Bouts of volatility will continue as nervous investors dump shares at even the slightest hint of bad news, says Suneil Mahindru the chief investment officer for international equities at Goldman Sachs Asset Management, who oversees about $15 billion.

As low inflation and high debt constrain growth in the biggest economies, yearly returns on stocks will probably be in the mid-single digits, he says. Though down from the 12 percent average throughout the recovery from the 2008 crisis, that’s about in line with the average over the past two decades.

After concern about collapsing oil prices and the potency of central bank stimulus drove a global stock gauge to a 2 1/2-year low in February, shares have just clawed their way back to where they started 2016.

After the kind of recession that generally takes a decade or more to overcome, for Mahindru, the world is still struggling. With U.S. equity strategists predicting just a 3.3 percent gain in American stocks for the rest of the year, he’s not alone in seeing muted returns.

“The market is very skittish. Anything that can be interpreted as negative, the market is interpreting it negatively,” he said. “It doesn’t help me sleep but actually it gives me more opportunities,” Mahindru said in a phone interview from London this week to news group Bloomberg.

The Goldman’s flagship Global Equity Partners Portfolio is run by Mahindru. The portfolio holds 25 to 35 companies with high and defensible returns, predictable business models and lower valuations — a strategy that the company says should perform well even when the market turns bad.

According to data on Goldman’s website, against a 6.8 percent gain for its benchmark, the MSCI World Index denominated in U.S. dollars, the fund has returned an annual average of 5.6 percent over the past five years. The two largest holdings are Yum! Brands Inc., owner of the KFC, Pizza Hut and Taco Bell fast-food chains, and Alphabet Inc., the parent of Google Inc., even though Mahindru declined to name companies it buys.

By picking global businesses that happen to be listed there, Mahindru sees scope to exploit a selloff in European shares. As the economy shifts from manufacturing to services, where the government has much less control, on China, he expects more volatility.

He favors consumer businesses associated with a high standard of living, anything from health-care to food quality and even sportswear. While the Shanghai Composite Index was down 13 percent through Wednesday, a measure of European stocks lost 6.2 percent in 2016.

“When people say, ‘I don’t want to own Europe at all,’ that gives us an opportunity,” Mahindru said.

In China, “we tend to stay away from state-owned enterprises and focus much more on the private sector, where we find good businesses,” he adds.

(Adapted from bloomberg.com)

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