When it comes to selecting equities for Fortis InvestmentsÆ highly concentrated global portfolio, where each stock is expected to return at least 20% per annum, the story is no longer about which companies are deriving growth from exposure to emerging markets.

Rather the best stocks are more likely to be found among companies that can pass on rising costs, says John Chisholm, global equity product specialist at Fortis Investments in Boston.

His firmÆs global equities teams manage $2.1 billion in such concentrated, high-conviction portfolios, as well as $3.5 billion in sector funds and $1.9 billion in more diversified portfolios.

ôItÆs no longer about buying cheap, growth-biased companies, but those with visible earnings and sustainable growth,ö Chisholm explains. In 2006 and the first half of 2007, companies with big businesses in emerging markets tended to fare best. Now the team managers have to juggle with questions of inflation and whether itÆs structural or cyclical in emerging markets. This doesnÆt mean that emerging markets donÆt offer growth, but analysts must discount it.

Nor are big emerging markets going to compensate enough for the slowdown in the United States. ôPeople who talk about decoupling are ignoring the math,ö Chisholm argues, noting last year the US bought $10 trillion worth of goods and services, versus only $1 trillion in China and $650 billion in India. If US consumption falls 10%, China would have to double consumption just to offset it.

So while yes, emerging markets remain interesting growth stories, theyÆre not going to support global equities this year. As a result, Fortis InvestmentsÆ exposure to them has declined from 13% to 7%, making it now slightly underweight emerging markets in the MSCI All Country World Index. But there are still attractive companies in these countries, such as Brazilian steelmaker CSN, which is involved in the growth of infrastructure and real-estate expansion in emerging markets.

Infrastructure is also a sector benefiting a handful of financial names; the sector in general is woeful but players such as Macquarie have developed powerful niches. And some local Asian banks, such as Sumitomo and DBS, continue to perform well thanks to minimal exposure to US housing. Bank of America, meanwhile, does have problems but is so big and well capitalised that it should emerge from the US credit crisis on top.

It may have to wait a while to be proved right, however: FortisÆs equities team thinks the final write-off tally will hit $1 trillion, particularly as the housing crisis extends from subprime to prime borrowers. ôCDOs are a $1 trillion market thatÆs worth about 25 cents on the dollar,ö Chisholm says.

That said, he also says some perspective is useful: this isnÆt doomsday. From 2000 to 2002, the Nasdaq lost $4 trillion in value and itÆs managed to rebound since. He says some of the failed CDOs will be written back up.

There remain growth stories for fund managers to ride. ChisholmÆs colleagues like names such as Celgene, a large biotech company with a diverse pipeline including treatments for cancer and arthritis, a healthy balance sheet, and improving distribution. ôWeÆre nearing our initial sell price,ö Chisholm notes.

Taking advantage of high oil prices is difficult, as many refineries and integrated energy companies are buyers and canÆt pass on price hikes. ExxonMobile is one exception, due to its clout, but Fortis Investments prefers areas such as equipment manufacturers for deep-sea drilling.