Quality over quantity: building global equity conviction at Viola Private Wealth

Alex Thompson has a clear starting point when it comes to global equities: strategic asset allocation does most of the heavy lifting. That is not a passive observation. It shapes every subsequent decision about how much to tilt, where to tilt, and how much active management actually changes the outcome.

“Our starting point is that strategic asset allocation still does most of the heavy lifting over time, so we will always have an allocation both domestically and globally,” he says. “It’s just a matter of the tilts.”

Australia remains a useful market. The franking credit system is genuinely advantageous, the quality of some domestic businesses is high, and the-income characteristics of the local market serve certain client profiles well.

But as the sole or primary source of equity exposure, it has real structural limits.

“Our market is very concentrated in banks, resources and domestic cyclicals, whereas global equities provide access to a much broader and deeper earnings base,” Thompson says.

The direction of travel has been consistent. “If anything, the case for global exposure has strengthened over time because many of the world’s most attractive businesses and sectors simply are not well represented locally.”

The punch you don’t see coming

Thompson’s concern about US concentration in the global benchmark is practical rather than theoretical. He has seen it arrive in client portfolios through the back door. “I see it quite often when clients come to us with existing portfolios,” he says.

 “The global market indices often look diversified on paper, but in reality, a large portion of the risks sit within the US and often, within the same portfolio companies due to the relatively small group of mega-cap companies driving index returns.”

That is not a counsel against US exposure. Viola Private Wealth is not anti-US. Many of the world’s highest quality businesses are listed there, and the breadth of the American market is genuinely superior to most alternatives.

The problem is when that exposure becomes excessive and unexamined.

“It’s often the punch you don’t see coming that knocks you out,” Thompson says. “So, where concentration becomes excessive, we will be more deliberate in our selection rather than benchmark-driven.” The discipline is less about avoiding the US than about understanding exactly what sits underneath a global passive allocation and managing the exposures with open eyes.

A lower conviction on emerging markets

On emerging markets, Thompson is candid about his preferences. He generally runs a lower EM allocation than some peers, preferring the more stable political and sovereign risk environment of developed market economies.

The structural appeal of EM is not lost on him. Growth demographics, rising middle classes, and the attractive discount at which many EM markets trade relative to developed markets are all real. The problem is the discount is there for a reason.

“Any assumption that those discount levels will close to developed markets is a large assumption to make to justify a longer-term core holding for clients, and it has historically disappointed in returns when compared to how equity indices have performed in developed economies,” he says.

Sudden policy changes, currency volatility and macroeconomic fragility create risks that can dominate the underlying investment thesis, regardless of how attractive the fundamentals look on paper.

That does not mean avoiding EM entirely, but it shapes how much weight it earns in his portfolios.

Private markets and the AI opportunity

The active-passive split at Viola follows a framework that is now fairly common in quality advice practices.

Passive at the core for large-cap, highly liquid and heavily researched markets. Active deployed selectively where information gaps, dispersion and structural inefficiency create the conditions for genuine alpha.

“In highly liquid, heavily researched public markets, especially large caps, it is structurally difficult to consistently outperform the market after fees,” Thompson says, so low-cost index exposure handles that exposure efficiently.

Where his approach diverges from most is on AI. Rather than managing exposure through public markets, either by tilting toward or away from the mega-cap enablers that dominate the benchmark, Thompson has pursued the opportunity through private markets.

“I’d much rather experience the mark-ups whilst they are private and let the public markets pay the premium.”

“A lot of the value creation, especially the outsized asymmetrical returns, has already occurred during the private stage, well before these businesses reach public markets,” he says.

“Some of these businesses are scaling at hyperbolic speeds and by the time they are large enough to be meaningfully represented in an index, much of that initial growth and repricing has already taken place.”

The vehicles Thompson uses provide access earlier in the value creation journey, through late-stage venture and growth equity strategies.

For clients who can accommodate the illiquidity, it is a materially different proposition from waiting for the benchmark to catch up.

That does not mean ignoring the public market AI exposure that already sits in client portfolios.

“Most clients will already have more AI concentration than they realise through public equities alone,” he says.

The focus is on being deliberate: using private markets to complement what the public market provides, rather than duplicating it.

A balanced view on hedging

Thompson’s approach to currency hedging reflects the same preference for nuance over rules. There is no single right answer, and he has seen enough FX cycles to avoid strong directional conviction.

Over the long term, currency movements tend to wash out. Over shorter periods, they can have a meaningful impact on outcomes.

“We tend to be a bit more balanced and intentional rather than taking an all or nothing approach,” he says.

For clients focused on long-term growth and prepared to absorb short-term variability, some unhedged exposure makes sense and provides natural diversification benefits.

Likewise, for those clients where volatility management or near-term cash flow is more important, incorporating hedging becomes more relevant.