The trade relationship between Canada and the United States has recently been making news and is among the largest in the world, with more than USD1 trillion in annual trade in goods and services. Agricultural and farm goods are always at the heart of discussions as the divide is philosophical. The US philosophy favours regulation in a free-market structure, while Canada sacrifices free market for income stability as found in the case of dairy farm quotas.

Regulatory differences affect competitivity. In the example of food additives, Canada generally requires pre-market approval by Health Canada before an additive may be used in food. The United States also regulates additives through the Food and Drug Administration (FDA), but permits the “Generally Recognized as Safe” (GRAS) framework, which allows ingredients to enter the market without the same formal review process. This has led to perceptions that Canada applies a more precautionary approach to food regulation. Small changes in regulations can affect farmer and grower profitability significantly.

The good news

North America is changing; dietary guidance in both Canada and the United States has shifted toward promoting whole foods and limiting highly processed foods. The next twenty years of food regulation may look much more like health-care regulation. Future regulators are increasingly likely to focus on metabolic health, chronic disease, nutritional quality and ingredient transparency. The food industry could experience a transformation similar to what happened with tobacco decades ago: not outright prohibition, but progressively tighter restrictions on ingredients perceived to contribute to long-term health costs. The resulting shift toward “food as medicine” may become one of the most important secular themes in agriculture, nutrition and health care.

Over the next decade, food safety regulators across the globe will increasingly focus on ultra-processed foods, food additives and dyes, sugar content, antibiotic use in livestock and nutritional labeling.

Raising the standards on raising proteins

These regulatory trends also apply to proteins, which are often affected by antibiotics and pesticide usage where regulations differ greatly by region.

As an example, Norway is generally considered the world’s most advanced and stringent salmon regulator. Amongst other measures, the country:

• Enforces strict sea-lice thresholds,
• Uses a “traffic-light” system that can limit industry growth if environmental impacts become excessive, and
• Explicitly incorporates wild salmon health into licensing decisions.

Norway has effectively said growth is permitted only if environmental performance improves.

These standards benefit companies that participate in the salmon industry via closed containment systems, sea-lice technologies, vaccines or aquaculture automation. This has allowed Norway to become the leading producer of high-quality salmon globally.

SalMar ASA (SALM NO) is the world’s second-largest Atlantic salmon producer. Headquartered in Frøya, Norway, the company operates a highly cost-efficient, vertically integrated aquaculture model spanning broodstock, smolt, ocean farming and processing. It sells to over 50 countries worldwide.

SalMar’s production footprint covers:

• Norway (Central & Northern): The foundational engine representing the vast majority of its volume.
• Iceland: Operates through its majority-owned subsidiary, Icelandic Salmon.
• Scotland: Runs a 50/50 joint venture via Scottish Sea Farms.
• SalMar Ocean: Its pioneering offshore and open-sea aquaculture division.

SalMar holds extensive unutilized capacity within its current operational licenses. Driven by exceptional biological performance (such as superior fish survival and growth rates), SalMar raised its full-year 2026 harvest guidance to 350,000 tonnes, marking a sharp 16% year-over-year volume increase from 2025. The company anticipates scaling this existing organic footprint further to reach 378,000 tonnes by 2028.

Agricultural pesticides

In agriculture, pesticide regulation can drastically affect the competitive landscape. This is evident when border regions grow similar produce such as California and Mexico.

Mexico has taken a strict stance against highly hazardous pesticides (HHPs). The country has banned over 180 pesticides that remain legally authorized in the United States, including systemic adjustments to phase out glyphosate. On the other side of the border, while California permits the use of certain chemicals banned in Mexico, it severely restricts how and when they can be applied (e.g., rigid tracking of drift, groundwater protection zones and strict worker re-entry intervals).

The California Department of Pesticide Regulation annual marketplace surveillance reports consistently shows that 97% to 98% of California-grown produce is completely compliant or features non-detectable residues. It is imported produce that dynamically accounts for a disproportionate volume of illegal pesticide residue violations.

For Mexican avocados and lemons to enter the US market legally, they must comply with US EPA pesticide residue tolerances. While Mexican avocados generally test clean because their thick, unconsumed skins shield the fruit, other Mexican citrus crops (like limes and lemons) occasionally trigger border enforcement actions due to traces of unapproved or excessive pesticides.

Global Alpha is invested in Limoneira Company (LMNR US), a diversified global agribusiness and land management corporation headquartered in Santa Paula, California.

Founded in 1893, they manage roughly 14,500 acres of agricultural land. Limoneira controls extensive global supply chains by sourcing citrus across the United States, Chile, South Africa and Mexico to ensure year-round supply for retail and foodservice buyers. Beyond pure farming, the company holds high-value, adjudicated water rights and operates a profitable real estate development arm.

Limoneira is undergoing a core business model transformation designed to unlock hidden asset value and shift capital into higher-margin segments.

Limoneira is aggressively shifting underutilized land into avocado production to capture robust, multiyear US demand growth. Avocado farming boasts superior unit economics over standard lemons. Driven by 400 acres planted in 2023 and 2024 finally reaching commercial maturation, management projected avocado production to exceed 10 million pounds in fiscal year 2027 – representing an ambitious 30% volume expansion. The company aims to add another 500 avocado acres by the end of 2027.

US trade case against Chinese choline

As food regulations increase, discrepancies between countries will multiply trade disputes and antidumping (AD) cases. In June 2026, a petition was filed alleging that Chinese producers were benefiting from Chinese government subsidies and dumping choline salts into the US market at unfairly low prices.

The U.S. Department of Commerce initiated AD and countervailing duty (CVD) investigations in July 2026, and the United States International Trade Commission (USITC) subsequently found a reasonable indication of injury to the US industry, allowing the investigations to proceed. The alleged dumping margins are substantial, ranging from 73% to over 300%. AD and CVD investigations are intended to protect US industries and workers from unfairly priced or subsidized imports as evidenced by this case regarding choline from China.

Choline is an essential nutrient used in poultry feed, swine feed, aquaculture, infant formula, human dietary supplements, functional foods and nutraceuticals.

Global Alpha participates in choline manufacturing through Balchem Corporation (BCPC US), a specialty ingredients company that operates at the intersection of nutritional science, microencapsulation technology and precise formulation.

Balchem focuses on niche markets where science-backed efficacy and stringent regulatory compliance allow for premium pricing, instead of competing as a bulk commodity supplier. The company is the global leader in choline production, dominating the market across both human and animal nutrition segments.

Rather than treating choline as a cheap bulk commodity, Balchem has spent over 50 years leveraging its proprietary manufacturing, purity testing and delivery technologies to command the leading global market share. The company’s revenue is diversified across three core business segments:

• Human nutrition & health (63% of revenue): High-margin specialty ingredients like branded choline, mineral amino acid chelates, vitamin K2 and texturizing systems used in dietary supplements, infant formula and functional foods.
• Animal nutrition & health (23% of revenue): Rumen-protected microencapsulated nutrients and choline delivery mechanisms that optimize health and milk production in dairy cattle and livestock.
• Specialty products (14% of revenue): High-purity gases and packaged chemicals used primarily in medical device sterilization, agricultural fumigation and plant micronutrient delivery.

As regulation continues to reshape agricultural costs and competitiveness, locally focused producers with resilient supply chains may be best positioned to manage inflationary pressures – a thematic we continue to follow closely at Global Alpha.

Flávio Bolsonaro’s strong showing in the first round of Brazilian presidential elections on the 4^th of October was the catalyst for a sharp rally in the Ibovespa Index this month. In previous commentaries, we argued that the market trading at a price-to-earnings ratio of around 8x reflected political uncertainty. Further, we suggested the emergence of a credible conservative candidate to contest the elections would be fuel for outperformance relative to broader EM equities.

 
In our view, São Paolo governor Tarcísio de Freitas and Mission Party leader Renan Santos would have been the most credible right-wing contenders. We were wrong to discount the chances of a Flávio Bolsonaro candidacy, largely based on his connection to Daniel Vorcaro, who has been engulfed in a vast financial and political fraud case.

Senate swings to the right

Despite Flávio’s many glaring flaws as a candidate, he posted a stronger-than-expected showing in the first round of presidential elections taking 47.0% in the runoff against Lula’s 45.1%. Polls had understated Flávio’s performance by about 5pts.

In the second-round runoff with Lula, Flávio is the clear favourite. He needs only about half of the roughly 7.7% first round vote share that went to other, mostly right-leaning candidates. The first-round leader has won every runoff since 2002.

Arguably, the most important shift was in the 81-seat Senate where the number of seats held by the left-wing Social Democratic Party (PSD) collapsed from 14 to five, the right-wing Liberal Partyrose to 28 seats from 15, while a right-of-centre bloc controls 48 seats. So even if Lula were to win the presidency, he would face fierce opposition in the Senate.

Yields plummet and rate-sensitive stocks outperform

The Ibovespa soared by over 12% in USD terms the day after the election results were announced, with investors anticipating a more market-friendly administration. We currently hold a modest overweight to Brazilian equities and, over a period of months, have been tilting the risk budget within the allocation to more rate-sensitive names that would benefit from falling yields on the prospect of a return to a more conservative fiscal policy.

These stocks outperformed through the post-first-round period, bolstered by policy announcements from the Bolsonaro team which suggest they plan to hit the ground running should they take out the second round.

Economic advisor to Flávio Bolsonaro, Luiz Felipe Trevisan, posted a series of policy commitments with some set for immediate rollout (before inauguration via Congress):

• “Super PEC” fiscal package: Plan to leverage political momentum immediately post-election to pass a R$190–200B (~1.5% of GDP) spending cut before inauguration. Focuses on internal state efficiency (administration reform, cutting 10 ministries, fraud reduction, asset sales) without touching social benefits, pensions or immediate LCI/LCA tax incentives.
• Ending re-election as bargaining chip: Proposes abolishing presidential re-election to gain Congressional support for tough fiscal reforms, positioning this as a single-term legacy play to build a bridge for Tarcísio in 2030.
• Budget and institutional governance: Aims to reform expenditure rules so Congress and the Judiciary share accountability for the spending they create. Includes setting 15-year term limits and minimum qualifications for Supreme Court (STF) nominees.
• Pro-growth and capital markets: Targets boosting infrastructure investment to R$500B/year, maintaining full Central Bank independence, revoking ~1,000 regulations (“Economic Freedom 2.0”), and levelling tax treatment on corporate debt to attract foreign credit.

Since the 2000s mining boom the share of Brazilian equities has collapsed.

 
While EM valuations look attractive overall, Brazilian equities look especially cheap and poised to outperform on a better macro backdrop.

 
There is no shortage over high-quality companies in this deep market, and we have been building a long list of candidates which fit our stock selection process to take advantage of further positive developments.

Chart 1

The projected decline was driven by weaker nominal money expansion, with CPI momentum little changed (though likely to rise in Q4).

The further fall in real money momentum, if confirmed, supports the forecast of a decline in global manufacturing PMI new orders through end-Q1 2027 (at least) – chart 2.

Chart 2

The mooted fall in the global measure reflects declines in China, Japan and India, with Brazil remaining weak – chart 3. The final September number will depend on US / Eurozone data released next week.

Chart 3

Global six-month industrial output growth may have recovered last month, based on solid US / Chinese data – chart 4. The shortfall of real money expansion versus output growth, therefore, may have widened sharply, suggesting an increased monetary headwind for markets.

Chart 4

The basis for the calculations is a measure of the rental yield derived from the national accounts, by dividing aggregate rents (actual and imputed) by an estimate of the value of the housing stock*.

This yield bottomed at 4.0% at end-2022 and is projected to reach 5.2% by end-2026, based on H1 rental growth and an assumption of stable prices over the reminder of the year – see chart 1.

Chart 1

The yield, however, has averaged 6.0% over the last 36 years (representing two complete housing cycles). Based on current rents, prices would need to fall by a further 14% to achieve this level.

An assessment of fair value should also take into account yields / expected returns on competing investments. Index-linked gilts are a “risk-free” alternative, their coupons providing similar inflation protection to rents.

The premium of the rental yield over the yield on over-five-year index-linked gilts averaged 4.8 pp over the last 36 years, currently standing at 3.1% – chart 1. Closing the gap would require a 37% fall in house prices, based on current rents and assuming an unchanged real yield.

The comparison with index-linked offers a different interpretation of recent history. Rather than signalling house price overvaluation, the low level of the rental yield at end-2022 was consistent with still-negative index-linked yields – the rental yield premium was close to its long-term average.

The rise in the rental yield since then has lagged the increase in index-linked yields, resulting in the rental yield premium falling to its lowest level since 2007.

The suggestion, therefore, is that housing has become more expensive despite a rising absolute level of the rental yield, with the degree of overvaluation now comparable with the beginning of the crash phase of the last 18-year cycle.

*See footnote in previous post for more details.

Since taking office in July, UK Prime Minister Andy Burnham has outlined a broad economic agenda focused on infrastructure investment, reindustrialization and regional development. While the government’s comprehensive 10-year plan is expected later this year, the 28 October Autumn Budget will provide the first meaningful indication of funding commitments and implementation timelines.

Among social care and pension reforms, much has been said about infrastructure and growth, with a 10-year plan for greater investment, reindustrialization and regional growth.

The Burnham government has outlined an ambitious multi-year infrastructure programme, anchored by the 10-Year Infrastructure Strategy published in June 2025 and the Spending Review covering 2026–2030. The 10-Year Infrastructure Strategy commits £725 billion in capital funding for economic and social infrastructure over the next decade. The UK Infrastructure Pipeline details more than 700 planned projects.

To gain exposure to UK infrastructure spend, Global Alpha recently initiated a position in Balfour Beatty PLC (BBY LN), an international infrastructure group operating across construction, engineering and asset management.

Balfour Beatty operates through three segments:

1. construction services – physical construction of assets including buildings, highways, rail and power generation,
2. support services – maintenance, refurbishment and upgrade of existing infrastructure, including power transmission and distribution, and
3. infrastructure investments – acquisition, operation and disposal of infrastructure assets.

Revenue is generated primarily through long-term public-sector framework contracts and project-based work, with revenue from the UK and North America evenly split, and a joint venture in Hong Kong contributing the remaining 9% of sales.

The company’s competitive advantages include its scale, technical expertise in complex infrastructure markets and a growing order book that provides multi-year revenue visibility. Importantly, its core end markets align closely with areas expected to receive the largest share of future infrastructure investment.

Energy and power transmission

In UK energy, Balfour Beatty has a 25% market share in the UK power transmission market. Ofgem, the UK’s regulatory body supervising the operation of the gas and electricity industry, has already announced an investment to upgrade power and gas grids that will increase to an estimated £90 billion by 2031. The approved investment will fund 80 transmission projects, such as new power lines, substations and other technologies, over that period. Balfour Beatty is also heavily involved in projects such as the new nuclear power stations at Hinkley Point C and Sizewell C, the Net Zero Teesside power station with carbon capture.

National security and defence

Regarding UK defence, Balfour Beatty has a strong track record and existing footprint in complex, high security and nuclear environments. The UK has committed to increasing defence spending to 3.5% of GDP by 2035 as part of the Defense Investment Plan. Defence is seen as a growth engine in the UK, turning national security into a direct driver of economic productivity. UK capability, security clearance and ringfenced IT systems will be prioritized, a positive for Balfour Beatty. The new CFO has extensive experience in the defence industry, having come from BAE Systems, the largest defence contractor in Europe.

Transportation

Investment in the UK transport network is an important component of the government’s growth plans and is essential to address aging infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty’s capabilities in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the company is well positioned to capitalize on transport opportunities when they arise, with growth expected in the medium term.

US data centre projects

Across the pond in US buildings, Balfour Beatty is well positioned in strong growth states and sectors. Balfour Beatty is targeting aviation and data centres, growing sectors which align with the company’s expertise. Aviation estimated to be a $140 billion construction market from 2026 to 2029. The company has a good track record, currently delivering a range of projects at seven airports. Data centres are estimated to be a $250 billion market over that period. Balfour Beatty has been active in data centre construction for around 20 years, delivering around 80 data centres in the Northwest region, and is leveraging existing relationships to expand its US footprint.

Risk, catalyst and the path ahead

Execution risk is always a concern with contractors, but the UK public infrastructure procurement environment has undergone significant transformation over the past decade, driven by a government focus on better delivery and stability. Structural improvements have led to a more balanced risk profile between customer and contractor: the adoption of collaborative cost models, prevalence of frameworks as a standard procurement route, early contractor involvement, and increased weighting of non-financial criteria in bidding.

The UK’s Autumn Budget represents the key near-term catalyst for the investment thesis. It should provide greater clarity on the government’s infrastructure spending commitments, funding mechanisms and implementation timetable. While fiscal constraints remain a risk, Balfour Beatty’s exposure to energy transmission, defence, transport and selected US growth markets positions the company to benefit if planned investment levels materialize.

Institutional investors have spent decades building increasingly sophisticated portfolios in pursuit of better outcomes. Each new asset class, strategy and manager has been added with the intention of improving returns, enhancing diversification or strengthening risk management.

However, has the pursuit of sophistication gone too far? In an era when simple public market portfolios can rival or outperform more complex structures, investors should consider whether every layer of complexity continues to earn its place and whether it remains purposeful. Investors need to strike the right balance between investment sophistication and governance efficiency and avoid the risk of building portfolios that are over-engineered and difficult to govern effectively.

The complexity arms race

Attend almost any investment conference and the spotlight is often on a large, sophisticated investor unveiling its latest portfolio innovation. Their success can make complex strategies appear both compelling and necessary. Yet what works for a sovereign wealth fund or large public pension plan may not translate seamlessly to a $1 billion pension plan with a lean investment team. The challenge is not access to sophisticated investments, but the capacity to govern them effectively.

To be clear, complexity is not inherently bad. Many of the most important innovations in institutional investing have delivered meaningful benefits. Liability-driven investing, for example, shifted the focus of pension investors beyond assets alone to the interaction between assets and liabilities. This helped sponsors better manage funded status risk and create greater stability in contribution requirements and pension expense.

Similarly, commercial real estate, infrastructure, private equity and private credit have expanded the institutional toolkit by offering attractive combinations of return potential, diversification, inflation protection and income generation. Advances in factor analysis and factor-based investing have also deepened investors’ understanding of the drivers of risk and return.

Complexity deserves a place in a portfolio when it solves a problem or creates a measurable advantage. The challenge arises when complexity becomes an objective in itself. At that point, investors must ask whether each additional layer is genuinely improving outcomes or merely adding cost, governance burden and operational demands. In other words, has sophistication enhanced the portfolio’s resilience or has the portfolio become a victim of the complexity arms race?

The law of diminishing diversification

Many large institutional portfolios now contain dozens, and for some of the largest investors, even a greater number of underlying strategies and managers. While each addition may appear justified on its own, the cumulative effect can be a portfolio that is increasingly difficult to understand, oversee, and govern. Exposures begin to overlap, risks become less transparent and decision-making becomes slower and more cumbersome. Rather than enhancing outcomes, resources are increasingly devoted to managing complexity itself.

There comes a point where each new strategy adds more complexity than meaningful diversification. What initially appears to strengthen the portfolio can instead increase governance demands, operational costs and oversight requirements. In some cases, investors may simply be layering multiple strategies that provide similar underlying exposures, creating the illusion of diversification while making the portfolio increasingly difficult to understand and manage.

Every layer of complexity carries a cost. Some costs are visible, such as management fees, operational expenses and oversight requirements. Others are less obvious but potentially more significant: slower decision-making, reduced transparency, behavioural biases and diminished accountability. While these governance costs are rarely measured, they may determine whether complexity enhances or detracts from long-term outcomes.

Portfolio construction is as much a governance exercise as it is an investment exercise. The most effective portfolios are not necessarily the most sophisticated, but those that align investment objectives with an organization’s ability to govern risk, monitor performance and make timely decisions.

Setting a governance budget

Just as investors establish risk budgets and allocate capital thoughtfully, they should also consider a governance budget. Every investment decision consumes governance time, attention and expertise. When complexity exceeds available capacity, the hidden costs can emerge in the form of delayed decisions, oversight challenges, and reduced organizational agility. As a result, the greatest cost of portfolio complexity is often the one that never appears on a fee report. It is therefore key to assess whether the governance capacity can support the portfolio strategy.

A useful exercise for committees is to assess whether their portfolio passes the following four tests:

1. Can the committee explain its sources of return and risk?
2. Can the strategy be implemented efficiently?
3. Can it be monitored and governed effectively?
4. Does each component serve a distinct purpose and role?

When the answer to any of these questions is uncertain, complexity may be adding more burden than benefit. In such cases, the goal should not be simplification for its own sake, but rather the pursuit of smart simplicity where every strategy must demonstrate a clear contribution and earn its place within the portfolio.

Smart simplicity

Smart simplicity is not a rejection of sophisticated investing. Rather, it is the recognition that complexity should be a deliberate choice, not a default outcome. Portfolios are best served where every strategy, manager and allocation can clearly demonstrate why it belongs and how it improves the portfolio as a whole. Smart simplicity is achieving desired outcomes using the fewest portfolio building blocks necessary.

Simpler portfolio structures encourage investors to focus on the decisions that matter most. Instead of spending governance time selecting between dozens of managers, committees can devote more attention to tasks such as strategic asset mix, risk budgeting and scenario analysis, which can often provide a higher return on governance effort than incremental manager selection decisions.

Every component of a portfolio should contribute meaningfully to total portfolio outcomes and justify the governance burden it creates. This principle is at the heart of the trending total portfolio approach (TPA) amongst the largest global investors, where investments are assessed according to their contribution to total portfolio objectives. While the full adoption of the TPA requires significant organizational change, its underlying discipline is universally applicable.

Investors can begin by periodically reassessing every strategy, manager and allocation with fresh eyes. If a holding would not be selected for inclusion in a newly constructed portfolio today, its continued presence deserves scrutiny. Complexity that cannot be justified through current merit may simply be a legacy of past decisions.

Considerations for smart simplicity

By reducing unnecessary complexity, rationalizing manager structures and aligning portfolio design with total fund objectives, investors can create portfolios that are easier to understand, easier to oversee and more effective.

However, embracing smart simplicity does not lessen fiduciary responsibility or diminish the importance of ongoing education. Effective oversight still requires continuous education, disciplined decision-making and a deep understanding of the risks and opportunities that shape long-term outcomes.

1. Consolidate similar exposures
   Over time, portfolios can accumulate layers of investments that appear different on the surface but rely on the same underlying economic drivers. This can occur across public and private markets, or through multiple active managers pursuing similar styles. A closer examination of the portfolio’s true sources of return may reveal that diversification is more limited than the number of mandates suggests, creating opportunities to simplify without sacrificing outcomes.

2. Reduce manager count
   More managers do not always create a better portfolio. In many cases, a streamlined roster can provide clearer insight into portfolio risks, strengthen manager accountability, simplify oversight and improve cost efficiency. Consolidating mandates can allow investors to focus on their highest-conviction relationships while maintaining broad market exposure. For example, separate US, international and emerging market mandates may be effectively managed through a smaller number of global equity mandates.

3. Focus on outcomes, not asset classes
   Institutional portfolios are often organized around asset classes. But when viewed through the lens of outcomes, such as growth, income, inflation protection and resilience, many different asset classes may be serving the same purpose. Infrastructure, real estate, inflation-linked bonds and private credit may all contribute to income generation and inflation protection.When portfolios are viewed through this outcome-oriented lens, investors often discover that multiple strategies are solving the same problem, creating opportunities to simplify without compromising results.

4. Adopt a complexity budget
   Just as investors operate within a risk budget, they should also consider establishing a complexity budget. Before introducing any new strategy, ask four critical questions:
   • What distinct value does it bring to the portfolio?
   • What existing allocation could it replace?
   • How will success be defined and measured?
   • Do we have the governance capacity to oversee it effectively?

   A complexity budget shifts the conversation from simply adding latest ideas to making deliberate, high-conviction choices, helping ensure portfolios evolve thoughtfully rather than accumulate layers of unnecessary complexity.

5. Prioritize understandability
   A useful governance rule of thumb is that committee members should be able to confidently articulate where returns are expected to come from, what risks are being taken and how the portfolio is likely to perform under different market conditions. When that becomes difficult, it may be a sign that complexity has overtaken clarity. The goal is not simplicity for its own sake, but a portfolio in which every component serves a distinct and understandable purpose. The result is often more efficient oversight, sharper conviction and a portfolio that is easier to defend when markets become challenging.

Re-engineering through smart simplicity

Governance is often the hidden determinant of investment success. While institutional investors devote significant attention to performance, risk and costs, far fewer examine whether their governance model strengthens or constrains decision-making. Portfolio design should reflect not only investment opportunity but also governance capacity. A well-engineered portfolio is one that an organization can confidently understand, oversee and sustain through changing market environments.

Smart simplicity requires evaluating portfolios through two equally important lenses: investment efficiency and governance efficiency. The goal is not to eliminate complexity, but to ensure complexity earns its place. Strategies that meaningfully enhance outcomes and can be effectively governed deserve inclusion. Those that consume disproportionate attention, resources or oversight for limited benefit should be reconsidered. An optimal portfolio is not necessarily the most sophisticated, but the one that delivers its objectives with the greatest clarity, conviction and governance effectiveness.

Chart 1

The global money numbers conceal a divergence between US strength and alarming real-terms contractions in Europe, Japan and Australia, with Chinese growth running at a modest level by its historical standards – chart 2. One implication is that the expected global slowdown will be led by the weak-money grouping, with the US and China showing resilience. Another is that the ECB and BoJ have already overtightened policy, while the US Fed may still be some way “behind the curve”.

Chart 2

The global real money slowdown was initially driven by an inflation boost from higher energy prices. Nominal money growth has fallen more recently, probably reflecting the initial impact of policy tightening – chart 3.

Chart 3

Six-month consumer price momentum will likely rebound in Q4, based on current commodity prices. US monetary exceptionalism, meanwhile, may be ending, with nominal money growth falling back in August. Global real money expansion, therefore, could slow further into year-end, in turn signalling darker economic prospects for mid-2027.

Chinese policy is an upside risk. A slowdown in exports as global growth cools could be the trigger for more substantive measures to boost domestic demand. Still, the full impact of any monetary pick-up probably wouldn’t land before mid-2027.

Eurozone narrow money weakness has been led by France and Italy – chart 4. Eurozone banks, meanwhile, have stopped buying French Treasuries. The French government’s 2027 deficit-reduction plan looks both insufficiently ambitious and unachievable ahead of the April / May presidential election. An economic / funding crisis may be brewing unless the ECB signals an earlier-than-expected end to policy restraint.

Chart 4

Global six-month real narrow money growth crossed below industrial output expansion in April, remaining lower in August. The change in “excess” money conditions has been reflected in upward pressure on bond yields and a stalling-out of equities, with the equal-weighted version of the MSCI World index recently falling below its end-February level.

The real money / output growth gap could remain at around its current level into year-end, with both components losing momentum. Historically, equity market performance has been correlated with the sign of the gap, with bond markets more sensitive to its rate of change. The suggested scenario, therefore, could be associated with a stabilisation of bond yields and disappointing equity returns.

How does an investment manager’s ownership structure influence the way it builds its business and serves clients over the long term?

In a recent Benefits and Pensions Monitor article, Michael Walsh, President and Managing Director of Connor, Clark & Lunn Financial Group, discusses the firm’s private, employee- and partner-owned model and the role ownership plays in attracting and retaining investment talent, aligning incentives and supporting a long-term approach to business building.

“We’re in an intellectual capital business, and the way to win in an intellectual capital business is to get great people into the firm and for them to stick around over the long term and build businesses,” Michael says. “Someone who joins us has the potential to become an owner, and that’s intrinsically motivating.”

The article also explores CC&L Financial Group’s multi-affiliate structure, including how ownership supports the independence of its investment teams and creates incentives for long-term succession and continuity.

 
Read the full article

The view here is that the rise is best understood as a symptom of a restrictive shift in global “excess” money conditions.

Conditions are defined to be accommodative or restrictive depending on whether the global stock of money is above or below the level required to support current economic activity. Any imbalance – and its rate of change – will have implications for asset prices.

Excess money can’t be observed directly. A flow-based proxy measure found to be informative historically is the difference between six-month rates of change of global real narrow money and industrial output.

In data since 1970, global equities performed strongly on average when this measure was positive (allowing for reporting lags), lagging cash returns when it was negative.

Government bond markets appear to be more sensitive to changes in excess money than its level. Chart 1 shows a coincident relationship between the six-month change in US 10-year Treasury yields and the equivalent change in the proxy measure, plotted inverted – chart 1.

Chart 1

Global real money growth moved from above to below industrial output expansion between February and August, i.e. the proxy measure switched from positive to negative – chart 2. An associated shift in its six-month rate of change aligns with the pick-up in yields – chart 1.

Chart 2

How might excess money conditions develop from here? Monetary trends are difficult to forecast but policy tightening and a near-term inflation boost from higher energy costs suggest a further decline in real money growth.

Upbeat September PMI results support optimism about near-term industrial output prospects but slower real money growth may be reflected in a loss of momentum towards year-end, allowing for a normal lag.

A reasonable expectation, therefore, is that the real money / output growth gap will remain negative but stop widening soon. The six-month change in the proxy measure, in other words, could return to zero, in turn implying a stabilisation of bond yields.

A still-negative gap would, however, suggest downside risk for equities.

Chart 1

Real money momentum peaked in February and has led global manufacturing PMI new orders by seven months at the last three turning points, suggesting a PMI peak around now – chart 2.

Chart 2

As previously discussed, global real money momentum has been supported by a pick-up in the US, in contrast to weakness in Europe and Japan. US six-month momentum pulled back in August, although this reflected an unfavourable base effect rather than a soft current-month change. The Eurozone and Japan, meanwhile, moved deeper into contraction – chart 3. (UK data will be released next week.)

Chart 3

Monetary trends support last week’s decisions to hike by the Fed and hold by the BoE but argue that ECB / BoJ tightening has been misguided and will result in unnecessary economic weakness.

Will global real money momentum fall further? Higher rates and the Fed’s suspension of securities purchases suggest slower nominal growth, while energy price strength will drive a near-term rebound in CPI momentum – chart 4.

Chart 4

August industrial output data are still patchy but global six-month momentum is likely to have remained above that of real narrow money, suggesting deficient liquidity for markets – chart 5. Bond markets have so far borne the brunt of this squeeze but a PMI reversal could transfer pressure onto equities.

Chart 5