In this environment, we maintain a focus on Chinese companies positioned to benefit from secular growth opportunities, which has led to heavier weights within the technology and consumer sectors. We have also identified opportunities within industrials and financials that we expect to benefit from financial reforms and infrastructure investments.
More broadly, our approach to emerging markets remains highly selective. From a top-down perspective, we are generally favoring commodity consumers over commodity producers and economies that are advancing economic reforms. We remain underweight to Brazil, along with many other commodity-producing emerging markets, including Malaysia, South Africa and Russia. We are also underweight to those that are running twin fiscal and current account deficits (such as Turkey).
Convertible Securities
Given our expectation of elevated equity market volatility and the likelihood of rising interest rates, we believe that the hybrid equity/fixed income characteristics of convertibles can prove particularly advantageous.
While the global convertible benchmark has demonstrated greater resilience than the global equity market during the recent market turbulence, the U.S. convertible market experienced unusual but not entirely unprecedented performance trends. The U.S. convertible market, as measured by the VXA0, declined further than the S&P 500 Index (Figure 11). In large measure, this was due to the larger representation of smaller-cap and more growth-oriented names within the index.