiven for wondering what all the fuss was about. However, the overall return masks the number of unforeseen disruptions that have caused significant market turbulence along the way. These include ongoing geopolitical tensions, the emergence of Chinese AI company DeepSeek in January and of course President Trump’s tariffs announcement.
Although nobody can predict precisely what’s around the corner, it feels like heightened volatility is here to stay for a while, especially given continued policy uncertainty in the US and trade tensions remaining at the fore. Even at the time of writing, Middle East tensions are escalating and bringing further market volatility.
So, what does this mean for equity investors? We think it means investors need to strap themselves in and look to mitigate risk in their portfolios by diversifying, both geographically and into income-generating equities.
The tortoise and the hare
Among the flurry of market news this year was the announcement in May of the imminent retirement of veteran investor Warren Buffett. His insights into investment are well documented, but one that comes to mind currently was when he was asked why more people don’t follow his simple investment thesis. He replied: “because no one wants to get rich slowly”.
This is apt when considering today’s market. That’s because we would liken investing in income paying equities to Aesop’s fable of the tortoise and the hare, in which the overconfident speedster loses out to the consistent and unemotional plodder.
The stock market has recently been behaving like the hare, rapidly moving in one direction and then the other in an unpredictable manner. Many investors who have grown hare-like in their overconfidence in – and overexposure to – the US, and particularly the Magnificent Seven tech firms (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla), may well find this to be to their detriment in the period to come.1 The outsized returns of the Magnificent Seven can be seen in Figure 2.
Figure 2: The tech giants’ runaway returns (total return index values)
Past performance is not a reliable indicator of future returns.
Note: S&P 500 index and total return indices for Bloomberg Magnificent Seven and US 500 excluding the Magnificent Seven.
Source: Aviva Investors, Bloomberg. Data as of June 18, 2025.
On the other hand, income paying equities – and those who invest in them - tend to behave more like the tortoise. They slowly and steadily accumulate their dividends, remain consistent in their approach, and can offer attractive capital growth over the long term.
The 2 Ds: Diversification and dividends
The importance of diversification is hardly a secret; it’s one of the first things a beginner investor learns. However, as we’ve highlighted previously (see Tech’s tightening grip)2 this fundamental tenet has fallen by the wayside in recent years thanks to the dominance and fantastic returns of a small cohort of US megacap stocks.
The US firmly remains a great place to invest with some exceptional companies
To be clear: the US has been, and firmly remains, a great place to invest with some exceptional companies from a quality and returns perspective. But the MSCI World index currently comprises around 70 per cent in the US alone, and concentration levels of the Magnificent Seven stocks have reached around 22 per cent of the overall index.
Events of the past six months have caused investors to increasingly question whether they have been sufficiently diversified.
We are big believers that a diversified allocation to global equities, and especially income paying equities, can offer investors something of a smoother ride through these rather stormy waters.
We continue to invest significantly in the US and indeed own two of the Magnificent Seven, (Microsoft and Alphabet, with the former having been owned in our global income strategy for well over a decade).3 The septet are undoubtedly ‘magnificent’ companies, but for the most part we are acutely aware of their elevated valuations relative to the broader market. However, in our view the US is no longer the only game in town. We see considerable opportunities elsewhere, particularly in Europe thanks to the array of global companies with attractive levels of income and – increasingly – in Asia.
Investing in “boring” companies need not come at the cost of capturing upside in the long run
The nature of owning shares that pay an attractive income is that it can offer investors a degree of capital protection, especially at times of unpredictable market drawdowns such as those we saw in April this year.
Contrary to some belief, investing in such “boring” companies need not come at the cost of capturing upside in the long run. Companies that can grow their dividends ahead of inflation offer great prospects for long-term capital growth as well as some shelter in the current storm.
Investing needs to be seen as a marathon not a sprint, and we firmly believe slow and steady will ultimately win the race. But it requires discipline, perseverance, and courage to stay the course. We think it’s time to be more like the proverbial tortoise.
