Old economy comeback

Out with the new, in with the old. It’s not quite as catchy that way round but it provides a pretty succinct summary of today’s investment landscape. The post-Global Financial Crisis era of “free” money is over and there seems to be a return to the old normal – higher rates and higher inflation, and a re-focus on good old-fashioned fundamentals.

The past decade saw companies being rewarded for revenue growth – the faster a company grew, the higher its valuation tended to go – but not anymore. Fundamentals are back in fashion; the focus has shifted to cashflows, strong balance sheets and pricing power.

In this environment we like cyclical businesses whose expectations already reflect the looming recessionary environment as well as areas of the market relatively “immune” to the prevailing economic conditions, such as the defense sector.

Financials is another area we believe may do well in this higher rate environment. High quality US banks are often well-capitalized businesses that have already provisioned for much of the recessionary pain to come. We think property and casualty insurers are also set to do well in a market driven by factors such as climate change, which is leading to strong pricing power.

John Bailer, portfolio manager, Newton Investment Management

Disclosures

All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

“Newton” and/or the “Newton Investment Management” brand refers to the following group of affiliated companies: Newton Investment Management Limited (NIM) and Newton Investment Management North America LLC (NIMNA). NIM is incorporated in the United Kingdom (Registered in England no. 1371973) and is authorized and regulated by the Financial Conduct Authority in the conduct of investment business. Both Newton firms are registered with the Securities and Exchange Commission (SEC) in the United States of America as an investment adviser under the Investment Advisers Act of 1940. Newton is a subsidiary of The Bank of New York Mellon Corporation. Newton’s investment advisory businesses are described in their Form ADVs, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.

BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally.

This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions.

Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.

The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

Not FDIC-Insured | No Bank Guarantee | May Lose Value

MARK-354329-2023-02-27