liza, Author at CC&L Financial Group Ltd.

The Global Alpha team has just attended a pair of conferences in Japan. The BofA Japan Conference and the Mizuho Japan Alpha Conference. We attended numerous panel discussions on topics ranging from trade and tariffs to the changing geopolitical and defence world order to the AI boom. We met with over 40 Japanese companies including many of our holdings and completed a few onsite visits.

At the time of writing, Prime Minister Ishiba announced his resignation, less than a year after succeeding Kishida. His position was untenable after the humiliating defeat of his party in the spring. Political instability is not new in Japan, nor in most countries these days – something investors do not seem to have yet fully factored into risk premiums. And the rise of extremism, both right and left, is further colouring political landscapes globally.

Here are some takeaways from the conference:

Inflation in Japan continues to exceed 2% and the country is very unlikely to fall back in deflation. After over fifteen years of fighting to achieve sustained 2% inflation. It breached it in 2023–24, and 2025–26 will see inflation above that number. Dismissed is the risk of runaway inflation, which could happen and is one of the reasons for the defeat of the Liberal Democratic Party.
As a result of inflation rising, interest rates are going up. The Japan 30-year bond is at its highest since 1993 and now exceeds 3%. The Bank of Japan is expected to continue raising short-term interest rates. This has been an important positive for the financial sector. One of our largest holdings is Concordia Financial Group Inc.(7186 JP), a super regional bank in the Kanto region of Tokyo.
Japanese retail investors still only have about 2.5% of their savings invested in the Japanese stock market. Over 90% is in bank deposits which represents over USD6 trillion.
Spring wage negotiations in 2025 yielded a record wage increase of 5.1% after another record of 5% in 2024. The companies we met all indicated that 2026 will be equal or higher than 2025 as an acute shortage of workers is felt.
We met many real estate companies operating in office, retail, hospitality as well as residential. New leases are seeing price increases averaging 7 to 10%.
Most of the companies we met indicated that they need to raise prices and likely face little push back.
The pace of reforms being brought by the government, the Tokyo Stock Exchange and companies themselves is accelerating.
Overall, the sentiment was positive. Both conferences saw record attendance from foreign investors.

However, the inspiration for this week’s commentary came from a meeting with a Japanese forest product company called Oji Holdings. The company was established in 1873 and over the next one hundred years became a leader in the production of newsprint and printing paper.

We well know what happened to the Canadian and US forest industries. To respond to a secular decline in newsprint demand, they merged and eventually went bankrupt, with assets being closed or sold. No company can shrink to greatness.

Oji is not immune to the decline in newsprint and paper demand. However, in the seventies, it started migrating to tissue and packaging. And more recently, it accelerated its diversification, still using its expertise transforming wood to pulp, but using that pulp for sustainable packaging and to make biomass plastics from the green ethanol produced. The company is also using biomass to produce advanced semiconductor photoresist, eliminating all perfluorinated substances commonly used by current processes. Oji also established Oji Pharma in 2020 to develop and commercialize plant-based medicinal products such as Heparin, currently produced with animal proteins and banned in many Muslim countries. By 2030, these new divisions will have grown more than the decline in paper.

Including Oji, there are over 20,000 companies in Japan that are more than one hundred years old. Even more impressive, over 3,000 companies are more than two hundred years old and around six hundred are more than three hundred years old.

With regard to company longevity, over 50% of the companies in Japan are over one hundred years old. Europe follows with its number of century-old companies. The United States has less than 5%.

The oldest known, continuously operating company in the world is a Japanese construction firm specializing in Buddhist temples and shrines called Kongo Gumi. It was established in 578 AD and operated for over 1,400 years before becoming a subsidiary of a larger group in 2006.

Why are there so many century-old companies in Japan?

This incredible longevity is attributed to a combination of cultural, business and historical factors, but most important is the emphasis on continuity and legacy. This comes from fostering a long-term perspective and not necessarily maximizing short-term profit. Other factors contributing to longevity success are the focus on core competency, resilience and adaptation, as demonstrated by Oji.

It will be interesting to see how Japanese companies can continue to adopt this long-term focus yet at the same time respond to shorter-term shareholder objectives.

According to Morningstar, global sustainable funds attracted an estimated net USD4.9 billion in Q2 2025. With 72 new sustainable funds launched in just one quarter, total assets in global sustainable strategies have now reached USD3.5 trillion.

Sustainable investing is booming – and getting harder to navigate.

Quarterly global sustainable fund assets (USD billion)

Source: Morningstar Direct. Data as of June 2025.

To differentiate themselves, funds increasingly segment by theme – from “climate leaders” and “net-zero transition” to “socially responsible” and “impact” strategies. The United Nations Sustainable Development Goals (UN SDGs) have become the most common reference point for defining what is “sustainable.” But as SDG labels become more common, investors face a critical challenge: How can you tell the difference between real contribution and clever branding?

The answer lies in applying core principles borrowed from the field of impact investing – even when the investment strategy itself isn’t “impact” by design. Three key concepts help sharpen the lens and assess sustainable outcomes in the real world:

Intentionality: Are the investee companies actively seeking to contribute to a positive social or environmental outcome through their core business or are the outcomes unintended?
Additionality: Would these outcomes have happened without the companies’ products or services? This helps determine the companies’ real contribution.
Measurability: Are there clear metrics to track and report how the outcomes affect the end beneficiary?

Take a firm that installs solar panels only to offset its own energy use – essentially fixing a problem of its own making. While this could be marketed as a “sustainable outcome” by many, this is risk management: no additionality, no broader SDG contribution and no real benefit beyond the company’s operations.

At the aggregate level, thinking like an impact investor can sharpen how equity investors assess credibility of sustainability claims. A useful tool is a theory of change – a framework that maps how a company’s core activities lead to specific outputs (e.g. products or services), which in turn generate measurable outcomes. Applying this lens helps investors move beyond marketing language to identify businesses whose growth is directly tied to delivering credible, positive, real-world outcomes alongside financial performance.

At Global Alpha, our Sustainable Global Small Cap Strategy applies these principles as a framework – not to make impact investments, but to ensure that the companies we invest in generate credible, positive contributions to the SDGs through the sale of their products and services. Our aim remains financial performance, which we do by delivering real-world, positive outcomes, as evidenced in our 2024 Sustainable Global Small Cap Annual Report.

Portfolio spotlight: The North West Company

The North West Company Inc. (NWC CN) is a leading retailer serving remote and underserved communities in Canada, Alaska, the Caribbean and the Pacific. In regions where reliable access to goods and services is limited, NWC delivers food, household essentials and health products – often as the sole provider.

NWC’s impact begins with its extensive distribution network, retail infrastructure and partnerships with governments and organizations focused on food security. Through 230 stores and over 7,000 employees – 44% of which are from Indigenous groups – it delivers affordable, high-quality goods, supports local employment and invests in community initiatives.

Its business model demonstrates:

Intentionality: NWC’s core strategy targets underserved and rural communities.
Additionality: In many locations, it operates where no comparable services exist.
Measurability: Metrics include the number of communities served and local employment created.

The below theory of change showcases how NWC’s activities aim to increase access to essential goods across 190 communities, reduce disparities in access to services and enhance economic self-sufficiency, directly contributing to SDG 11 – Sustainable Cities and Communities.

Source: 2024 Sustainable Global Small Cap Annual Report

NWC exemplifies how small caps can deliver meaningful real-world outcomes in addition to financial returns – and why thoughtful sustainability analysis matters.

Connor, Clark & Lunn Infrastructure (CC&L Infrastructure) is pleased to announce the recent closing of more than US$200 million in bank financing with a syndicate of international institutions, including CIBC, MUFG, Desjardins Group, and SuMi TRUST, across its portfolio of US renewable power projects.

The portfolio, which was acquired in 2021 alongside Régime de Rentes du Mouvement Desjardins and Desjardins Financial Security Life Assurance Company, both part of Desjardins Group, represents more than 560 megawatts (MW) of installed capacity. This includes a 200 MW solar project in Indiana, as well as four wind farms located in Indiana, Wisconsin, Oklahoma, and Ohio with an aggregate installed capacity of more than 360 MW. Each asset is fully contracted through long-term power purchase agreements with high-quality offtakers, and the portfolio provides geographically diversified exposure to three distinct US electricity markets.

“The completion of this refinancing marks a notable achievement by our asset management team,” said Moira Turnbull-Fox, Head of Asset Management for CC&L Infrastructure. “It demonstrates our proactive approach to financial optimization and value creation. By leveraging the strength of our existing assets and relationships, we have successfully secured an attractive financing package that is accretive to value. These efforts align with our disciplined investment strategy, ensuring long-term value for our investors.”

CC&L Infrastructure owns more than two gigawatts of gross renewable power capacity globally, diversified across a variety of energy markets, contract counterparties, regulatory jurisdictions and technologies (i.e. wind, solar and hydro). In aggregate, CC&L Infrastructure has closed over $5 billion in renewable power debt financings in recent years.

National Bank of Canada Capital Markets served as financial advisor to CC&L Infrastructure on the financing, Torys LLP acted as borrower’s counsel, and Winston & Strawn LLP acted as lender’s counsel.

About Connor, Clark & Lunn Infrastructure

CC&L Infrastructure invests in middle-market infrastructure assets with attractive risk-return characteristics, long lives and the potential to generate stable cash flows. To date, CC&L Infrastructure has accumulated approximately $7 billion in assets under management diversified across a variety of geographies, sectors and asset types, with more than 100 underlying facilities across 35 individual investments. CC&L Infrastructure is a part of Connor, Clark & Lunn Financial Group Ltd., a multi-boutique asset management firm.

About Connor, Clark & Lunn Financial Group Ltd.

Connor, Clark & Lunn Financial Group Ltd. (CC&L Financial Group) is an independently owned, multi-affiliate asset management firm that provides a broad range of traditional and alternative investment management solutions to institutional and individual investors. CC&L Financial Group brings significant scale and expertise to the delivery of non-investment management functions through the centralization of all operational and distribution functions, allowing talented investment managers to focus on what they do best. CC&L Financial Group’s affiliates manage over $154 billion in assets. For more information, please visit cclgroup.com.

Contact:

Kaitlin Blainey
Managing Director
Connor, Clark & Lunn Infrastructure
(416) 216-8047
[email protected]

Skyline of downtown Vancouver, BC, Canada.

This summer, markets have looked calm. Bond yields have been range-bound, interest rate and equity market volatility collapsed, credit spreads tightened and stock markets are again reaching their all-time highs. For many investors, it has felt like the tariff-induced storm had finally passed. But calm waters can be misleading. Beneath the surface, powerful undercurrents are shaping the outlook.

Bond markets are behaving as though disinflation is a sure thing and that rate cuts are guaranteed. Yet upstream pressures are bubbling again – producer prices, tariffs and unit labour costs all hint at inflation that may not go quietly. The risk lies not in what we see today, but in what the market may be ignoring.

Rates are trapped in a box

Interest rates are caught in a tug-of-war. On one side, politics, fiscal strategy and the general state of the US economy all limit how high yields can go. That is, the US Treasury’s preference for short-term bill issuance (rather than long-term bonds), the ever-present risk of financial repression tools like yield curve control (a monetary policy tool that targets interest rates at specific points of the yield curve) and the fragility of housing and consumer demand (where even modestly higher yields could tip them into deeper weakness) all act as a ceiling. On the other side, yields are also unlikely to decline significantly. Rising fiscal spending (see Chart 1) and persistent government deficits have led to a continuous supply of bonds, while elevated term premia (the extra compensation investors demand for holding a longer-term bond) keep longer maturities resistant to downward movement. Additionally, producer price indices are rising once again, and labour costs remain elevated. Together, these forces explain why yields can swing within a range but are unlikely to break out decisively in either direction.

Chart 1: US spending set to soar

Source: US Congressional Budget Office, Macrobond

Recent statements from the US Federal Reserve (Fed) have reflected a cautiously dovish stance, supportive of easier monetary policy. During the Jackson Hole Economic Symposium in late August, Fed Chair Powell indicated a dovish position in the near term regarding employment, while reaffirming the Fed’s commitment to the 2% inflation target. Market participants interpreted these remarks as a signal for potential rate cuts. In reality, while rate reductions are indeed anticipated as soon as September, unless there is a significant deterioration in labour market data, the inflation threshold will keep the easing path confined.

Calm at the wrong time

Markets are treating today’s calm as though it was permanent. Yet, underlying pressures tell a different story. Core producer prices are up 3.7% over last year, nearing the upper end of the range since 2022. The wages and salaries component of the employment cost index at 3.6% y/y remains well above its 25-year average. Direct tariff impacts on consumers have so far been muted by businesses working off previous inventory accumulation. Most recently, the independence of the US central bank appears to be under question, which has historically been associated with higher long-term inflation. Meanwhile, the MOVE index, which tracks bond market volatility, sits near cycle lows (see Chart 2), indicating a classic sign of complacency. History shows that moments of calm often precede periods of turbulence. If inflation re-emerges, today’s quiet will prove fragile.

Chart 2: Collapsing bond market volatility since April

Source: ICE BofAML, Macrobond

The great disconnect: payrolls vs. profits

The most striking disconnect is between the labour market and corporate earnings. Employment growth is slowing, with downward revisions a consistent theme. In the US, job growth has slowed dramatically, averaging just 35K per month over May–July, the weakest stretch since the pandemic. Meanwhile, continuing jobless claims are on the rise (see Chart 3). Firms are maintaining a “no hire, no fire” stance, meaning that they are holding onto staff but are reluctant to add new employees. Despite that, corporate America is reporting resilient results. Margins, revenues and earnings in the most recent corporate earnings season have come in stronger than expected. Productivity gains, leaner operations and early adoption of AI may be helping. However, we believe this gap is unsustainable. If the labour market weakens further, demand will eventually soften and profits will be at risk. This question of whether earnings can remain resilient while the jobs picture fades will determine the next leg of market direction.

Chart 3: Rising continuing claims suggest difficulty finding jobs

Source: US Department of Labor, Macrobond

Capital markets

Economic momentum softened through the summer, but equity markets weathered the weak July jobs report and tariff uncertainty well. In August, both the S&P 500 and S&P/TSX Composite reached record highs, with the VIX falling to its lowest level since March. Year to date, US equities are up in the high single-digits, while Canadian, European and emerging markets have posted stronger double-digit gains.

Other asset classes have experienced less favourable performance. WTI crude oil’s June rebound quickly reversed, and crude prices remain negative year to date. The US dollar index maintained stability through the summer but remains negative on a year-to-date basis.

Bond yields continue to stay within established boundaries due to fluctuating market narratives and consistent policies from central banks. Indeed, both the Fed (4.25–4.50%) and the Bank of Canada (2.75%) held policy rates steady during the summer. Canadian corporate spreads tightened to pre-crisis levels in June and July before widening modestly in mid-August alongside a surge in issuance. The FTSE Canada Universe Bond Index is negative thus far in the third quarter and only slightly positive for the year to date.

Portfolio strategy

For investors, the current environment requires a selective approach.

Balanced portfolios have moved back to market weight in equities, reflecting decreased recession probabilities toward the end of the second quarter. Recent data has indicated a gradual economic softening instead of a significant downturn, which has reduced the degree of downside risk. At the same time, equities are being kept afloat by strong earnings. That disconnect still warrants some caution, but the adjustment acknowledges that downside risks are not as acute as earlier in the year. In fundamental equity portfolios, the emphasis is on quality. High-quality businesses with durable earnings growth remain core holdings. As the likelihood of a deep downturn has diminished, exposure to traditional defensive areas of the market has been pared back and selective positions in quality cyclical companies have been added where valuations are attractive.

In fixed income portfolios, the strategy remains cautious. With rates expected to stay range-bound, duration is managed tactically. The shape of the yield curve matters more than the outright level. Short-term rates will be anchored by monetary policy, while longer-term rates will be pressured by fiscal supply, leading to steeper yield curves. In credit, fundamentals are still supportive but credit spreads are too tight to offer much reward, warranting a neutral position.

Connor, Clark & Lunn Private Capital Ltd. (CC&L Private Capital) is pleased to announce that Cameron Smith is joining its leadership team as a Managing Director, Sales Management effective September 2, 2025.

In his new role, Cameron will oversee the firm’s growth and client engagement efforts. Cameron joins CC&L Private Capital with extensive experience, having spent the past five years at Nicola Wealth as Vice President, Advisory Services, and before then in leadership and advisory roles with MD Financial Management.

With nearly two decades of experience in the financial services industry, Cameron possesses extensive knowledge and expertise in delivering wealth management services to high-net-worth clients. Cameron holds the CFP®, CIM® and FCSI® designations. “We are thrilled to welcome Cameron to our firm,” said Jeff Guise, Managing Director, Chief Investment Officer at CC&L Private Capital. “His character, leadership and industry knowledge will be invaluable attributes to CC&L Private Capital as we continue to serve our clients and enhance our offering.”

“I am honoured to join CC&L Private Capital,” said Cameron. “The firm’s investment philosophy and governance are best-in-class, and I am proud to be part of a team with some of the most dedicated Wealth Advisors in the country. I believe the firm is poised for further growth, and I look forward to contributing to that success.”

CC&L Private Capital provides expert wealth management advice to high-net-worth families, foundations, and Indigenous communities across the country. With over $18 billion in assets under management, it is one of Canada’s largest independent and privately held investment managers, and is part of the broader Connor, Clark & Lunn Financial Group.

Banyan is pleased to share that Purity Life Health Products has completed the acquisition of the assets of Horizon Grocery + Wellness, PSC Natural Foods and Ontario Natural Food Company. The news of the acquisition was shared in the following press release:

Purity Life Health Products LP (“Purity Life”) is excited to announce the acquisition of the assets of Horizon Distributors Ltd. (“Horizon”), PSC Natural Foods Ltd. (“PSC”) and Ontario Natural Food Company Inc. (“ONFC”). The merger will create one of Canada’s leading full-service distributors of organic and natural grocery and wellness products. By bringing its core wellness offering together with the market-leading positions of Horizon, PSC and ONFC in the grocery sector, Purity Life can expand and further strengthen its high-quality service to both retail and vendor partners across Canada.

Matthew James, President and CEO of Purity Life emphasized the significance of this partnership: “Together with Horizon, PSC and ONFC, Purity Life is proud to build a 100% Canadian-owned, full-service distributor – delivering natural and organic grocery and wellness products with our #EasyToDoBusinessWith commitment across every category and retail channel in Canada.”

The combined company will operate under the Purity Life brand going forward through two distinct divisions: Purity Life Grocery and Purity Life Wellness. Terri Newell, CEO of Horizon, will lead Purity Life’s Grocery division.

“The combination with Purity Life is an ideal path forward for Horizon, PSC and ONFC,” Ronald Francisco, President and majority shareholder of Horizon, PSC and ONFC, said, sharing his perspective. “The companies share similar values and are focused on serving customers and vendor partners with excellence while being an employer of choice. Together, the companies are a strong complement and will create a leading distributor to progress the organic and natural grocery and wellness industry in Canada.”

Jeff Wigle, Managing Director and Group Head of Banyan Capital Partners, the majority owner of Purity Life added “I first met Ron shortly after we partnered with Matthew to acquire Purity Life in 2012, and since then I have continued to admire what he has built at Horizon, PSC and ONFC. These companies have deep roots and strong connections across Canada’s natural food industry, and we are thrilled to bring that legacy into the Purity Life family. I look forward to welcoming Ron, Terri and their talented teams as we continue to grow and strengthen our business together.”

This transaction will allow Purity Life to strengthen its service offering to all stakeholders in the natural health products industry in Canada, creating a nationalized distribution platform for grocery and wellness products while allowing Purity Life to continue to service its customers and vendors with the highest possible quality.

About Purity Life Health Products LP

Purity Life provides full-service national distribution across Canada, supporting both brands and retailers with expert category management, dependable logistics solutions and more. Founded in 1984, Purity Life has grown to be Canada’s leading supplier of natural health products, offering over 12,000 natural health products from more than 400 leading brands.

About Horizon Distributors Ltd.

Founded in 1976 and based in Burnaby, British Columbia, Horizon Distributors is Western Canada’s leading distributor of organic and natural food products across the dry, chilled and frozen grocery categories, in addition to natural personal care and nutritional health supplements.

About PSC Natural Foods Ltd.

PSC Natural Foods, based in Victoria, British Columbia, is a distributor of organic and natural foods, having served the Vancouver Island community since 1978.

About Ontario Natural Food Company Inc.

Ontario Natural Food Company, based in Mississauga, Ontario, has distributed a diverse selection of organic and natural food items throughout Eastern Canada since it was established in 1976.

About Banyan Capital Partners

Banyan Capital Partners is a private equity firm focusing on investments in middle‐market businesses across North America. Banyan is an affiliate of Connor, Clark & Lunn Financial Group (CC&L Financial Group), a multi‐ boutique asset management firm that provides a broad range of distinct and independently managed investment products and services to individual and institutional investors. CC&L Financial Group and its affiliated companies collectively manage over $154 billion.

Media contact

Matthew James
President & CEO
Purity Life Health Products LP
#EasyToDoBusinessWith
[email protected]
519-851-4045

The explosion of cloud computing and especially AI training requires enormous amounts of power. A single, large data centre can use as much electricity as a mid-sized city. The Southeast United States (Georgia, Virginia, Texas) is seeing the heaviest concentration of new projects, but it’s spreading nationwide. Hence, utilities in the United States have more than doubled their planned gas turbine installations for 2030 – from about 25 GW at the end of 2021 to over 45 GW by the end of 2024 with nearly 100 GW of new gas-fired capacity in pre-construction.

The US Energy Information Administration (EIA) reports that US marketed natural gas production in 2024 averaged about 113 billion cubic feet per day (Bcf/d).

Gas demand increase

The production of 100 GW of energy requires about 2.3 Bcf/day of natural gas – this adds a 2% bump to national gas requirements. A larger increase in gas demand, however, comes from liquified natural gas (LNG) exports. By 2028, US LNG export capacity is forecast to nearly double, increasing from around 11.6 Bcf/d to 24.4 Bcf/d, thanks to approximately ten LNG infrastructure projects under construction.

Pushed by international buyers, gas demand will increase in the fall of 2025 as the Golden Pass LNG terminal, located in Sabine Pass, Texas, comes on-line with an approximate transportation total of 2.57 Bcf/d of natural gas. This adds to the large Plaquemines project in Louisiana at 2.6 Bcf/day that began in 2024, and LNG Canada’s new Kitimat facility with capacity of 1.1 Bcf/day.

Key growing importers of LNG remain Europe at 14.4 Bcf/day and China at 9.5 Bcf/day.

It is sensible to form a positive opinion on natural gas prices in the midterm as we fill up these new, large LNG terminals. US gas inventory is not very big so it can show volatility in the short term. Due to high turnover of inventory, seasonal weather conditions impact short-term pricing of gas demand, causing more price fluctuation.

Because LNG is becoming such an important demand driver, competing electricity-producing energy technologies do not represent short- or mid-term risk to natural gas demand. For example, US lithium-ion battery capacity stands at a mere 26 GW.

However, the future does include other technologies. We recently met a nuclear power company with a project cost estimated at $3 million per megawatt for nuclear fission – we await their final feasibility with anticipation. And as we have written in the past, we remain positive on geothermal energy. Recent developments continue to drive down costs to make geothermal anywhere a reality.

We remain exposed to natural gas producers who will profit from the incumbent LNG export demand.

Gulfport Energy Corp. (GPOR US)

Gulfport Energy is an independent exploration and production company, primarily operating in Eastern Ohio’s Utica and Marcellus Shales in the Appalachian Basin.

The Marcellus Shale is the largest gas field in the USA and stands out as it combines huge scale, low costs, proximity to markets and strong infrastructure. It is often described as the “workhorse” of US gas supply. Although the Haynesville Shale is closer to Louisiana LNG facilities, the Mountain Valley Pipeline (2Bcf/day) which started in 2024, is opening up important markets to Marcellus operators. The Marcellus field is especially suited for higher priced areas in the Northeast which include many high-tech hubs and data centre activity.

Gulfport Energy foresees excess EPS growth in 2026 as strong cash flows support share buybacks. Breakeven under USD2/Mcf suggests strong resilience to price volatility.

Advantage Energy Ltd. (AAV CN)

Advantage Energy is the lowest-cost producer in Western Canada. Advantage Energy’s Montney Shale gas basin (Alberta side) has some of the lowest supply costs in North America. It regularly reports supply costs in the CAD1.00–1.20 per Mcf range, which means they can stay profitable even in weak gas markets where others struggle.

Advantage Energy does not just sell raw natural gas. The company is also invested in natural gas liquids (NGLs) production, which gives uplift when gas prices are soft.

In addition, Advantage Energy created and owns a cleantech arm, Entropy Inc., that is working on post-combustion carbon capture and solvent tech. This gives the company an ESG angle and potential new revenue stream.

Market access and hedging

Many Western Canadian producers get stuck selling into AECO, often at a discount versus Henry Hub in the United States. Advantage Energy has firm transport and hedges that give it access to the Chicago, Dawn and US Midwest hubs, narrowing basis differentials and cushioning cash flow volatility.

Subsea 7 SA (SUBC NO)

As gas exports reach ports of Europe, an entire infrastructure is being built.

Subsea 7 is a global leader in laying subsea pipelines for oil and gas, including natural gas export lines that run from offshore fields back to shore or to floating facilities. Their fleet includes specialized vessels that can handle gas export pipelines from deepwater fields, flowlines, umbilicals and risers.

If a big offshore gas project needs its subsea network built and tied back to shore or an LNG hub, Subsea 7 is often one of the short-list contractors called in to lay those pipes.

Subsea 7 also serves other growing energy segments such as offshore wind, carbon capture and hydrogen.

Clean Energy Fuels Corp. (CLNE US)

Clean Energy is North America’s largest provider of natural gas and renewable natural gas for transportation, operating over 600 fueling stations across the United States and Canada. Clean Energy has forged meaningful alliances with heavyweights like TotalEnergies, BP, Walmart, Amazon, UPS and others, enhancing both market access and credibility.

The company is set to grow rapidly as the transportation industry adopts a novel natural gas truck engine that will use a natural gas instead of diesel.

In our December 2024 commentary, we framed investing in Brazil as a high-stakes game of Blackjack. We argued that macro uncertainties such as fiscal deficits and political volatility were the low cards (2–6) which favoured the dealer. While these factors make for a daunting investment backdrop, our view was that these “cards” stood a chance of being dealt out as President Lula’s term progressed toward the 2026 elections. As a result, the proportion of high cards (10–Ace), being Brazil’s economic strengths and its reform potential, would start to rise and underpin an increasingly favourable set up for the player (investor).

Since our December post until August 2025, the deck has run down as October 2026 presidential elections in Brazil approach. As anticipated, the stakes are intensifying: Latin America’s 2025 electoral calendar is heating up, with presidential votes scheduled in Bolivia, Chile, Ecuador, and mid-term elections in Argentina, setting the stage for regional sentiment shifts that could influence outcomes in Brazil.

By the second quarter of 2026, we expect to have a good sense of the deck count and our chances of getting a Blackjack. It is likely that the “risk premium” for Brazilian equities has already peaked and will fall as early polls are released, candidates emerge and policy platforms take shape. This creates a unique window now for measured risk-taking as we await further confirmation on the above, selectively allocating chips (capital) to high-conviction hands where the asymmetry of risks favours the upside.

Active equity fund redemptions decelerate

Source: Itau BBA (August 2025)

So far, our approach has been assertive but disciplined: avoiding high-rolling bets on speculative names in favour of quality opportunities. This has paid off handsomely so far, typified by outperformance in portfolio holdings like Vivara (a jewellery retailer) and SABESP (sanitation utility), delivering strong returns amid a resilient economy.

Brazilian water utility SABESP returns improving

Source: SABESP Q2 2025 investor presentation

Recent macro and political developments: Improving outlook, but risks linger

Since December 2024, Brazil’s economic resilience, despite the tension between tight monetary policy and loose fiscal policy, is undoubtedly a high card. GDP growth is moderating from 3.4% in 2024 to around 2.2–2.3% in 2025, as high interest rates start biting into activity. However, positives abound: unemployment hit record lows in mid-2025, inflation is easing (expected at 5.0% year-end) and the economy is positioned to weather Trump’s proposed 50% tariffs on non-US imports, thanks to exemptions for key commodities and diversified exports.

Politically, the deck is shifting favourably for investors seeking change. Lula’s approval rating has dipped amid unease over economic stability, with polls modelling runoffs showing him mostly behind right-wing figures like Tarcísio de Freitas (current governor of Sao Paulo State). Former president Bolsonaro himself is sidelined by legal troubles, reducing “anti-establishment” risks. The 2024 municipal elections saw gains for conservative candidates, signalling a potential 2026 swing toward market-friendly policies if a centre-right candidate consolidates support.

This echoes our original thesis: as Lula’s socialist term winds down, extreme pessimism over the economy should fade, creating a disconnect between strong company fundamentals and cheap equity valuations.

Core positions: Delivering as expected, with Q2 2025 earnings validation

Our core Latin American holdings have performed robustly, showcasing consistent top-line growth, improving returns (ROIC/ROE) and strong moats in defensive sectors. This validates our philosophy of steering clear of higher-risk names (e.g., leveraged cyclicals, where low margins and geopolitical exposure have led to underperformance amid prolonged high rates and global uncertainty). Initial signs of a softer local economy – for example, a Q2 retail slowdown – have hit speculative plays harder, reinforcing our quality focus.

The results from Q2 2025 underscore management prowess and support the view that our Brazilian names should be robust amid a volatile macro backdrop: top-line momentum (avg. +15% YoY) and ROIC/ROE improvements (avg. +2–3 pts). We are also excited about emerging opportunities as a “positive count” in the deck for Brazil, an opportunity to add some new names from our opinion list.

Valuations in Brazil remain attractive

Source: Itau BBA (August 2025)

In a couple of months, our planned trip to the region (with a packed agenda) will allow on-the-ground validation, potentially enhancing conviction in existing and prospective portfolio companies.

Outlook: Calibrating bets as odds shift

As inflation cooling and political fragmentation dissipating act as low cards exiting the deck, the count could tilt toward investors. For now, play smart; global headwinds (Trump tariffs and a US slowdown) and domestic fiscal risks could bust hands. We remain focused on quality amid depressed valuations and are keeping eyes on the 2026 Ace: a conservative presidential win that could unlock multi-baggers. Stay tuned for post-trip updates; this game is far from over.

In the world of cosmetics, France has been the undisputed number one with its array of global brands: L’Oréal, Lancôme, Sisley, Vichy, Clarins…the list goes on. But with the emergence of Gen Z consumers (born between mid-1990s and early-2010s), whose purchasing behaviour is influenced by social media and are known to be intrepid in trying out new products (less brand loyalty), and the greater acceptance of Korean culture, or “K-culture” abroad, K-cosmetics have gained a foothold in the global market. In 2024, Korea became the number one exporter of cosmetics to the United States with USD1.7 billion (22.4% market share) surpassing France at USD1.3 billion.

Korea maintained its position as the top exporter of cosmetics to Japan, the world’s third-largest cosmetics market, for the third year in a row. Korea also became the third-largest exporter of cosmetics in the world last year, surpassing Germany (USD9.1 billion) and after France (USD23.3 billion) and the United States (USD11.1 billion). Korea is expected to surpass the United States as the second-largest exporter of cosmetics by the end of this year or next year.

Source: IHS Markit Connect Global Trade Atlas (June 10, 2025)

Consumers of Korean cosmetics outside of Korea are no longer confined to Asians. K-cosmetics now have a wider acceptance across race and ethnicity.

Source: Ministry of Food and Drug Safety (South Korea)

China remains the largest market for K-cosmetics, but not by far, followed by Asia ex-mainland China, the United States and the European Union, the latter of which has been seeing strong growth.

Source: Korea International Trade Association
Note: EU5 includes Germany, France, Italy, Spain and the UK

What explains K-cosmetics’ success?

Product innovation: In 2008, Amorepacific Corporation (090430 KS) released the “Air Cushion,” the world’s first multifunctional, cushion-type cosmetics delivery mechanism that forever changed how foundations are applied on to the skin. More recently, there was the innovation of the “Reedle Shot” – a skincare treatment that utilizes micro-needling to deliver active ingredients deeper into the skin. It does not use actual needles – it is a cream that can be applied directly on skin, first commercialized by VT Cosmetics (under VT Corp. Ltd.) (018290 KS).
High quality for the price: When it comes to taking care of the skin, Korean women are known to be meticulous. They have very high standards for quality and this is why Korea is often the testbed for global cosmetics brands before their global launch of new products.
Product variety: As of December 2024, there were over 30,000 indie cosmetics brands in Korea. When it comes to skincare, there is no “one size fits all.”
Digital marketing: People have different skin types and most indie brands are sold online. This is where marketing via social media and leveraging the power of influencers or KOLs (key opinion leaders) comes into play. One can have a vicarious “try-me” experience by watching others use a product. After all, these indie brands cost a fraction of L’Oréal and Gen Zs are not afraid to try new products.

Product innovation, high quality, reasonable prices and product variety are enabled by K-cosmetics’ supply chain that has developed and grown over the years. Korea is home to the world’s largest cosmetics ODM (original design manufacturer), Cosmax Inc. (192820 KS), and Kolmar Korea Co. Ltd. (161890 KS) in the top five.

Cosmetics ODM is a picks-and-shovels business, making it less risky than investing in a particular cosmetics brand itself. Not surprisingly, there are a fewer number of ODMs compared to cosmetics brands. Playing an equally important role in the K-cosmetics supply chain, having the same business model, but in a more consolidated space, are container manufacturers.

Investment spotlight: Pum-Tech Korea

Pum-Tech Korea Co. Ltd. (251970 KS) in our portfolio is the largest cosmetics container ODM in Korea. As the name begins to insinuate, the company is known for its pump technology (tubes and other applications) and was the first to develop pump tubes in Korea in 2002. In 2009, not long after Amorepacific’s Air Cushion, Pum-Tech developed “Airless Compact” that utilized a small hole in the compact to control the amount of foundation per use and prevent contamination of foundation from air. The container for Shiseido’s roll-on sunscreen (“sun stick”) was also developed by the company.

Since its establishment in 2001, Pum-Tech has never had a down year in revenue driven by innovative products. The company owns approximately 5,000 stock moulds (in addition to custom moulds for specific customers), combinations among which offer customers containers of all sizes and shapes to choose from. The company currently serves over 500 brands globally, including L’Oréal, Estée Lauder and Shiseido. Pum-Tech’s manufacturing process boasts high levels of automation, and new capacity is expected to come online in H2 2025 and next year to meet increasing demand.

For decades, strategic asset allocation (SAA) has been the foundation of portfolio management – aiming to balance asset classes to meet long-term return and risk objectives. This optimization process weighs the expected risk and return of individual asset classes to identify the most appropriate SAA. Its straightforward framework brought clarity and accountability to governance by defining total portfolio performance benchmarks. It also spurred growth in investment consulting, as firms built advanced allocation models, manager research capabilities and independent performance measurement tools to support institutional investors in constructing SAAs and selecting asset managers.

One approach gaining significant traction amongst the larger investors is a total portfolio approach (TPA) – a holistic, dynamic approach that aims to treat the entire portfolio as a single, integrated entity. This article considers how TPA differs from SAA and which investors are currently best positioned to take advantage of an integrated TPA.

Recap on SAA

SAA involves setting long-term target weights for various asset classes in a portfolio based on an investor’s objectives, risk tolerance and investment horizon. For decades, a 60% equity and 40% fixed income portfolio was a common SAA example, while larger institutional investors also incorporated alternative investments such as private equity, commercial real estate and infrastructure.

The SAA framework remains a widely adopted approach for developing long-term investment strategies. Its appeal lies in its intuitive structure and the quantitative discipline it brings to forecasting returns, volatility and correlations across asset classes. Additionally, the framework supports diversification by leveraging the complementary characteristics of different asset classes.

However, a common critique of the SAA is the disconnect between asset allocation design and manager selection. Since these processes are often conducted separately, several inefficiencies may arise:

The realized portfolio risk-return profile may deviate from the intended strategy,
Diversification benefits within multi-manager asset classes may be limited, or
Opportunities to introduce or increase exposure to beneficial asset classes may be delayed due to the formal review process required for changes.

For instance, increasing allocations or adding new asset classes typically necessitates a formal asset mix review, which can slow the implementation of enhancements or responses to evolving market conditions. Nevertheless, this structured approach also offers a key advantage: it keeps investors focused on long-term objectives and helps avoid overreacting to short-term market fluctuations.

What is a TPA?

Unlike the traditional SAA model, where asset classes are managed in silos, the TPA views the portfolio as a single, integrated entity. Under a TPA, the portfolio continues to invest in the same asset classes. However, the process for gaining exposure to these assets changes, allowing for greater allocation flexibility driven by risk factor analysis of the overall portfolio’s risk and return profile. Investment decisions are assessed based on their marginal impact on the overall portfolio’s risk-return profile, rather than their performance within individual asset classes. This integrated approach offers several advantages:

Enhanced agility in responding to market dynamics,
More efficient capital allocation based on relative opportunity at the total portfolio level,
Diversification decisions based on broader risk factors, and
Leveraging cross-asset expertise from diverse investment teams.

However, adopting the TPA model requires substantial changes to an organization’s governance structure and investment culture, as well as significant data and technology requirements to undertake integrated risk factor analysis to support the approach. As a result, it has primarily been implemented by large, global public investors such as CPP Investments (Canada), Future Fund (Australia), GIC (Singapore) and New Zealand Superannuation Fund. These institutions benefit from large, globally integrated investment teams that facilitate collaboration across asset classes.

While the TPA model is often associated with internal management, a precursor to this concept emerged in the 1990s. Bob Hamje, then Chief Investment Officer for the TRW pension assets, pioneered a total portfolio mindset using external managers. What set this model apart was the asset managers were compensated based on total portfolio performance, not just their individual mandates, and managers were expected to recommend adjustments to their capital allocation based on their conviction and contribution to overall portfolio returns.

This early model laid the groundwork for today’s TPA philosophy, which began to take formal shape around 2006 and has since evolved.

Governance and culture differences

As previously noted, adopting a TPA requires a significant cultural shift – from managing investments in asset-class silos to embracing a unified portfolio model. This transition also demands that boards and investment committees be willing to delegate more decision-making authority and that robust tools be in place to measure and assess risk factor exposures.

Culture plays a critical role in determining success across any industry, yet it is often difficult to define. In the context of a TPA, the cultural shift involves fostering collaboration across investment disciplines and aligning incentives with total portfolio performance. Not all investment professionals may be comfortable with this change.

The governance model under a TPA requires strong conviction from boards and investment committees that a unified investment model can deliver materially better outcomes than a traditional SAA approach. While board oversight remains essential, the TPA differs in its use of a reference portfolio – a simplified, policy-oriented benchmark that reflects the investor’s long-term objectives, risk tolerance and return expectations. This reference portfolio typically comprises traditional, liquid asset classes such as global equities and fixed income.

Risk factor analysis plays a central role in a TPA by decomposing the total portfolio into risk factors. It allows investors to control unintended concentration risk, as well as allowing for easier consideration of “what if” scenarios on how the total portfolio would be impacted under different macroeconomic or market conditions. The risk factor lens also helps boards and committees to better understand exposures for their oversight responsibility.

The table below highlights key differences between SAA and TPA:

Characteristic	Strategic asset allocation (SAA)	Total portfolio approach (TPA)
Performance assessed versus:	Asset class benchmarks	Fund-level goals and reference portfolio
Success measured by:	Relative value added	Total fund return
Opportunities for investment defined by:	Asset classes	Contribution to total portfolio outcome
Diversification achieved through:	Asset classes	Risk factors
Asset allocation determined by:	Board-centric process	CIO-centric process
Portfolio implemented by:	Multiple teams competing for capital	One team collaborating across strategies

Source: Thinking Ahead Institute

Investors currently operating within an SAA framework can progressively incorporate elements of the TPA by taking the following steps:

Reframe the investment objective to align with total portfolio outcomes.
Develop a unified risk dashboard to consolidate exposures across all asset classes.
Enhance capital allocation flexibility using completion mandates.
Establish a centralized decision-making body, such as a total portfolio sub-committee.
Invest in advanced tools and data infrastructure to support risk factor analysis and portfolio integration.

Conclusion

As institutional investors navigate increasingly complex and dynamic markets, the TPA offers a compelling evolution beyond traditional SAA. By shifting the focus from siloed asset class mandates to a unified, outcome-oriented framework, a TPA enables more agile, efficient and risk-aware decision-making. However, this transformation demands a fundamental shift in governance, culture and capabilities. Institutions that can foster cross-functional collaboration, embrace risk factor thinking and empower investment teams with the right tools and authority are best positioned to unlock the full potential of a TPA. For investors currently operating under an SAA framework, but constrained by asset size, resources or governance structure, there remain meaningful opportunities to gradually integrate elements of a TPA over time.