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Opportunities beyond AI

As liquidity returns to global equity markets, bifurcation is increasing and we're seeing a broader group of stocks and sectors with accelerated earnings being rewarded.

Global equities have risen spectacularly from the market bottom in October 2022, with the S&P500 Index returning c.44% and the MSCI AC World TR Index c.24% from the trough to the start of March 2024. A small group of mega-cap stocks – the Magnificent Seven – initially led the market into a steep upward trajectory. US interest rates reaching their peak was the catalyst for the second phase of the rally. As liquidity returned, a broader group of stocks with accelerated earnings have also been rewarded.

The ‘Automation’ theme has proven a huge accelerator for the market, with Nvidia representing AI within the Magnificent Seven and proving a key performer within our own portfolios. The AI rally is being driven by the emergence of revenue recognition – the technology has shifted from being a concept to having robust, revenue-generating applications. In response, some AI names are seeing 50% upgrades on earnings over a 3–6-month period, which has resulted in some incidents of 50% stock price increases year-to-date.

But we’re not operating in a one-theme market – we are seeing multiple themes contribute to the performance uptick.

‘Real estate & infrastructure’ is a prominent theme for us. For the past two years, we have closely monitored the trickle-down effects of the USD1.2 trillion US Infrastructure Bill; the cheques from this stimulus pot are now being signed and flowing into the industry. A notable beneficiary within our portfolio is Advanced Drainage Systems (ADS). The company produces recycled plastic drainage pipes, which are being mandated for use within US infrastructure projects, reflecting the push towards better ESG practices in the construction industry. In the past quarter, ADS’s infrastructure revenue grew 22%, with a healthy order pipeline – the stock price was rewarded accordingly.

The ‘Health & Wellbeing’ theme is also gathering pace. A healthy demand/supply balance is something we look for in all our investments, and we are seeing very strong examples of this among the new wave of weight-loss drugs like Ozempic, where phenomenal demand is far outstripping supply. The diabetes medication manufacturer Novo Nordisk has therefore proven a winner within our portfolio.

We’ve also seen several out-of-favour stocks within the ‘Health & Wellbeing’ theme make a return recently. Within our portfolio, we have owned Dexcom, which makes continuous glucose monitoring (CGM) devices, for several years. Overall, it has been a strong performer, but the stock had a tough 2022. However, the company recently announced the launch of a new pre-diabetes product that is available to buy over the counter, opening up a large new market (non-prescription) for the company. The stock rallied on the announcement as the market now appreciates the scale of opportunity this presents for Dexcom.  

Within our ‘Service Economy’ theme, one area of focus is travel. We currently only own one Chinese name in our portfolio, and that sits within this theme. is China’s leading online travel agency. During Covid, the company took the opportunity to improve its systems and automation, reducing the staffing needs for its helplines and livechat. As the travel industry has reopened, Trip’s revenues and margins are coming back higher than pre-pandemic levels. The market has noticed this with the stock up 30% year to date – although it is still trading cheap, in our view, at around 13x earnings. Last year China was struggling and Trip didn’t get the earnings appreciation it deserved, but it is coming through now.


Mindful of concentration in the market, we are very focused on maintaining diversification within our portfolio. While the global economy is only at the start of a new cycle, the equity market, and AI names in particular, is further ahead, having advanced into mid-cycle territory.

But despite the performances we’ve seen in recent months, valuations are not extreme in most cases because the stocks were hit so hard in 2022, so are less challenged now than they would otherwise be. Nevertheless, it’s very easy to fall in love with specific stocks, so we remain committed to multiple themes and are cheered to see the return of bifurcation (clear winners and losers) within the market, to the benefit of stockpickers like us.

In terms of regions, the US remains dominant within our portfolio, but one much smaller market that we are closely watching developments in is India. The Modi government has a big infrastructure mandate, with many potential beneficiaries as the energy industry moves away from fossil fuels towards renewables like hydropower. With Modi likely to win a third term at elections in May, this could pave the way for an acceleration in infrastructure activity.

We are also seeing investment flows move from China into India, as investors shift towards holding China as a tactical market. Within Europe, our strategy remains unchanged ─ identifying the global leaders that have a European domiciled but strong US/Asian revenue streams.

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