Q4 2024 comment
Mark Hawtin, Head of Global Equities team
2024 was the first time the S&P Equal Weighted Index had underperformed the S&P 500 Index by more than 10% for two years running this century. Mark Hawtin discusses whether this unprecedented run will continue or are we seeing the signs of broader market participation, meaning that stock selection will be more critical in 2025.
“AI is not going to take your job” – but people who know how to use it might
David Goodman, Fund Manager, Global Equities team
David Goodman explains why the narrative that “AI is coming for your job” misses the point and it is rather about humans using machines to outcompete one another.
Beyond classical: Quantum computing’s leap
Pieran Maru, Fund Manager, Global Equities team
Quantum computing offers the promise of significant advancements in AI and machine learning across a wide range of fields. Pieran Maru analyses the potential impact of quantum computing and the opportunities for investors, as well as the possible challenges.
The future of data centres: Embracing liquid cooling technology
Linnea Bengtsson, Investment Analyst, Sustainable Investment team
The demand for more efficient and effective data centre cooling solutions has never been greater. Linnea Bengtsson explains why liquid cooling technology would revolutionize the way data centres manage heat dissipation.
Outlook
Mark Hawtin, Head of Global Equities team
We believe the opportunity set in equities will differ in 2025 from the momentum of 2024. Two factors make the US slightly less straightforward than last year: increased volatility resulting from uncertainty over the exact path and timing of inflation and interest rates along with the early period of the new Trump regime and the concentration risk in the US market. Add in peak expectations on AI infrastructure, and we believe that 2025 will see a rotation into a broader range of US market opportunities as well as a better backdrop at the margin for equites in other geographies.
In the US, our key selection criteria revolve around finding companies that will utilise the newfound benefits of AI effectively as well as those companies set to benefit from Trump policies on tax cuts and spending priorities. We specifically reduce exposure to the AI infrastructure build cycle, as well as to mega cap names, and favour sectors like healthcare, industrials and fintech.
In portfolio construction terms, we have increased exposure to healthcare and industrials where the use of AI creates a clear differentiated opportunity or where the digital lenses that we apply across the investment universe find moats that are hard to cross. For example, in robotic surgery, Intuitive continues to benefit from the network effect in a way that the market underappreciates.
One additional theme that is likely to play out in 2025 is that of mobility including autonomous driving and last mile delivery. We have for some time talked about the demise of traditional auto manufacture and we would expect to see this accelerate with a shift towards structural consolidation like the year-end announcement of the Honda/Nissan merger. This will not be restricted to the traditional original equipment manufacturers (OEMs) – we see consolidation likely to build potential ride sharing and autonomous platforms with a significant moat. Waymo and Tesla both need to accelerate their positioning so we think it is likely that broader tie-ups will occur, such as an attempt to take over Uber to turbo boost access to customers.
Elsewhere, the Trump administration’s support for crypto and digitalisation also makes digital fintech a clear opportunity for 2025.
The wild card may prove to be China, where shares have been crushed by the poor growth outlook and continued tensions on a geopolitical level. If measures to stimulate growth align with a less aggressive stand from the new Trump administration, China could offer a very cheap and well diversified equity opportunity. In addition, any push to weaken the US dollar would add further support for investing in China and emerging markets more broadly. Given the unique nature of emerging market economies because of their rapid and comprehensive use of digital technologies, we can see a scenario in which diversification away from the very concentrated US exposure could generate significant relative returns.
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