Global Alpha Insights: investing in resilience beyond political cycles

As with any investment, your capital is at risk

We start by reminding our readers that since the inception of Global Alpha in 2005, during which we’ve seen four presidents, we have not repositioned our portfolios or made any knee-jerk reactions with regard to who is in the White House. We firmly believe that innovation and entrepreneurship drive markets over and above politics. Instead, we remain focused on finding companies that we believe can grow at above-market rates for above-market duration. 

That said however, we have considered some of the moving parts that markets could experience with a second Trump presidency. US stocks surged initially, and expectations are that the administration and/or policies will look very similar to those of his first term - tax cuts, deregulation and tariffs. With the Republicans also having won the Senate and the House, there is potentially more ability for Trump to drive policy change more effectively.

One of the structural trends that our Global Alpha Team believes hosts a plethora of long-term opportunities is the revitalisation and enhancement of infrastructure in the States. Decades-old electrical grids, roads, railways and internet providers are no longer fit to cope with today’s modern technology and population needs.

Indeed, America’s infrastructure lags many other developed economies including China. The American Society of Civil Engineers estimates an infrastructure investment gap of nearly $2.6trn this decade. We believe that spending in this area will continue regardless of who occupies the presidential suite. Building aggregate businesses such as Martin Marietta and CRH will benefit from this required spend.

Energy seems likely to be in focus too. We have exposure to companies electrifying energy generation and storage, such as Eaton. We think costs ultimately dictate choices, and the drivers for ongoing electrification of energy generation and storage will persist. As solar deployments spread, the US could benefit from extremely low-cost electricity generation, particularly in the sunbelt. Eaton’s electrical power management systems seem set to be in demand.

Another area that’s been a hot topic for our clients is how further tariffs could impact companies held in the portfolio. The first point we’d note is that we’ve been through something akin to this in Trump’s first presidency. As such, many companies have already adapted their supply chains to rely less on foreign manufacturers or suppliers. Recent conflicts in the Middle East and Europe have also likely driven companies to move quickly in this area.

If we were to zoom in on just the Chinese companies in the portfolio - where we have minimal direct exposure, ~3.5% across four names - our investment activity in this region has been more focused on investing in domestic winners than those that rely on exports. For example, electric vehicle manufacturer Li Auto generates 100 per cent of sales from the Chinese market, and the e-commerce platform Pinduoduo - while operating an international arm through Temu - still generates the majority of revenues from Chinese consumers. We therefore believe the portfolio is well-insulated from any shocks in this area. 

And finally, the appointment of RFK Junior has been an interesting move - perhaps flagging more questions than answers around the future of the healthcare sector. RFK wants the FDA to be tougher on big pharma. At the same time, another member of the ‘governmental efficiency’ department - Ramaswamy - has argued that the FDA is too restrictive, creating barriers to innovation. Ramaswamy made his fortune investing in biotech. This leads to an imbalanced view of US healthcare. In the near term, we don’t expect any drastic changes in healthcare, largely because existing reforms are hard to undo, e.g. if any limits were placed on Medicare’s coverage of GLP-1s (medicines used to treat type 2 diabetes), the public could react very strongly. But we must take a step back and remember that presidents don’t affect long-term share price appreciation. If you look at the share price of Novo Nordisk from 2000 to 2024 - a period that has seen five different presidents, it has moved from 9DK to around 750DK today.

Ultimately, while we can and do seek out particular dependencies in our analysis, we control best for this by selecting stocks that we think can grow across a wide range of backdrops because of the attractiveness of their products and services. We do not have an edge in political analysis, so while stock markets play this game, we focus on long-term growth opportunities. That’s where the largest returns are made. We aim for those returns by investing in businesses where growth will outlast political cycles and then holding them through the inevitable ups and downs.

Global Alpha (including Global Alpha, Responsible Global Alpha, Global Alpha Paris Aligned and Responsible Global Alpha Paris Aligned strategies)

Annual past performance to 31 December each year (net%)

Annualised returns to 31 December 2024 (net%)

Source: Revolution, MSCI. US dollars. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

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