Expert: Steve Wreford, Portfolio Manager, Lazard Asset Management Facilitator: Sascha Calisan, Director, Davies Group
Headlines:
- The new investment regime driven by inflation, geopolitics, sustainability and AI
- Rotating from richly valued software names into depressed industrials
- Cautious stance on pure renewables due to lack of moats
- Need to capture asymmetric gains from long-term structural changes
Context:
The last decade was dominated by mega-cap tech compounders and zero interest rate policies. But inflation, geopolitics, sustainability transitions and AI adoption are driving a new regime.
While AI promises productivity gains, winners remain unclear; companies are focused on managing geopolitical supply chain risks; ESG faces recalibration in a high inflation world; and corporate capital budgets expect high, volatile inflation.
Expensive software and AI names are being trimmed to fund additions in depressed automation-exposed industrial companies. These offer superior growth at reasonable valuations despite facing temporary cyclical headwinds.
The energy transition theme remains intact but low barriers to entry and regulatory risks cap enthusiasm for pure-play renewable names. Integrated European energy majors like BP offer better risk-adjusted value with large renewables businesses likely to emerge.
With short-term performance often disconnected from structural winners, the goal is to use a valuation discipline for entering and exiting to capture asymmetric gains during periods of market recognition.
Key takeaways:
- Scale further out of software and AI names on additional strength
- Re-evaluate cyclical industrial additions if no confirmation of uptrends by mid-year
- Consider healthcare theme introduction if software valuations stretch further
