sustainable equities: the most vulnerable can become the most attractive

a hunting ground among penalised stocks.

For active equity investors like us, opportunities arise from the difference between what your analysis suggests is possible for a company and what the market has priced in. When discussing the impact of tariffs, for example, those opportunities can seem contrary to popular opinion. Markets can penalise entire industries in the early stages of this type of disruption, taking valuations to levels that price in very negative outcomes. This creates an excellent hunting ground for active investors.

a good time to be active.

The key is looking at industries perceived to be most at risk, and then finding the best-in-class companies in those industries, where the chance for a positive surprise is higher.

The reverse can also be true. The initial fear that drives investors into safe havens can leave stocks perceived as defensive with little margin for error. Year to date, the spread between the best- and worst-performing industries has been over 50%, with autos bringing up the rear and domestically focused health-care providers in the lead.

The ability to differentiate among companies is becoming more important, in our view. Increasingly, whether a business has the ability to respond to this complex backdrop will matter more than their industry. Again, the volatility and uncertainty creates opportunities. Debates around reshoring and deglobalisation did not start with the tariffs; they were born when the global pandemic highlighted the complexities and challenges associated with global supply chains, and customers spanning different legal and regulatory backdrops.

system change and stock-picking.

Conversations with our companies, their competitors and supply chains will help show us where the opportunities – and vulnerabilities – are compared with market expectations. We believe that the combination of system change analysis and bottom up fundamental stock picking will enable us to identify the companies operating in areas of more resilient growth and trading at attractive multiples.

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after the bell.

What do you think should be keeping other investors up at night?

Whether they are taking enough advantage of opportunities. It is easy in these markets to focus on the negatives, the increase in uncertainty, Donald Trump’s tweets, movements in bond yields – the list is long. However, the job has not changed: it’s still about finding openings created by the noise. The adjustment to markets will play out over months and will provide opportunities that will shape performance for years to come.

author.

Nicholette MacDonald-Brown
Head of Sustainable Equities

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