Why would an investor choose Circular Economy over other ecological or environmentally themed strategies?
The Circular Economy strategy’s mid- and small-cap focus is a true differentiator compared with many global products, including both regular global funds and environmental strategies. We have also shown that we can adapt and seize opportunities as they appear.
This year, an important source of alpha2 has been AI-bottleneck companies, many of them in Asia, while in 2022 – with Covid lockdowns still in place – the strategy had a clear defensive tilt. The strategy is broad, flexible and truly active; we are not governed by the large weights in global indices.
Lastly, I strongly believe the thematic lens works to our advantage. It strengthens our selection process by pointing us to companies that bring real value to their customers. Those are the companies that can profitably outgrow GDP over time.
What are the key structural trends driving demand for circular economy solutions?
Many mistakenly assume top-down regulation is a driver, but economics is actually a far more powerful incentive.
Being circular is the same as being smart and proactive. For example, in a world where resources are scarce and supply chains are regularly disrupted, recycling materials simply makes business sense. So, the move toward circularity is driven by companies themselves, striving to become more efficient, save money and build resilient supply chains.
How have you overcome concentrated market leadership, first from megacaps and more recently from the AI trade?
A market driven by a handful of stocks is probably the toughest environment there is for a diversified, mid-cap-focused strategy like ours. During the years when the Magnificent Seven dominated, we still benefited from strong stock selection outside that limited cohort.
Understandably, relative returns lagged the MSCI World somewhat, but we were largely in line with, or ahead of, the global categories.
Fortunately, this year, market narrowing has been driven by a few themes rather than a few stocks. The AI trade is also broadening and our breadth of coverage across market caps, regions and sectors has meant we could embrace it rather than skirt around it. Early in the year, the AI enablers were companies showing exceptional profit growth at reasonable valuations. We leaned into that and benefited as the market gained confidence in their earnings strength.
Toward the end of H1, however, the AI theme was running hot. As investors grew more enthusiastic, they cared less about valuations and the risks that narrow positioning brings.
Not every AI company is worthy of investment, but AI demand is real, spreading, and delivering efficiency and innovation. That presents excellent opportunities for balanced exposure between AI enablers and AI adopters beyond the tech sector.
At the end of the day, we stay active but we also stay true to the theme. That combination keeps us adaptive, yet disciplined on the fundamental criteria a holding must meet to make it into the portfolio.