This week, clients attending our annual investment presentation will hear Neil Shearing of Capital Economics explore a question that is increasingly shaping markets worldwide: how will a more fragmented world reshape global trade, economies and markets? Building on that theme, Shannon Lancaster and I will address the question that is most relevant to investors: how are portfolios being adapted and where are the opportunities in a more fractured, more capital-intensive world?
Key to this discussion is not that globalisation has ended. It has not. Goods, capital and ideas are still moving across borders, but they are increasingly being rerouted. The old model, built around maximum efficiency, cheap capital and extended supply chains, is giving way to something more complicated. Trade is reorganising around geopolitical alliances, governments are becoming more interventionist, security of supply is moving up the agenda and resilience is being prioritised over efficiency.
That shift creates risks, but it also creates investment opportunities. A world of more frequent supply shocks, strategic chokepoints and political intervention is not as comfortable as the one investors became used to after the financial crisis. It is also a world that requires enormous investment. Countries need more secure energy systems, more resilient infrastructure, more domestic industrial capability, larger defence budgets, greater access to critical materials and deeper technological capacity.
This is where the investment discussion becomes important. The task is not to predict every election, tariff announcement or geopolitical event. It is to build portfolios that can adapt as the world changes. That means identifying where capital is likely to flow, where bottlenecks are emerging and where profit pools may accrue.
For our multi-manager team, that means leaning into the flexibility a multi-manager approach offers, to access a wider set of opportunities and domain expertise across regions, sectors and specialist areas. Themes such as AI infrastructure, electrification, energy security, healthcare innovation and industrial reshoring do not sit neatly in one market or one asset class. A broader toolkit allows portfolios to gain exposure to these structural shifts through different managers, styles and geographies, while avoiding over-reliance on any single view.
For our direct equity strategy, the focus is on mapping these themes through value chains and identifying the companies best placed to benefit. AI, as a good example, is often described as a software revolution, but the investment reality is far more physical. AI requires semiconductors, data centres, power generation, cooling systems, grid upgrades and vast amounts of capital expenditure. The “cloud” is, in many respects, a network of very real buildings requiring significant energy and cooling systems.
The same logic applies to commodities and industrial infrastructure. If the next stage of technological progress depends on more compute, more power and more physical capacity, then the raw materials and systems behind that build-out become increasingly important. Copper, silver, uranium, rare earths, energy infrastructure and grid investment all sit within the same broader story: the digital economy cannot grow without the physical economy being rebuilt around it.
Defence is another area where the opportunity is real, but the answer is not simply to buy the obvious winners and forget about valuation. Spending is rising, but the nature of warfare is also changing. Drones, missiles, sensors and electronic systems are altering where future budgets may be directed. This all requires active judgement, not passive enthusiasm.
The discussion will therefore be about more than a fractured world. It will be about how investors can respond to one. The backdrop is more volatile, but also more investable. The next cycle may not reward the most efficient portfolios, but it may reward the most adaptable. For us, this is a theme we have already been actively positioning portfolios around and performance is coming through, aligning with this shift with investors benefitting as a result.
