Charles Tan

The Federal Reserve (Fed) kept its interest rate target unchanged on April 29 at a range of 3.5% to 3.75%, where it’s been since December. This was the final meeting of Jerome Powell’s eight-year tenure as Fed chair, with Kevin Warsh poised to take over next month. Powell noted that he would keep his position on the seven-member Fed board, which expires in 2028, for a “to-be-determined” period.

At his post-meeting press conference, Powell cited a recent uptick in inflation and uncertainty stemming from the Iran conflict as drivers of the Fed’s continued pause. He also noted that the U.S. economy continues to expand at a solid pace.

Fed keeps rate-cut bias in statement

At the March meeting, most Fed officials pencilled in slightly lower interest rates by the end of 2026. Since then, some policymakers have suggested that inflation risks could extend the pause in interest rates beyond year-end. Nevertheless, in the latest Fed statement, officials left in place language suggesting an easing bias, despite objections from four members — the most dissents since 1992.

Three officials agreed to the rate decision but opposed the language suggesting a rate cut is more likely than a rate hike. A fourth member favoured an interest rate cut.

This backdrop suggests Warsh will inherit an increasingly divided Fed as he seeks to usher in a new era. He is likely to introduce a range of reforms to the Fed’s balance sheet and forward guidance framework and provide new inflation measurement metrics.

Regarding the Fed’s dual mandate of promoting price stability and full employment, Warsh believes price stability should dominate. In his view, full employment depends on sustained price stability, and without it, the Fed fails in its other responsibilities. He also believes productivity gains from artificial intelligence (AI) should bolster growth without triggering high inflation.

U.S. economy on track for continued growth

Despite the uncertainties surrounding the Iran conflict, we believe the U.S. economy will grow this year. Many Asian and European countries that depend on Middle Eastern energy are struggling with supply disruptions that threaten their economic growth. Meanwhile, energy independence is helping to mitigate the oil supply shock in the U.S., which, combined with other factors, should minimize the economic fallout.

Core inflation pressures should subside

While the U.S. has an abundant supply of oil, it has been unable to escape the worldwide impact of higher global oil prices. Higher fuel prices have contributed to rising headline inflation, which climbed from 2.4% (annualized) in February to 3.3% in March. However, assuming the military conflict in Iran isn’t prolonged, we expect oil prices to moderate over time.

Core inflation, which excludes energy prices and is a key driver of Fed policy, has increased slightly, from 2.5% in February to 2.6% in March.1 We expect lower effective tariff rates to help keep core inflation relatively contained, though it likely will remain above the Fed’s 2% target.

Consumer-related data remain stable

The labour market, which, along with inflation, shapes the Fed’s interest rate policy, appears to have stabilized. In a low-hire/low-fire jobs environment, the unemployment rate eased slightly from 4.4% in February to 4.3% in March. Additionally, nonfarm payrolls rebounded in March to erase February’s job losses.

Furthermore, overall consumer spending remains healthy, with retail sales climbing across most categories in March. However, middle- and lower-income consumers continue to face pressures from the cumulative effects of higher prices over recent years.

Fiscal, monetary support aids economy

We also expect other factors to support and promote economic growth in 2026, including:

Tax cuts, federal deregulation and pro-growth fiscal policies outlined in last year’s One Big Beautiful Bill Act
A continuation and expansion of the technology capital spending surge
The cumulative effects of last year’s Fed rate cuts, which totalled 1.75 percentage points
Better clarity surrounding global trade policy

While our outlook generally remains upbeat, we can’t overlook the greatest risk to continued economic growth: stagflation.

An expanded military conflict in the Middle East could further aggravate the region’s already damaged energy infrastructure. A prolonged energy shortage could severely damage the global economy and trigger a slow-growth/high-inflation environment in the U.S.

What the current interest rate environment means for markets

We believe high-quality bond yields remain attractive in today’s interest rate environment. We expect the benchmark 10-year Treasury yield to remain in a range of 4% to 4.5% through year-end.

Additionally, last year’s Fed rate cuts and pro-growth fiscal policies have supported credit fundamentals, fuelling opportunities among select high-quality corporate bonds. We also expect corporate mergers and acquisitions activity to increase this year, lifting risk in some sectors and highlighting opportunities in others.

Outside the U.S., we favour government bonds in the U.K. and New Zealand. Weaker growth versus the U.S. and mispriced monetary policy are driving opportunities in these markets.

As always, we believe maintaining a broadly diversified investment portfolio is a sensible strategy regardless of the economic or geopolitical backdrop. Our experience suggests that investors who maintain their long-term strategies while remaining mindful of emerging opportunities may improve their risk/reward potential.

By Charles Tan, CIO

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It’s possible to gain exposure to AI-related growth through mid-caps.

Artificial intelligence (AI) has helped drive results for the Magnificent Seven and other large-cap companies. But they’re not the only ones benefiting from this trend.

The world’s largest tech firms are investing billions in new data centres, and a significant portion of their spending is flowing to midsize companies. In many cases, these are the vendors and contractors building the facilities. They’re also making the components and connectors that live in data centers’ server racks.
Meanwhile, other mid-cap companies are seizing AI’s potential by embedding the technology in their products and innovations.

We believe mid-caps with AI exposure represent an opportunity for investors. To understand this trend, let’s examine how mid-caps participate in the AI theme.

How are mid-cap companies benefiting from AI adoption?

Data centre design and construction

Management consulting firm McKinsey & Co. forecasts that companies will spend about $6.7 trillion on data centre infrastructure between 2025 and 2030. Nearly $1 trillion could go to the businesses constructing these facilities.

Mid-caps can participate in this trend in several ways, like preparing building sites or installing mechanical, electrical and plumbing systems. Comfort Systems USA, which works on these systems, reported that its backlog grew about 40% between June 2024 and June 2025. Data centres also need to be cooled 24/7, which boosts the demand for companies specialising in air conditioning and cooling. One such company, Vertiv, reported an $8.5 billion backlog at the end of June 2025.

Producers of technology components

Although semiconductor companies like NVIDIA attract considerable attention, chips aren’t the only components that data centres rely on. They also require connectors and interconnect systems that can reliably and quickly move data between servers and entire centers. Mid-cap firms are key players in this area. For example, Ciena makes optical components that connect data centers and is introducing new products that can connect AI servers.

Utilities and energy suppliers

Data centres use vast amounts of power, partly because AI semiconductors consume much more power than other chips. This higher demand creates opportunities for utilities and energy companies, including firms that generate power from nuclear and natural gas.

Vistra, a Texas-based energy company, is expanding its natural gas generation capabilities to meet rising demand. It has pointed to data centre growth as one reason for the increase.

We also see opportunities in power grids and transmission. More energy plants are coming online, but the grid often lacks the capacity to handle this extra power. We think this may generate opportunities for design and construction firms involved in expanding or upgrading energy infrastructure.

Companies that make critical machinery could also benefit. Howmet Aerospace, a leading maker of jet engine parts, also makes airfoils, rings and other parts for the gas turbines used to power data centres.

Implementation of AI

Commercial and professional Services

Risk assessment and analysis

Artificial intelligence can harness colossal amounts of data to provide faster, more complete analysis tools. Verisk Analytics serves the insurance industry and has developed AI-powered solutions to assist with underwriting decisions, research and forms management.

Security services

Axon, known for Taser and other security technologies, has introduced several AI-powered solutions. These include real-time language translation for law enforcement officers and a chatbot where officers can access department policies.

Axon also offers Draft One, a tool that analyzes the audio from officers’ bodycam footage to help draft incident reports. The company says Draft One can cut time spent on report writing by about half or more.

Health care

Scanning and diagnosis

Several companies have developed tools that pair AI with medical scanning technology. G.E. HealthCare alone has won 100 medical device authorisations from the U.S. Food and Drug Administration for its AI-enabled tech. These tools highlight abnormalities that physicians and other medical personnel might miss, while also speeding up reviews. According to one recent study, AI-powered mammograms could help prevent about 30% of breast cancers.

At the same time, this remains a nascent technology. One study found that using AI doesn’t always improve radiologists’ performance.

Drug development and testing

Mid-cap companies are employing AI in drug discovery and testing. AI could potentially unlock up to $110 billion in economic value annually for the pharma and medical product industries. IQVIA, for example, has developed agentic AI tools that aim to streamline clinical trials, which often take months just to set up. These solutions can monitor all parts of the process to identify problems quickly, recommend solutions and ensure regulatory compliance.

As a result, new drugs could reach the market more quickly and at a lower cost.

Consumer discretionary

Entertainment and education

Other companies use AI to scale content creation, improve advertising performance and increase audience engagement. Earlier this year, learning app Duolingo debuted nearly 150 language programs developed with AI. Duolingo’s premium service also features an AI-powered “live chat” where users speak with an animated character to practice a new language.

Roku, the streaming platform and device manufacturer, uses AI to personalise content recommendations and increase viewership. The company is also working on AI for its advertising offering. One recently added tool helps advertisers better measure the return on investment from their campaigns.

What are the potential risks of implementing AI?

Companies have invested billions in AI, but if it doesn’t generate the desired results, this spending could dry up. It’s important to remember that, despite its recent progress, AI is relatively new and has shortcomings that need to be fixed. Problems with hallucinations (i.e., incorrect or misleading results) could slow adoption.

Many businesses are also struggling to incorporate AI into their operations and haven’t yet seen benefits to their bottom lines. One recent report suggests that 95% of organisations haven’t received any return from AI. The regulatory environment and public perception of AI are changing and could worsen. For example, AI-controlled pricing for airline tickets and other products might lead to consumer backlash and government scrutiny.

Finally, don’t underestimate the risk that supply chain delays and higher tariffs could increase the costs of materials and components used in new data centres. This could become another obstacle for AI.

The argument for mid-caps in Artificial Intelligence

We still believe AI will remain a steady trend in the coming years, even if challenges arise.

In the near term, however, we believe it’s possible to gain exposure to AI-related growth through mid-caps. Whether companies are building data centres or creating AI-powered products, we think mid-caps may offer attractive opportunities for investors.

By Jonathan Bauman, senior client portfolio manager

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Eduardo Repetto

Avantis Investors, an AU$133 billion^[1] investment offering from the AU$454 billion^[2] global asset manager American Century Investments®, is entering the Australian market with the launch of its first three dual access exchange-traded funds (ETFs): Avantis Small Cap Value Active ETF (AVTS), Avantis Global Equity Active ETF (AVTG) and Avantis Emerging Markets Equity Active ETF (AVTE).

All three new active ETFs seek long-term capital appreciation through investment in actively managed portfolios managed by one of the fastest growing active ETF providers in the U.S.

Many Australian investors have been interested in Avantis since we launched six years ago. We are thrilled to now have our investment solutions available in Australia,” said Eduardo Repetto, Avantis Investors CIO on behalf of American Century.

“Our goal is to provide low-cost, broadly diversified active solutions that empower financial professionals to create value for their clients. These dual access vehicles offer eligible investors the flexibility to choose what’s right for them and their clients. Each strategy can be accessed by ETF or managed fund.”

Avantis solutions seek to combine many of the potential benefits of index investing with the potential for added value by considering expected returns^[3] each day. It’s the parts of passive that make sense with the parts of active that can make a difference.

The estimated management fees and costs for the new Avantis funds are the following:

• Avantis Global Equity Active ETF — estimated management fees and costs of 0.30% p.a.^[4]
• Avantis Emerging Markets Equity Active ETF — estimated management fee and cost of 0.45% p.a.^[4]
• Avantis Global Small Cap Value Active ETF — estimated management fee and cost of 0.49% p.a.^[4]

These new Avantis funds build on the seven-year presence of American Century Investments in Australia.

“Bringing Avantis Investors to Australia is an important milestone for our business in the region. Our team in Sydney is excited to broaden the scope of our offering to professional investors across Australia,” said Tom Clapham, Head of APAC for American Century Investments. 

Partnership brings new dual access active ETFs to Australia’s market

Working in partnership with one of Australia’s leading specialist trustee companies, Equity Trustees, the Avantis active ETFs are listed on Cboe Australia, a subsidiary of Cboe Global Markets, Inc., one of the world’s leading derivatives and securities exchange network.

“The launch of Avantis Investors first three ETFs on Cboe Australia marks an exciting milestone for certain local investors, further broadening access to innovative investment opportunities. This product exemplifies our commitment to reshaping the ETF landscape through cutting-edge technology and exceptional client service,” said Emma Quinn, President of Cboe Australia.

“We are proud to expand our long-standing partnership with American Century through the launch of these three new Avantis ETFs,” said Andrew Godfrey, Executive General Manager of Corporate and Superannuation Trustee Services at Equity Trustees.

“As Responsible Entity, we are committed to providing strong governance and compliance, enabling American Century to confidently deliver their Avantis investment strategies to investors.”

Avantis Investors is owned by American Century Investments, an asset manager with a reputation for client care, stewardship and stability—bringing scale and allowing long-term focus. Through American Century’s relationship with the Stowers Institute for Medical Research, investments with Avantis help support research that can improve human health and save lives. Since 2000, American Century’s dividends distributed to the Stowers Institute have totalled more than $2 billion.

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Notes:
[1] Assets under supervision as of 9/19/25. Source: American Century Investments
[2] Ibid.
[3] Expected Returns: Valuation theory shows that the expected return of a stock is a function of its current price, its book equity (assets minus liabilities) and expected future profits, and that the expected return of a bond is a function of its current yield and its expected capital appreciation (depreciation). We use information in current market prices and company financials to identify differences in expected returns among securities, seeking to overweight securities with higher expected returns based on this current market information. Actual returns may be different than expected returns, and there is no guarantee that the strategy will be successful.
[4] Estimated Management fees and costs comprise management fees and indirect costs. Certain additional costs may apply, including a buy-sell spread in relation to cash applications and redemptions made via the off-market access point. Please refer to the Product Disclosure Statement which contains further information on fees and costs, including a breakdown of management fees and costs amount applicable and additional information about the buy-sell spread.

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“With the previously dominant “Magnificent 7″ and broader US exceptionalism lagging this year, investors are increasingly looking beyond traditional outperformers for growth potential, and after decades of underperformance relative to global peers, Japan is experiencing a meaningful inflection point,” Mr Chua said.

“Structural reforms, technological modernisation and evolving corporate governance are creating compelling opportunities in a market that many investors had overlooked since its deflationary spiral began in the 1990s.”

Mr Chua pointed to three key drivers behind Japan’s resurgence.

The country is undergoing rapid digitisation as companies invest heavily in IT infrastructure to offset rising labour costs and improve productivity.

Additionally, Japanese industrial firms, particularly in sectors like advanced machinery, energy infrastructure, and AI-driven power demand, are well positioned to benefit from global structural trends. Companies such as Mitsubishi and Hitachi stand to gain from increasing worldwide investment in electricity generation and next-generation technology.

Finally, another critical factor is Japan’s shifting corporate culture, where companies are increasingly prioritising shareholder-friendly policies.

“We’re seeing accelerated stock buybacks, higher dividend payouts, and improved board diversity, all of which signal stronger corporate governance and a more attractive investment landscape,” Mr Chua said.

Mr Chaus said American Century Investments has been increasing its exposure to Japanese equities after years of limited allocation.

“Japan’s economic trajectory is at a turning point,” Mr Chua said.

“With improving fundamentals, policy support, and corporate reforms, we believe the market offers a compelling risk-reward balance for investors seeking diversification beyond traditional US and tech-heavy exposures.”

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More details about changes to U.S. tariff policy are emerging, but significant uncertainty remains.

The number of S&P 500 companies mentioning “uncertainty” in their earnings calls more than doubled compared to the previous quarter. Higher tariffs could splinter international supply chains or push companies to postpone capital expenditures and other investments.

However, some firms are highlighting ways to soften the potential impact of tariffs. For example, 3M said it may adjust where and how its goods are produced.

The company could ship semifinished goods to the countries where they’re sold and fully finish them after arrival. Doing so would lower the items’ value and, in turn, reduce their tariff exposure.

2. Europe Proposes New Defence Stimulus

As concerns grow about U.S. reliability, the EU rolled out a framework for boosting defence spending, which could bolster the region’s defence industries.

The EU plan includes a 150-billion euro fund that member nations could tap for defence projects. The fund would direct most disbursements to companies in the EU, the European Economic Area, the European Free Trade Association and Ukraine.

EU countries could also deviate from the bloc’s fiscal rules and put an extra 1.5% of their gross domestic product into defence.

These new policies could generate more than 800 billion euros in additional defence spending.

3. Big Tech Doubles Down on AI in 2025

Some of the largest tech companies are accelerating their investments in artificial intelligence (AI) despite the recent debut of DeepSeek. The creation of this lower-cost AI model raised the question of whether firms would continue spending significant sums on infrastructure.

In February, though, Amazon announced plans to spend more than $100 billion on CapEx, up from $78 billion last year. Most of the money will go toward AI projects related to its cloud business.

Meta also said it would raise its CapEx budget beyond what was previously planned for this year. Instead of spending $60 billion to $65 billion, the new plan calls for an outlay of $64 billion to $72 billion.

Doing so will let the company add capacity faster, allowing it to progress on AI projects that could fuel growth, such as AI-generated advertisements.

4. U.S. Consumers Start to Show Mixed Signals

While consumer sentiment weakened over the first quarter, U.S. consumer spending increased at a slowing rate.

In its most recent earnings call, Visa described consumer spending as resilient and strong, with spending growing fastest among the most affluent households. However, the company said areas such as travel experienced slower growth.

Booking Holdings, the owner of Booking.com, Priceline and other brands, noted signs of a “bifurcated economy” in the U.S. Higher-rated, higher-end hotels tended to fare better than those with fewer stars.

Companies like Pepsico and Starbucks also pointed to signs of a tougher consumer environment. McDonald’s U.S. comparable sales shrank by 3.6% during the quarter.

5. Banks Are Benefiting from Tariff Turmoil

President Donald Trump’s tariff announcements appear to have generated a tailwind for banks during the first quarter. Their trading revenues surged as investors added and trimmed their holdings to adapt to market uncertainty.

A group of the largest Wall Street banks made almost $37 billion from trading, their best results in more than 10 years. And a group of Europe’s five largest banks earned 13 billion euros from trading, their best performance in at least a decade.

Over the long run, though, tariff uncertainty could present a risk if it scares investors into keeping their money on the sidelines.

Earnings Forecast: U.S. and EM Could Outpace Europe, Japan

Analysts expect S&P 500 earnings to expand by 4.77% in the second quarter. The full-year forecast calls for earnings growth of 8.97%, lower than previous estimates.

Growth might end up lower in other developed markets. Analysts predict -17.95% Japanese growth in the second quarter and an increase of 5.94% for 2025. European equities are expected to record 0.80% growth in the second quarter and a gain of 1.69% for the year.

Emerging markets could see 4.44% growth for the second quarter and 10.59% for 2025.

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Charles Tan

We believe economic pressures from tariffs, still-high interest rates and persistent above-target inflation will stall the US economy over the next several months. For these reasons, we put the odds of a slowdown sharply higher than other possible economic scenarios.

• Slowdown/Recession: Although we continue to believe below-trend growth (flat to slightly positive) is a likely near-term outcome, we also think recession is a growing possibility. We remain concerned about mounting consumer headwinds, including rising auto loan and credit card delinquencies, and sagging consumer sentiment.
• Stagflation: The potential for higher inflation and weak economic growth has slipped back into our forecast. However, we think stagflation is much less likely than a slowdown or a recession.
• Growth Surprise: We believe the chance of growth surprising to the upside has decreased significantly in recent weeks. We gauge this scenario, including above-trend economic growth, above-target inflation and tight financial conditions, as less likely than stagflation.

What would a slowdown/recession scenario mean for investors?

As the economy slows, U.S. Treasury yields will likely fall. We also expect credit spreads to widen.

While inflation should slowly moderate, we still expect tariffs to create temporary price bumps in the road. Overall, we believe the slowing economy will outweigh temporary price hikes, prompting the Federal Reserve (Fed) to resume its easing program by mid-year. We estimate the Fed will cut rates three or four times by year-end.

Slowdown/Recession: Potential Investment Implications

Fixed Income

In a slowdown/recession, investors should consider:

• Shifting to shorter duration. We believe short-duration assets may help manage near-term interest rate volatility. Furthermore, along with generally offering higher yields than cash equivalents, short-duration assets also tend to offer price appreciation potential in a declining rate environment.
• Balancing duration exposure. Core bond strategies with intermediate-duration exposure may offer diversification and potential performance advantages as rates broadly decline and equity market volatility rises.
• Staying high in credit quality. In addition to delivering diversification to investor portfolios, a modest allocation to high-quality investment-grade credit may now provide more attractive yields. However, we believe credit selection is critical to avoid weaker, economically sensitive issuers.
• Maintaining inflation protection. We believe inflation strategies still appear attractive, given that inflation expectations remain higher than average, largely due to tariff policy uncertainty.

Equities and real assets

In a slowdown/recession, investors should consider:

• Emphasising quality stocks. Quality companies with higher profitability and healthy balance sheets may offer attractive potential. Investors tend to favor quality companies in more defensive sectors, such as utilities, health care and consumer staples. Additionally, we think select dividend-paying stocks that tend to provide consistent income streams are attractive.
• Looking to sustainable growth. Companies with dependable, sustainable earnings growth have tended to outperform competitors with weaker earnings profiles during economic slowdowns. Economically sensitive value sectors, such as financials, industrials and energy, have tended to lag alongside lower growth expectations.
• Treading carefully in the commodities market. As consumer and industrial demand wanes, commodities typically lose their luster. However, we believe gold may continue to shine amid falling interest rates and heightened economic and market uncertainty.
• Maintaining selective exposure to real estate stocks. Lower interest rates may boost the attractiveness of real estate investment trusts (REITs) if growth doesn’t slow to recession levels. In such a scenario, we prefer to rely on our REIT managers to identify the best opportunities.

What would stagflation mean for investors?

In our view, stagflation would push the 10-year Treasury yield higher amid significant volatility as slow growth and high inflation collide. We also believe the two-year Treasury yield could increase as the Fed maintains tight financial conditions. Meanwhile, credit spreads may widen amid weak economic growth, particularly in the high-yield sector.

Stagflation: Potential Investment Implications

We believe stagflation is unlikely but slightly more possible than a growth surprise.

Fixed Income

If stagflation emerges, investors should consider:

• Maintaining inflation protection. We believe inflation-protection securities, particularly with short durations, are attractive as rates rise and inflation remains elevated.
• Focusing on quality credits. Higher-quality short-duration strategies may offer benefits if yield outweighs the effects of spread widening. Given the pressures on corporate fundamentals from inflation, rising rates and muted growth, a focus on credit quality will be important.

Equities and Real Assets

If stagflation emerges, investors should consider:

• Focusing on traditional value sectors. The energy and basic materials sectors have typically benefited from higher commodity prices. Utilities have generally provided dependable cash flows and dividends despite higher inflation and interest rates.
• Favouring quality stocks. In this challenging environment, we believe higher-quality companies with less debt, higher profit margins and reliable cash flows from operations should hold up better. We expect the market to reward firms with pricing power and unique competitive advantages.
• Gauging commodities. Commodities have historically provided high average returns during periods of elevated and rising inflation. However, we believe astute management is required because geopolitics and supply chain issues may heavily influence performance.
• Limiting exposure to real estate. As mortgage rates rise and the housing market slows, REITs may underperform their long-term averages.

What would a growth surprise mean for investors?

If economic growth surprises to the upside, inflation would likely remain above the Fed’s target. A growth surprise scenario could keep financial conditions tight and trigger renewed Fed rate hikes.

Growth surprise: potential investment implications

We believe there’s a slim chance economic growth will improve.

Fixed Income

If growth accelerates, investors should consider:

• Focusing on credit-sensitive assets. Riskier fixed-income securities, including high-yield corporate bonds and bank loans, may offer attractive return potential when the economy is growing.
• Maintaining inflation protection. We believe inflation-protection securities, particularly with short durations, are attractive as rates rise and inflation remains elevated.
• Avoiding longer-duration assets. With the Fed in tightening mode, we expect longer-duration securities to underperform as interest rates rise.

Equities and real assets

If growth accelerates, investors should consider:

• Focusing on traditional value sectors. The energy and basic materials sectors have typically benefited from higher commodity prices. Utilities have generally provided dependable cash flows and dividends despite higher inflation and interest rates.
• Favouring cyclical stocks. Economically sensitive sectors, such as financials, communication services and industrials, have tended to benefit from strong economic activity.
• Gauging commodities. Commodities have historically provided attractive returns during periods of economic growth and elevated inflation. However, we believe astute management is required because geopolitics and supply chain issues may heavily influence performance.
• Adding exposure to real estate. REITs may outperform their long-term averages as the economy remains robust.

Tariffs: long-term goals vs. short-term economic effects

The Trump administration’s trade policy overhaul seeks three key longer-term goals:

• Seeking economic security by reducing the nation’s dependence on foreign goods and promoting domestic production.
• Establishing fair trade through policies that protect American industry and employees from unjust practices, including currency manipulation and bans on U.S. goods.
• Reducing taxes and paying down the nation’s record-high debt by generating revenue through tariffs.

While these goals seem reasonable, some economists remain sceptical that the plan for achieving them will work. And many worry about the broader implications, including reduced imports and retaliation from trading partners.

In our view, even a relatively low level of tariffs could flatten U.S. economic growth and inflate prices. We also believe other aspects of Trump’s policy agenda, including tax cuts and deregulation, may not be enough to counteract the recessionary effects of tariffs.

Given the scenario that’s unfolded so far, Trump may back off some tariffs. He could also strike deals with key trading partners to lower tariffs, secure free trade and relocate more manufacturing to the U.S.

Meanwhile, speculation, economic uncertainty and market volatility will likely persist as tariff negotiations continue. But we believe it’s still possible to get through this upheaval without a major trade war.

What a stalling economy may mean for portfolio allocations

We believe maintaining a broadly diversified portfolio is a prudent policy as the economy slows or potentially contracts. In our experience, investors who maintain their long-term strategies may persevere as markets gyrate. However, we also believe specific investment characteristics deserve consideration in this environment.

For example, given mounting recession worries, we believe overweighting duration relative to market benchmarks may deliver advantages if interest rates fall and a flight to quality ensues. Additionally, select agency mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs) offer defensive characteristics and attractive yields.

Among stocks, rather than focusing on growth versus value, we generally favour quality, such as dividend-paying companies in defensive sectors (health care, utilities, consumer staples). Additionally, sustainable growth companies with stable earnings and strong competitive advantages will likely be more resilient to trade disruptions and tariffs.

By Charles Tan (CIO, global fixed income), Richard Weiss (CIO, multi-asset strategies) and Nancy Pilotte (senior client portfolio manager, multi-asset strategies)

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[1] Fitch Ratings, April 23, 2025.

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Europe and its largest economy, Germany, have notably benefited from this shift by outperforming the U.S. early in the year. See Figure 1. Despite this period of outperformance, European equities appear to be relatively inexpensive compared to the U.S.

This article explains why we believe Europe may offer opportunities for investors looking to reduce their exposure to the U.S.

Boosting defence: Europe’s new spending strategy

Amid growing concerns about the stability of its alliance with the U.S., the European Commission, the executive body of the European Union (EU), has unveiled a blueprint to enhance military readiness and bolster its defence industry. Under the “Readiness 2030” plan, the EU would:

• Allow member states to deviate from the bloc’s fiscal rules by dedicating an additional 1.5% of each member’s gross domestic product (GDP) to defence. Over four years, this could generate another 650 billion euros in spending.
• Launch a 150 billion euro fund for defence spending. Member states would be encouraged to order from European suppliers.

The plan also supports the creation of a savings and investment union to facilitate Europeans’ investments in European companies. Defence firms, for example, could see increased investment.

On the downside, however, Goldman Sachs has cautioned that any economic boost from defence spending could be smaller than expected. To stay within their debt limits, European countries might offset increased spending with higher taxes or less spending on other needs.

European companies are poised for an upswing in demand

The makeup of Europe’s economy could also prove to be advantageous. While information technology (IT) companies account for nearly 30% of the S&P 500® Index, technology stocks represent roughly 7% of the MSCI Europe Index.

This structural difference helps explain strong U.S. outperformance in 2023 and 2024 when enthusiasm about artificial intelligence (AI) spending propelled the market. With investors questioning these spending projections and the high valuations of tech stocks, the U.S. market’s significant IT stake could be a headwind.

In contrast, the financial sector is the largest part of Europe’s economy. Improved loan pricing and economic activity could fuel earnings for European banks.

Industrial companies account for a larger share of Europe’s economy than those in the U.S. Many are poised to see improving growth prospects due to low inventories and rising demand.

We’ve seen positive developments in European manufacturing. Demand seems to have bottomed out and is now climbing with an increase in new orders. This trend is illustrated by the rise of the HCOB Eurozone Manufacturing PMI® Index, which reached 50.5 in March, marking the highest level in nearly three years.

Other advances could also strengthen demand for European companies.

For example, if China’s economy recovers and boosts consumer demand, it may help European exporters. China is the EU’s third-largest export market, particularly for machinery, vehicles and vehicle parts.

Interest rate strategies: Europe cuts faster than the U.S.

The European Central Bank (ECB) has lowered its interest rates faster than the U.S. Federal Reserve (Fed). Lower rates could serve as a tailwind for Europe.

In April, the ECB reduced its key interest rate from 2.5% to 2.25%, the latest in a recent series of cuts. While inflation has continued to decline, policymakers said the potential for trade disruptions is negatively affecting the growth outlook.

Meanwhile, the U.S. federal funds rate ranges from 4.25% to 4.5%, among the highest of developed nations. The Fed’s Federal Open Market Committee held rates steady at its March meeting.

The central bank previously forecasted that interest rates would end the year at around 3.9%, implying two rate cuts in 2025. Given current economic uncertainties, policymakers could also make additional cuts.

The importance of remaining selective

We see great potential in European stocks but believe various issues could hinder the region’s growth.

First, European economies have grown modestly, and higher U.S. tariffs may introduce another headwind, possibly pushing the region into recession. Even before President Donald Trump’s recent tariff announcements, the ECB predicted real GDP would grow just 0.9% this year, 1.2% next year and 1.3% in 2027.

Politics is another potential obstacle. EU nations broadly agree on matters like increased military preparedness and economic self-reliance. However, the EU could struggle to maintain this unity over the long term.

Europe is generally more regulated than other markets, which could also hold back economic growth. Though the move could be politically unpopular, the region might need to embrace deregulation to sharpen its competitive edge.

With all this in mind, we are taking a selective approach to European investments. We aim to identify opportunities early, focusing on companies with accelerating growth and strong fundamentals.

Finding a balance on European stocks

Increased public spending, higher demand and other factors could support earnings growth among European companies. At the same time, however, Europe may face challenges that limit this progress, such as stubbornly low growth, higher tariffs and a complicated political landscape.

We think our bottom-up investment philosophy is well-suited to these times. By seeking specific companies with accelerating growth, we aim to identify equities in areas of the market that others tend to overlook. As Europe’s outlook evolves, we’ll watch closely for emerging opportunities.

In today’s volatile markets, European equities also offer investors overexposed to U.S. stocks one way to achieve greater diversification.

By Rajesh Gandhi, senior portfolio manager and Bernard Chua, senior client portfolio manager

The post Why growth investors are turning to Europe in early 2025 appeared first on AdviserVoice.

Mike Rode

Analysing the growth scare: What investors should know

Markets have experienced volatility resulting from the Trump administration’s tariffs and the Department of Government Efficiency’s (DOGE’s) pruning of the federal government. Recent actions by the administration have slowed economic growth expectations and may contribute to a growth scare, which occurs when investors worry that weakness in one area of the market will spread to others.

The current scare comes after U.S. stocks climbed more than 25% in each of the last two calendar years. Enthusiasm for artificial intelligence (AI) and stocks benefiting from a momentum tailwind helped drive market gains in 2023 and 2024. Going into 2025, the S&P 500® Index had earnings metrics and high prices similar to those present during the tech bubble of the late 1990s and early 2000s.

As the pace of growth in AI-related spending slows and the earnings growth of the Magnificent Seven – a collection of large companies tied to technology and AI – decelerates from a scorching hot 30% year-over-year rate, we anticipate that investment will begin to flow to other areas of the market. This could include overlooked asset classes such as non-U.S. stocks and value-related industries like consumer staples and health care.

Is it time to consider overlooked asset classes?

The possibility of European fiscal stimulus has provided a spark to performance this year for European stocks, which have lagged in recent years. Given the valuation disparity between U.S. and non-U.S. equities, we think capital could continue to flow to European equities.

Within the U.S., small- and mid-cap stocks have significantly underperformed large-cap stocks for the last two years. Similarly, value stocks, dividend-payers and stocks less sensitive to market movements have lagged over the same period. These smaller and less volatile companies may present compelling opportunities, particularly when large companies are highly valued and decelerating.

Investors are becoming more price-sensitive

Recent market turmoil has already caused capital to flow to value, low-volatility and dividend stocks. We believe that this rotation could be long-lasting. Historically, when valuations for the S&P 500 reach extremely elevated levels, as they were at the end of 2024, price returns over the subsequent five to 10 years tend to be negative. We believe that environments like these can result in indices that track value stocks delivering strong returns.

We think of it this way: If a company’s stock price is already high relative to its profitability, investors are reluctant to bid the price even higher. Therefore, when a broad swath of the market is overpriced, we think less expensive value and dividend-paying stocks present opportunities. Currently, we think such stocks trade at attractive prices.

Certainly, near-term fears about slowing growth and a potential recession have spurred volatility for small- and mid-cap stocks due to their sensitivity to economic conditions. However, investors looking out further than three to six months may find an opportunity to consider these overlooked asset classes while the market is choppy.

But small- and mid-cap stocks have more going for them than what we see as attractive valuations. They could benefit from unique growth drivers such as deregulation, reshoring and the potential acceleration of mergers and acquisitions. As a result, we see potential for their earnings to improve this year, regardless of the economic backdrop.

Glimmers of hope amid the economic downturn

With recession risk rising, investors are expecting interest rate cuts this year, which could help in a couple of ways. Lower rates would help reduce the cost of refinancing the nation’s ever-growing fiscal debt. In addition, lower borrowing costs would be a relief to corporations and encourage some to invest in capital projects.

Another major potential positive is that lower mortgage rates could awaken a sleepy housing market where demand far outstrips supply. An improved housing sector could benefit small- and mid-caps, which have more exposure to housing-related industries than large-caps.

The current growth scare has accelerated the rotation away from Magnificent Seven and AI stocks that started in the second half of 2024 and into less flashy but historically more steady asset classes.

According to the CFA Institute, cycles that alternate between growth and value, or large-caps versus small-caps last nearly a decade on average. So, the market may be at the dawn of a multi-year run for unloved and overlooked asset classes.

In other words, we believe it’s a great time to be boring.

By Mike Rode, senior investment director

The post Is it time for less drama in your portfolio? appeared first on AdviserVoice.

Just as peeling an onion can bring tears to your eyes, paying higher prices at the grocery store can be equally uncomfortable. However, the analogy goes deeper. Like an onion, inflation has multiple layers that reveal its complexities.

Let’s peel back these layers to understand what drives inflation and how it influences the Federal Reserve’s (Fed’s) policy decisions and investor portfolios.

Three Layers of Inflation

John C. Williams, president and CEO of the Federal Reserve Bank of New York, has compared inflation to an onion with the three layers depicted in Figure 1.

The Outer Layer

The outer layer of the inflation onion includes globally traded commodities like food, energy and raw materials, making it the most volatile layer.

During the pandemic, these prices soared because of supply and demand imbalances. Similarly, the Russia/Ukraine war drove energy and grain prices higher, forcing producers to pass on price hikes to consumers. Now, tariffs threaten this layer.

The Middle Layer

Core goods, such as appliances, furniture and cars (but not food and energy), comprise the middle layer of the inflation onion. Short-term inflation expectations, import prices and tariffs typically influence core goods inflation.

Tariffs will likely have the most immediate impact on the outer and middle layers of the inflation onion, potentially pushing consumer prices higher. Any resulting increase in the core inflation rate could force the Fed to raise interest rates. However, if tariffs also trigger a notable slowdown in economic growth, the Fed may find itself in a conundrum.

Some economists believe fiscal stimulus, tax and regulation cuts, increased domestic energy production and onshoring could offset the effects of tariffs.

The Inner Layer

This layer consists of core services, which are the trickiest to control because they typically change slowly. The inner layer includes shelter (rent, owners’ equivalent rent and lodging) and services like education and barber visits. Core services minus housing services defines the Fed’s “super core” inflation measure, which is most sensitive to wage growth.

Some economists isolate housing services from inflation equations because housing prices have diverged from other goods and services prices in recent years. For example, core goods and services prices generally moderated post-pandemic, while housing costs have remained stubbornly elevated, as Figure 2 shows.

Putting the Onion in Context

Because economic data is backward-looking, the Fed must implement policy based on its best inflation forecast. Therefore, policymakers are less concerned about one-off events than persistent inflation trends. In general, prices comprising the core of the onion — which the Fed finds most useful — are less likely to change dramatically.

For example, a jump in oil prices on the outermost layer of the inflation onion may be less concerning than material changes in transportation services. A notable rise in core services, largely due to its strong link to wage growth, may signal mounting inflationary pressures.

Tariffs Could Change the Game

Responses to President Donald Trump’s tariff policy from our global trading partners represent a wildcard for the inflation backdrop. Depending on the specific tariff’s structure and duration, producers could either absorb the additional cost or pass along higher prices to consumers.

Shifting policy and tariffs could affect commodities and goods prices, creating an uptick in inflation. Eventually, this could even affect the inner layer of the onion, particularly if wage pressures build.

However, the extent and persistence of rising prices are up for debate. Is Trump using tariffs to negotiate better trade deals and other agreements for the U.S.? Or are tariffs part of his administration’s long-term policies?

Unlike the trade wars of Trump’s first term, today’s tariffs may likely affect everything from gaming consoles to toys to shoes, hitting squarely in the middle layer of the onion. The inflation climate is materially different today than during Trump’s first term when core inflation was consistently at or near the Fed’s 2% goal.

What Drives Inflation?

A Complex Web of Supply and Demand Forces

Following the Global Financial Crisis, inflation lingered at historically low levels. This stopped in 2021 when inflation soared to multidecade highs amid pandemic-related effects. Inflation has since moderated but has remained elevated relative to pre-2021 levels and the Fed’s target.

Several forces can pressure prices and drive the inflation rate higher, including:

• Supply issues. Supply chain bottlenecks, raw material shortages and labour shortages can trigger “cost-push” inflation.
• Demand surges. Prices rise when demand for goods or services outstrips supply or production capacity. We’ve recently seen this in the housing market, where strong demand and limited supply have contributed to rising prices.
• Government spending. When the government prints money to finance its spending, the nation’s money supply grows. And when more money goes into circulation, the dollar’s value declines, causing prices to rise.
• Consumer expectations. When consumers expect higher inflation in the future, their behaviour can make it a reality. For example, employees can demand higher wages, prompting businesses to raise prices.

From the Fed to You: Avoiding the Tears of the Inflation Onion

We all feel the pinch of higher prices at the grocery store, but higher prices have more profound consequences over time. Higher inflation ultimately erodes your purchasing power. If prices increase and your income doesn’t rise at the same pace, your dollars won’t go as far.

Inflation can also erode your investment returns. “Inflation risk” refers to the possibility that your investment performance won’t keep up with the pace of inflation. If you’re retired or nearing retirement, this is a critical consideration for meeting your income goals.

No Asset Class Is Immune to Inflation, but Some Are Designed to Help

No investment asset class is wholly protected from inflation risk, but fixed-income securities may be more vulnerable. For example, when inflation rises, interest rates typically increase, too. But rising rates make existing bonds with lower rates less attractive, and their prices decline.

Similarly, inflation erodes the purchasing power of a bond’s fixed interest payment. Consider a bond that pays $500 in interest annually. A persistently high or steadily rising inflation rate will stifle the future buying power of the bond’s annual interest payment.

However, some fixed-income securities offer better inflation-fighting potential, underscoring the possible appeal of holding a diversified bond portfolio. For example, Treasury inflation-protected securities (TIPs) are designed to protect investors against inflation.

The face, or principal, value of TIPS adjusts along with the inflation rate. So, when inflation rises, TIPS’ values also rise (and when inflation drops, TIPS’ values decline). Moreover, when inflation rises, the interest payments from TIPS also increase because those payments are based on the adjusted principal value.

Diversified Assets Are Your Onion Goggles

As Figure 3 illustrates, a diversified portfolio of stocks, bonds and real assets can help curtail the negative effects of inflation. Over time, many asset classes have historically delivered returns that outpaced inflation.

Other assets, such as real estate, have a built-in resilience to inflation. Real estate investment trusts (REITs), for example, generate interest income from rents. They deliver the potential to increase in value because property costs and rent prices tend to increase over time and during inflationary periods.

Our favoured strategy is to work with a financial professional to maintain a diversified investment portfolio. Assembling an asset mix attuned to your goals, risk tolerance and investment horizon may help preserve long-term purchasing power.

Stay Vigilant About Sticky Inflation

Unpeeling the layers of the inflation onion illustrates how the Fed dissects inflation and steers policy. Given today’s uncertainty surrounding tariffs and global trade, a resurgence in inflation remains a possibility.

In the meantime, ensuring that your investment portfolio is broadly diversified is likely a prudent strategy.

By Joyce Huang, Senior Client Portfolio Manager of Global Fixed Income

The post How layers of inflation affect consumer prices appeared first on AdviserVoice.

The Global Small Cap team takes a bottom-up approach to identifying companies we believe are positioned to deliver accelerating and sustainable earnings growth that investors may overlook.

Due to their limited internal resources, small-cap firms typically provide fewer disclosures about their environmental, social and governance (ESG) practices than large firms. While this creates challenges when assessing these companies from a sustainability perspective, we think it presents opportunities for active investors.

Those willing to rigorously research and engage with small companies may identify overlooked firms benefiting from the growing demand to reduce carbon emissions, cut back plastic waste and protect biodiversity across industries.

Most small-cap companies have highly focused business models. Therefore, the new technologies and products they launch are more likely to significantly impact their financial metrics and earnings growth than we might see in larger, more diversified companies. With fewer layers of management, small companies are often more nimble than larger companies and can adjust to changing conditions more quickly to take advantage of emerging trends.

The Role of Small-Caps in Environmental Innovation

Innovative small companies can be vital parts of the supply chains of large companies and can play a critical role in helping reduce carbon footprints. These small companies include those that make industrial processes less energy-intensive and are developing approaches to electrify various processes in warehouses, agriculture, transportation and other industries.

Small-cap investors may reap outsized benefits from these nascent trends, which small companies recognize and seek to exploit. For example, a new water treatment technology or environmentally friendly packaging that is the sole focus of a small company could positively impact an entire industry. Small-cap companies can also find ways to help reduce the power needs of large, rapidly growing, energy-intensive businesses, such as the data centers that support artificial intelligence.

We see various opportunities in small-cap companies whose products help to improve their customers’ environmental sustainability.

Small-Caps Leading Renewable Energy Innovations

Climate change is predicted to have devastating consequences worldwide, including economic and physical damages and a decline in global gross domestic product (GDP).1 Some investors seeking to pressure companies to reduce their energy use focus on divesting from fossil fuel producers and other companies with large carbon footprints. However, other investors, including American Century’s Small Cap Equity team, prefer to be selective rather than completely avoid companies exposed to fossil fuels.

One such approach involves companies developing innovative ways to reduce carbon emissions by providing cleaner energy. The global small-cap universe contains many alternative and renewable energy providers producing solar, wind and geothermal power, which provides a growing portion of the world’s electricity. See Figure 1.

Canada-based TransAlta is one of North America’s largest renewable energy producers and one of Canada’s largest wind power producers. The company’s transition from coal to natural gas has led to a greater than 66% reduction in emissions since 2015. It has set a target of reaching net zero emissions by 2045 and plans to generate about 70% of its operating earnings from renewables by 2028.2 We believe the company is well-positioned to benefit from growing electricity demand tied to manufacturing, data center growth, and overall electrification.

Infrastructure improvements in the electric power industry, such as more efficient turbines to generate electricity, can reduce costs and enable further investment in making electricity generation and distribution more environmentally sustainable. Small-cap companies are helping to drive innovation and facilitate growth in this area.

Energy Solutions for Data Centers

Data centers consume enormous amounts of electricity. This demand for power has potentially disruptive implications for the environment.

A recent McKinsey report discusses this dilemma, noting that by 2030, data center power consumption in the U.S. alone will likely triple, necessitating a substantial increase in power generation.3

Credo Technology Group Holding improves energy efficiency in data centers by providing high-speed connectivity solutions that deliver improved power and cost efficiency. Credo’s products, including integrated circuits and active electrical cables (AECs), are designed to boost power and cost efficiency as data rates and bandwidth requirements rise.

Credo’s solutions help address data center needs for power and cooling. Its solutions help ease system bandwidth bottlenecks while providing secure and reliable power. The value of the company’s products has translated to a strong market position and healthy revenue growth tied to data center demand.

How Small-Caps Are Shaping the EV Industry

Innovative small companies support the electric vehicle (EV) supply chain globally. These firms design and manufacture many of the sensors, components, cameras and lenses in EVs, as well as much of the essential EV charging infrastructure. The push for secure assisted and autonomous driving programs is also spurring innovation in the components of EV navigation, control and security systems.

Modine Manufacturing designs, manufactures and tests environmentally friendly heat transfer solutions for data centers and the commercial EV market. Its offerings help ensure optimal operation and longevity for EV components, including E-Fan modules with global radiators that significantly enhance performance and durability. Modine’s strong position in commercial EVs has helped to mitigate the challenges of the crowded consumer EV market.

The company’s Airedale cooling technologies help data centers consume less energy while maintaining a stable environment. Airedale was a pioneer in incorporating free cooling technology by using cold outdoor air to chill water in its system. In many regions, its data center solutions are designed to operate in free cooling mode for roughly 98% of the year, delivering hefty energy savings to its customers.

Energy-Efficient Construction Solutions

According to the Organization for Economic Cooperation and Development, approximately one-third of global energy use is attributable to buildings. Finding more energy-efficient approaches to commercial and residential construction is an opportunity for investors, as energy efficiency means cost savings and a reduced environmental footprint. Small-cap companies are leaders in energy-efficient design, sustainable materials and energy-saving equipment and devices.

Better design includes more efficient ventilation, insulation and drainage. Poor air circulation and drafts often contribute to a building’s energy usage. Small-cap companies have taken the lead in reducing energy needs through better approaches to construction, developing much of the technology behind energy-efficient equipment. This includes control, testing and regulation systems for heating, ventilation and air conditioning (HVAC) systems, low-energy water heaters and water pumps that can recycle water, and solar cells for electricity, heating/cooling buildings and heating water.

France-based SPIE is an example of a small-cap firm that helps builders achieve energy savings and comply with increasing governmental regulations related to building codes and HVAC efficiency standards. Its SPIE Facilities and Building Solutions divisions work with customers to improve the energy efficiency of their buildings, providing more environmentally friendly facilities that tenants want.

Small-Caps and Broader Sustainability Innovations

Small-cap firms may have an advantage over larger companies when implementing environmentally sound business processes because they can ease transitions to cleaner energy practices and support compliance with new energy regulations. One way is through circular economy techniques, such as recycling used tires into new athletic shoes or converting wastewater for irrigation and fertilization. Another involves creating systems that reduce environmental impacts by lowering water intensity and reducing packaging materials and waste.

Graphic Packaging, a global leader in consumer packaging, is helping the transition to a more circular, resource-efficient economy. Its packaging products, including PaperSeal, Boardio and KeelClip, are designed to be recyclable and reduce dependency on fossil fuel-based packaging materials.

These solutions align with consumer expectations for sustainable packaging and help the company’s clients achieve their sustainability goals. Graphic Packaging’s commitment to using responsibly sourced renewable tree fibers and achieving high recyclability rates further enhances the sustainability of its products. 

Identifying Greenwashing in Small-Cap Companies

Given investor interest in businesses that can profitably improve environmental sustainability, it seems inevitable that some would seek to exploit this. Greenwashing refers to a company’s efforts to tout environmentally friendly products or operations without substantiating these claims or highlighting a green aspect of its business while continuing to engage in other environmentally damaging activities.

A detailed fundamental analysis is key to counteracting greenwashing. American Century believes a bottom-up financial analysis is essential to verify a company’s sustainability claims and potential. This is especially important for small-cap companies with limited analyst coverage.

Analyzing the entire enterprise lessens the chance of greenwashing in one aspect of its business. It is important to note that smaller companies tend to have smaller staffs devoted to investor relations and making ESG-related disclosures. While this challenges investors, having a relatively small staff may lower the risk of greenwashing.

Factors Reducing Greenwashing in Small-Caps

Governments and regulators are cracking down on greenwashing as consumers, investors and other stakeholders are more interested in understanding sustainability risks and opportunities. Investors are also calling for evidence of financial materiality concerning ESG-related disclosures. The more stakeholders call for reliable disclosures, the more likely such disclosures will be refined and regulated.

Requiring these disclosures makes it harder for companies to make unsubstantiated claims about sustainability practices, and calls to coordinate sustainability reporting globally have emerged.

Global Impact of Small-Caps on Sustainability

Globally, small-caps are helping to drive sustainability-related trends that represent opportunities for investors. Because of their size, small-caps may be able to quickly adapt their operations as they identify and pursue opportunities with environmental benefits.

We believe active management and bottom-up financial analyses help identify investment opportunities among small-cap companies that show improving and sustainable business fundamentals. Engaging with management allows us to better understand a company’s approach to managing sustainability-related risks and opportunities and encourages transparency regarding these issues.

By Trevor Gurwich, senior portfolio manager

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