This fundamental truth – that what must happen will and what can’t happen won’t – provides an important perspective amid the geopolitical and macro-economic uncertainty.
We began 2025 with a constructive outlook based on strong economic fundamentals: robust corporate investment in efficiency, capacity and innovation; resilient consumer spending supported by rising real wages; moderating inflation and supportive monetary policy. The Trump administration’s deliberately disruptive approach to domestic and foreign policy has increased uncertainty and market volatility, creating both opportunities and challenges for companies, consumers and investors.
However, volatility can be positive as well as negative, and as the strong performance of our World Stars Global Equity strategy this year has shown so far, it has been right to take a long-term and reasoned view that the US government’s policies, whether on tariffs and trade restrictions, cost cutting, spending or immigration would differ from their announcements and that they would be constrained by the reality of US economic needs and global financial markets.
While political and economic uncertainty has increased, our investment approach remains focused on underlying business fundamentals. Company earnings, management meetings, and our research and recent travel across the US and Europe show that they remain resilient. The US economy in particular has compelling long-term growth drivers: investment in computing capacity, data centres and AI to drive efficiencies and growth; necessary infrastructure investment to close the productivity gap; and the continued financial strength of many consumers. Businesses and consumers are clearly affected by the uncertainty and if it should lead to economic slowdown, higher inflation or other issues, it is possible if not likely that market constraints and political considerations will lead to changes in government policies as they have already.
Our investment approach remains consistent: focus on quality companies, maintain valuation discipline, and take advantage of opportunities created by market volatility.
We invest in high-quality companies with strong competitive positions; the ability to grow through innovation, capital allocation or growing markets; led by experienced management teams with proven track records of creating shareholder value; and supported by robust balance sheets that can weather economic adversity. These quality attributes position our companies not just to survive periods of uncertainty but enables them to act rather than having to react. They can allocate capital to reinvestment, acquisitions or return to shareholders, and can make use of adversity to get stronger and to increase their scope for value creation. At the same time our focus on valuation means that we ourselves can act to reallocate capital from companies whose valuations are higher or whose prospects for growth and value creation are lower to new positions or to reinforcing existing ones.
This consistency explains the resilient performance of our World Stars Global Equity strategy, which has returned close to its previous highs. Our experience has been that quality companies bought at reasonable prices outperform when markets focus on fundamentals rather than sentiment. This approach has served us well through previous periods of uncertainty and crisis, and as this year has shown, our companies are positioned to benefit from the quality of their businesses and the underlying economic resilience while providing protection against policy-driven volatility.
The principle that what must happen will and what can’t happen won’t provides both clarity and confidence in focusing on facts and fundamentals. Markets will continue to hold governments accountable, creating opportunities for long-term investors who are able to act with consistency and discipline while others react to headlines. We remain optimistic about the long-term prospects for our quality companies and will look to take advantage of opportunities as they arise.
Read Full Article
