Emerging market equities have outperformed the rest of the world year to date.

Source: NS Partners and LSEG Datastream

The asset class is decisively breaking out of a long-run trend of underperforming developed markets.

Source: Bank of America, May 2026.

What is driving the turnaround? Looking at contributions to returns since 2023, earnings have been the clear driver for emerging market equities, with multiple expansion only a minor contributor.

Source: Jefferies quant research, April 2026.

Earnings growth has been the key driver

Source: NS Partners and LSEG Datastream.

In fact, for the year to date as at the end of April, valuation compression has been a headwind for the asset class.

Source: Jefferies quant research, April 2026.

EM equities are now cheaper than they were in beginning of 2025 despite strong returns.

Source: NS Partners and LSEG Datastream.

We flagged in previous pieces that the signals we track suggested emerging market equities were positioned to outperform their developed market counterparts. Based on the headline numbers it appears this call has been vindicated (albeit over a short period) with the welcome combination of cheaper valuations and a strengthening earnings outlook.

What got us particularly excited was the potential for a US dollar bear market driving a new virtuous circle, as illustrated below.

We have had positive spurts in a number of markets which enjoyed easing currency pressure courtesy of a falling dollar and better liquidity. However, this has been overwhelmed by the US AI boom which is bleeding out into emerging markets with North Asia the clear winner.

It has been a narrow rally driven by US capex and the AI supply chain

This dramatic improvement in earnings and performance largely reflects a boom in South Korean and Taiwan tech companies. If you strip these markets out of EM, the return picture for the wider asset class is subdued.

YTD outperformance of EM equities has been entirely due to Korea/Taiwan, with the rest of the asset class lagging DM

Source: NS Partners and LSEG Datastream

The demand boom for key technologies that underpin the infrastructure needed to meet a massive build out of AI technologies and the flow through to earnings growth is swamping interest in other positive stories across the asset class.

We are modestly overweight AI supply chain leaders in South Korea and Taiwan, who control key supply bottlenecks across memory and logic chips, thermal cooling, signals and switching, electrification and data centre assembly. Earnings growth and margins for these companies are downstream of rising investment from US hyperscalers seeking vast amounts of compute power to develop cutting-edge large language models.

Source: Koyfin, April 2026.

Portfolio names in these areas have posted outstanding gains over the last 12 months. While we have been quick to trim positions when stock valuations exceed what we think is reasonable, we have not run away from the rally and have maintained the overweight as we can see the fundamentals accelerating. For example, the supply-demand mismatch for high bandwidth memory is so great that memory giants SK Hynix and Samsung Electronics are now among the most profitable companies in the world.

Source: Jefferies March 2026.

Earnings growth in South Korea has been so strong that valuations still look modest despite the market doubling

Samsung Electronics, Hynix and Micron are the only three companies in the world capable of producing HBM chips that are crucial components in Nvidia GPU clusters. And yet, Samsung and Hynix trade at a price to earnings multiples of less than 5x.

Source: Deutsche Bank 2026.

Optically, cheap valuations reflect a market view that these remain deeply cyclical businesses in an industry with a history of violent booms and busts and thus lack the durability in the earnings growth to award a higher multiple.

Looking at the table above, there may be a good argument that the DRAM giants are over-earning and will attract competitors. On the other hand, we are mindful that AI innovation represents a major technological shift and the possibility that this could structurally alter demand dynamics in an oligopolistic industry controlling essential and hard to replicate technologies.

Maintaining conviction with tight risk management

While the pace of capex spending by the US hyperscalers and the cash flows going to hardware suppliers is extraordinary, the parabolic stock moves in a number of the names that we hold naturally make us twitchy. Major uncertainty remains over how LLM technologies will evolve and be monetised, whether competitor frameworks will gain dominance, and if real-world bottlenecks in memory and energy may ultimately slow the pace of development.

We have been careful to trim winners and recycle profits elsewhere in emerging markets where we are seeing other opportunities that excite us. Equally, relatively modest valuations and earnings visibility on our time horizon represent a significant upside risk which leaves us happy to maintain our overweight to the AI supply chain.

Earnings remain resilient, but growth is concentrated, macro risks are building and selectivity is becoming critical.

Resilience in a tense environment

The Q1 reporting season underscores a growing divergence in global earnings. While US earnings growth remains robust, it is increasingly concentrated in AI-related industries. In contrast, Europe remains in a low-growth, late-cycle environment, while Japan continues to benefit from structural tailwinds. At the same time, a gap is emerging between the AI narrative and broader earnings. While AI-related sectors are seeing strong growth, the benefits have yet to spread across the wider economy.

The conflict in Iran has driven a sharp rise in oil prices and renewed volatility across equities and bonds, reflecting concerns around inflation and energy supply disruptions. It has also led markets to reassess the path of interest rates, with higher energy costs reducing the likelihood of near-term policy easing. This could test the resilience of corporate earnings through 2026.

So far, corporate earnings in developed markets have been more resilient than expected, despite successive macro shocks. Part of this resilience reflects lessons learned over the past five years. The pandemic period, in particular, has led to improved inventory management, stronger cost discipline and a greater willingness to implement cost optimization programs. More broadly, companies appear better equipped to manage their cost base, and in some cases, have demonstrated persistent pricing power. This has been particularly evident in industrials and technology, where contract structures and product differentiation have enabled effective price pass-through. These factors have helped preserve margins even as demand has plateaued or softened.

However, without a swift resolution to the conflict in Iran, global growth could decelerate further, exposing more vulnerable areas of the market. Discretionary spending, manufacturing and energy-intensive sectors such as transportation and logistics are likely to be most at risk. Rate-sensitive sectors, including residential real estate and REITs, could also face valuation pressure.

Looking at the broad small-cap market, balance sheets are structurally more fragile today than they were a decade ago when companies were deleveraging following the Global Financial Crisis. In the current environment, smaller companies are more exposed to rising interest costs and refinancing risk, particularly at the lower end of the quality spectrum.

Positioning for resilience

In this environment, a quality-focused approach centred on sustainable EPS growth remains critical. Our strategy continues to prioritize companies with strong balance sheets and high returns on equity.

As illustrated by our portfolio characteristics, our Global and International Small Cap strategies exhibit the following attributes:

Source: IDA, Bloomberg, MSCI

The lower leverage of these strategies points to less balance-sheet risk and better ability to navigate higher-for-longer rates. At the same time, the higher operating margins and stronger ROE, alongside faster forward EPS growth, are indicative of higher-quality businesses with more durable profitability and earnings power than the benchmark.

In addition, we continue to focus on companies exposed to structural growth drivers. Themes such as electrification, automation, health-care innovation, defence and reshoring offer improved visibility over the medium term. These areas can provide both defensive characteristics in a slowdown and operating leverage in a recovery.

Eurozone core inflation is lower than in the US, labour market indicators softer, money growth slower and credit conditions weaker. The UK resembles the Eurozone in most of these respects.

Last week’s ECB bank lending survey signalled tighter credit standards and notably weaker loan demand – see previous post and chart 1. The corresponding Fed survey this week, by contrast, shows little change from last quarter – chart 2. (Note that the Fed survey asks about current conditions, while the ECB survey additionally canvasses expectations.)

Chart 1

Chart 2

The last Bank of England credit conditions survey, released on 9 April, was benign but partly pre-dated Gulf hostilities.

US annual broad money growth – as measured by “M2+”* – was 5.9% in March versus an increase of 3.3% in both Eurozone non-financial M3 and UK non-financial M4 – chart 3.

Chart 3

US annual core PCE inflation rose to 3.2% in March versus a Eurozone core CPI increase of 2.2% in both March and April. UK core CPI inflation was 3.1% in March but the number still incorporates a boost from large rises in water bills and vehicle excise duty last April – the policy-adjusted measure calculated here was 2.7%.

The US trimmed mean PCE inflation measure preferred by incoming Fed Chair Warsh was 2.4% in March but there are no Eurozone / UK numbers for comparison. The calculation excludes 31% and 24% respectively of the top and bottom “tails” of the distribution, i.e. included items have a combined weight of only 45%.

Labour demand is weaker in the Eurozone / UK than the US, with Indeed job postings making new lows versus US stability – chart 4.

Chart 4

Unemployment expectations have picked up in the EU Commission consumer survey, suggesting a rise in the official jobless rate – chart 5.

Chart 5

The Fed model used here predicts policy direction based on current and lagged values of annual core PCE inflation, the unemployment rate and the ISM manufacturing delivery delays index. A rise in the latter has pushed the model estimate further into the tightening zone – chart 6.

Chart 6

*M2+ adds large time deposits at commercial banks and institutional money funds to the official M2 measure.

The March fall from a four-plus-year high in January / February was due to a pick-up in six-month consumer price momentum, with nominal money expansion unchanged – see chart 1.

Chart 1

Commodity price strength implies a further increase in CPI momentum through May, at least – chart 2. So the slowdown in real money growth will extend unless nominal expansion accelerates – unlikely given recent upward pressure on rates.

Chart 2

The earlier rise in real money growth has been reflected in a pick-up in global industrial momentum, with April manufacturing PMI new orders also the highest for four-plus years – chart 3. Orders have received an additional boost from precautionary stockpiling triggered by Gulf War III.

Chart 3

The lead time between turning points in real money momentum and PMI new orders has recently been running at seven months, suggesting a PMI reversal from September. The stockbuilding boost may have accelerated strength, however, implying an earlier peak.

The March fall in global six-month real narrow money growth was driven by the G7 component, with E7 expansion tracking sideways – chart 4.

Chart 4

US growth fell in March but remains higher than in the rest of the G7 – chart 5.

Chart 5

The March fall in global six-month real narrow money growth is estimated to have been accompanied by a similar slowdown in industrial output expansion, implying a continued small lead for the former – chart 6. The suggestion of “excess” money support for markets is consistent with recent equity market resilience.

Chart 6

The expected further fall in real money growth, however, and near-term support for output from full order books, could result in the series converging or crossing soon.

Connor, Clark & Lunn Infrastructure est en vedette dans une analyse de Green Street sur le regain d’intérêt des investisseurs pour le transport ferroviaire de marchandises au moment où les chaînes d’approvisionnement américaines sont restructurées pour leur résilience et leur efficacité. Green Street souligne le rôle clé des infrastructures ferroviaires dans le soutien de la compétitivité industrielle à long terme, tout en soulignant le point de vue selon lequel les entreprises essentielles ayant des actifs durables et des facteurs fondamentaux solides demeurent bien positionnées pour profiter de ces changements structurels – une opinion que partage CC&L Infrastructure, propriétaire d’Alpenglow Rail.

« Une hausse de la production manufacturière dans les Amériques créera plus de possibilités pour le transport ferroviaire. Ce sera tout simplement le cas », a déclaré Ryan Lapointe, directeur général, Connor, Clark & Lunn Infrastructure. « Quiconque fabrique un volume important de produits aura besoin d’avoir accès au rail », a-t-il poursuivi, soulignant le rôle du rail dans les chaînes d’approvisionnement « résilientes ».

L’article complet de Matt O’Brien, journaliste, Green Street, est publié en anglais dans sa version originale.

Publié à l’origine le 26 mars 2026.

Freight rail in vogue as US retools industrial supply chains

Freight rail, particularly short-haul rail, is seen as a key part of fortifying the US’s ongoing reindustrialization.

Last year, US manufacturing construction spending hit historically high levels of roughly $223 billion, more than double what 2021 registered, according to Brightsmith, an executive search firm in the clean energy manufacturing industry.

New factories for computer chips, batteries, EVs, pharmaceuticals, and data centers are largely driving, arguably, the reshoring and, certainly, the rebuilding of industry, with investors and policymakers hoping such efforts eventually bring back an era reminiscent of mid-20th-century American manufacturing might.

« From our standpoint, we’ve seen some successful movement on reshoring, and see the need for a more resilient global supply chain framework for reliably moving goods, » said Matthew Brand, COO and head of capital markets at ITE Management, an alternative asset manager focused on critical transportation equipment. « Depending on the businesses that get reshored, we may see more intermediate and final assembly than full scale manufacturing. »

For infrastructure investors, the shift to reshoring and recalibrating supply chains – accelerated by post-COVID vulnerabilities and reinforced by the Trump administration’s tariffs – means favoring assets with contracted, diversified cash flows that sit at the new nodes of a more « atomized » North American network, industry participants said in interviews.

Brand identified rails, containers, chassis and trailers – though executives said rail could stand to benefit the most.

« More manufacturing in the Americas is going to create more opportunity for rail. It just will, » said Ryan Lapointe, managing director at Connor, Clark & Lunn Infrastructure, which owns the Alpenglow Rail platform of six rail terminals in key industrial markets. « Anybody who’s manufacturing product in significant volume is going to need access to rail. »

Connor, Clark & Lunn closed a private-placement debt deal for Alpenglow late last year at attractive spreads, citing the platform’s blue-chip customer base, full-suite transloading services and role in « resilient » supply chains. The use of proceeds included capacity for organic growth and M&A, both of which remain active pipelines.

The US Surface Transportation Board’s push to streamline regulation, with faster environmental reviews and potential categorical exclusions that could reduce project costs and timelines, comes at an ideal time and could foster marginal activity that otherwise may not materialize.

Loosening regulation and changing economic patterns mean short-haul railroads and intermodal terminals stand to gain disproportionately as components and sub-assemblies move multiple times between suppliers in a reshored or nearshored environment, rather than arriving in bulk at a handful of gateway ports.

John Porcari, managing director at lnvestcorp Corsair Infrastructure Partners, pointed to that pattern exactly.

« I know there’s a lot of attention on the class one railroads and there should be, but I’d also look at the short haul railroads where they may be a more important part of the supply chain with components and subcomponents than they were in the past. … the same applies to trucking as well, » he said.

Sophisticated original equipment manufacturers, including those in automotive and aerospace, are still mapping their tertiary suppliers and realizing that onshoring assembly does not mean onshoring the components, executives said. The result: more east-west, north-south and even intra-regional movements that favor flexible, rail-linked distribution.

Re/on/near shoring

Those interviewed attested that the reshoring of industry back to the US has been a mixed picture. But for certain businesses that have come back to North America, some assets are seen as central to those changes.

Ports themselves are not being left behind, but the focus is shifting. Cesar Valero Mendoza, partner at ALG, a transportation-infrastructure consultancy, said interest remains high for new or expanded container terminals on the Gulf of Mexico aimed squarely at nearshoring volumes – smaller than traditional international gateways but aligned with rising Mexican manufacturing.

Mexico’s established Tier 1-2-3 supplier base and productivity edge versus Asia, even under higher tariffs, continue to support the case, Valero added.

« Mexico turns out to be more competitive or gains some competitiveness versus Asia, » he said.

Cold storage at inland intermodal nodes, expanded short-haul rail spurs and leasing platforms that can scale with OEM assembly growth are among the more immediately investible pockets, executives said.

Technological tailwinds are also emerging. Mendoza flagged autonomous-truck corridors and dedicated logistics zones as likely developments within five years, driven by persistent driver shortages.

Meanwhile, the Al data center boom is amplifying these logistics tailwinds. Massive power demand growth – the first sustained increase in 25 years after decades of flat load – and the need for construction materials and equipment are boosting rail and intermodal volumes, particularly in the Southeast and Gulf Coast, where reshoring manufacturing and digital infrastructure are converging.

Morgan Stanley Infrastructure Partners sees « bullish pulls » in the Gulf and Southeast from power demand driven by both data centers and reshoring activity, said managing director and head of Americas Chris Ortega.

« So I think reshoring, as opposed to nearshoring, in areas that have overall robust growth for a variety of factors, including reshoring, are the places where we’re going to leg in and express that point of view, » he said. « The ability to diligence the duration or the specific impacted trade routes for international trade volumes due to tariffs and geopolitical events is challenging – and I’m not sure how one does that with conviction over a five-plus-year perspective. »

Tom Murray, managing partner at Power Sustainable Infrastructure Credit, agreed.

He sees reshoring creating broad incremental infrastructure demand.

« If you’re going to reshore things … there’s going to be an incremental need for more infrastructure to support that, » Murray said, explicitly including transport and logistics.

With governments facing deficits and competing priorities such as military spending, private capital – including direct lending – is expected to fill more of the gap.

« Private capital is out there looking to put money to work in reasonable risk-return opportunities, » Lapointe said. « Where things are going to struggle to get built is where there is no reasonable risk-return opportunity. »

In a world where geopolitics and trade are becoming fractured and more uncertain, investors may find stability for projects supporting reindustrialization by harnessing long-term public-private partnership financing arrangements, Porcari said.

« Certainly, uncertainty can be priced into the financing and contracts, » he said. « In fact, we are beginning to see tariff clauses written into P3 contracts. »

Congress will adjudicate on STB’s authorization renewal at the end of this year, presenting policymakers an opportunity to tweak legislation for federal loan programs, like the Transportation Infrastructure Finance and Innovation Act and Railroad Rehabilitation and Improvement Financing Program, so that more assets are eligible for such funding, added Porcari, who was port envoy for the Biden-Harris Administration’s Supply Chain Disruptions Task Force and deputy secretary and COO of the US Department of Transportation under President Obama.

Last week, the federal government and its private-sector partners announced huge P3 deals in the power sector – a 10GW gas-fired power generation project with NextEra Energy and a $4.2 billion high-voltage electric transmission initiative with AEP Ohio.

Meanwhile, those who cannot build are buying.

M&A pipelines in rail terminals and related logistics assets remain active, with disciplined buyers waiting for the right fit with existing customer footprints. About eight deals have been announced over the past 15 months, according to various trade news publications covering the sector.

Major Class I railroad mergers are rare due to strict STB oversight, while short-hauls occur only slightly more frequently. Between 2021-2025, each year averaged roughly one to three deals annually, except for 2025, when around six were closed, according to the same sources.

Some of the more notable deals from the last 12 months have been FTAI Infrastructure’s acquisition of Class II Wheeling & Lake Erie Railway in August 2025; Canadian National clinching its deal for Iowa Northern Railway in January 2025; Union Pacific Corporation’s mammoth $85 billion deal for Norfolk Southern Corporation, creating America’s first transcontinental railroad; among others.

A couple of weeks ago, Ridgewood Infrastructure acquired a controlling interest in Sierra Railroad Company, a California-based shortline rail platform – a move that was seen as expanding the platform’s strategic access to key dairy, agricultural, and industrial corridors, as well as interchanges with Union Pacific and BNSF Railway.

Shrugging off SCOTUS tariff ruling

And while the STB is pursuing a more growth-oriented regulatory environment, government also clouded the reshoring narrative when the US Supreme Court struck down the president’s legal justification for his tariff policy.

Yet, private sector executives doubt that move will kibosh reshoring.

Murray said the Supreme Court decision is unlikely to derail the reshoring trend, as national security and supply-chain resilience remain the primary drivers.

« Even with the recent SCOTUS tariffs decision removing or reducing some of the barriers to importing products, the incentives to encourage reshoring, such as federal loan and grant programs, as well as local and state economic incentives, remain, » Porcari said. « The Supreme Court has taken away a primary stick to encourage reshoring, but the carrots remain. »

Reproduit avec la permission de l’auteur.

A previous post suggested that the Gulf War III shock would interact with concerns about private credit exposure to cause banks to tighten lending standards. April Fed and ECB lending surveys were flagged as important markers.

The ECB survey confirms the thesis, showing significant rises in reported and expected credit tightening balances across loan categories – see chart 1. (The Fed survey is expected next week.)

Chart 1

The shock, however, appears to have had an even greater negative impact on the risk appetite of borrowers. An average of expected demand balances fell to a level historically consistent with GDP contraction – chart 2.

Chart 2

With both supply and demand weakening, loan growth may slow sharply, in turn threatening a fall in meagre broad money expansion. Non-financial M3 rose by only 3.3% in the year to March.

Prospective monetary weakness argues for pre-emptive policy loosening but the ECB, following new Keynesian convention, is focused on upside risk to inflation expectations. Expectations measures, unlike money trends, failed to give timely warning of the 2021-22 inflation surge, contributing to policies remaining excessively loose. An opposite mistake may be brewing.

Driven by years of underinvestment, rapid urbanization and the need to adapt to a power-driven, technology-led world, infrastructure spending is a key tool governments use to stimulate economic growth. Regardless of what drives the allocation, civil infrastructure – the systems that underpin essential societal functions – remains a foundational focus of government spending.

The US government’s current focus on infrastructure

The 2021 Infrastructure Investment and Jobs Act (IIJA) is in full swing and will last until 2030 and beyond. The approximately USD1.2 trillion US expenditure bill is allocated to roads, bridges, transport safety, transit, freight, chargers, power and broadband.

Spending on US highways and streets is currently at historic highs, reaching a seasonally adjusted annual rate of approximately $149.5 billion in January 2026. This sector remains a primary driver of public infrastructure growth, bolstered by long-term federal funding. But despite high spending, the American Society of Civil Engineers (ASCE) estimates a $684 billion funding gap for roads over the next decade (2025–2035).

The business cycle is such that architecture and engineering firms gain from the bulk of the work at the onset, executing on planning and design. Then come the bids and proposals on work and equipment, which ultimately fill the backlogs of suppliers and contractors.

The right tools for the job

Based in Downers Grove, Illinois, Federal Signal Corporation (FSS US) manufactures specialized equipment for infrastructure maintenance, public safety and environmental cleaning. The company operates between 24 to 27 principal manufacturing facilities worldwide and directly manages over 40 service centres. Already within our portfolio, the company is one that may be positioned to benefit from infrastructure spending by providing the necessary equipment and technology to support civil infrastructure projects.

Federal Signal’s diversified business groups offer products that serve multiple infrastructure subsectors. The Environmental Solutions Group is the largest manufacturer of dump trucks in the United States. They also manufacture street sweepers, sewer cleaners and industrial vacuum loaders, safe-digging and road-marking equipment. The Safety and Security Systems Group provides technology and systems used by first responders and industrial facilities to protect lives and property.

Federal Signal delivers a comprehensive suite of equipment designed to support a wide range of IIJA-funded project areas, as highlighted in the table below.

Cementing a provider of construction materials

Large scale infrastructure projects such as bridges and transit require longer planning and often are fully realized toward the tail end of the spending period. Global Alpha is positioned through Eagle Materials Inc. (EXP US), an important producer of cement, to strategically capture the roughly USD550 billion allocated for new construction materials.

Eagle Materials possesses regional market dominance: The company’s 70+ facilities are concentrated in the US Heartland, Sun Belt and Mountain West. These inland markets are protected by high transportation costs, which limit competition from cheaper foreign imports.

Between 2024–2025, Eagle invested heavily in modernizing plants like the Laramie, Wyoming facility, increasing cement output by 50% specifically to meet the rise in IIJA-funded municipal projects. Within the same time frame, Eagle converted nearly 100% of its cement capacity to Portland Limestone Cement (or PLC). This low-carbon product is increasingly required for government-funded projects that prioritize environmental sustainability.

Strategically, the company shifted its sales mix toward non-residential and public infrastructure, sectors projected to grow by roughly 5% in 2026, to offset recent softening in the residential housing market.

Global phenomena

Civil infrastructure is being accelerated on a global basis; China spent USD550 billion on transport infrastructure in 2025 alone. Japan just began a USD140 billion mid-term plan for the implementation of national resilience. Global Alpha is exposed to global civil infrastructure buildout through Sany Heavy Equipment International Holdings Co. Ltd. (631 HK).

Hong Kong-listed Sany is the world’s third-largest heavy equipment manufacturer. Their equipment is designed with a focus on being « easy to own, easy to operate and easy to service, » prioritizing essential functionality over excessive technical complexity. The company is also a global leader in concrete machinery, especially after acquiring the legendary German brand Putzmeister. Products include truck-mounted pumps, stationary pumps and concrete mixers. Large-scale engineering contractors account for approximately 45% of Sany’s revenue.

That demand is increasingly coming from outside China: overseas markets now contribute 64% of revenue, led by Africa, where sales surged 55% on the back of infrastructure buildouts. To capitalize on this momentum, Sany has shifted its mix toward infrastructure-heavy “civil works” applications, helping drive a 41% increase in net profit in 2025.

Keeping assets clean, clear and operational

Global Alpha also holds Bucher Industries AG (BUCN SW), a Swiss industrial group that provides specialized machinery and components for essential infrastructure, specifically through its Bucher Municipal and Bucher Hydraulics divisions. Unlike heavy civil construction firms, Bucher focuses on the maintenance, cleaning and operational safety of existing civil assets.

Bucher’s connection to civil infrastructure is primarily functional, ensuring that public and commercial traffic areas remain operational and safe. For sewer and drainage infrastructure, Bucher produces specialized sewer cleaning and water recycling units essential for managing urban water networks and preventing flash flooding on major roadways. Bucher also provides construction site support through its heavy-duty sweepers, specifically engineered to handle the abrasive materials (e.g., aggregate, spoil) found on large-scale infrastructure construction sites.

Civil infrastructure is more than a standalone spending category – it is the operating backbone that enables other critical buildouts, from power and water management to digital connectivity. For Global Alpha, this creates diversified, real-economy exposure to long-duration public investment, spanning both new construction and the ongoing maintenance that keeps cities functioning.

The stockbuilding cycle is a repeating fluctuation in the demand for production inputs and goods for final sale caused by inventories periodically over- and undershooting the level desired by manufacturers and distributors.

The approach here is to monitor the cycle using measures of the rate of change of G7 stockbuilding from national accounts data and business surveys.

The national accounts measure places the last cycle low in Q1 2023, implying that the current cycle is well-advanced – see chart 1.

Chart 1

The business survey measure is more timely and recently crossed below zero, consistent with the cycle moving into a downswing.

The original research on the cycle – by Joseph Kitchin, published in 1923 – used data on commodity prices, bank clearings and interest rates. Kitchin attributed the cycle to “psychological causes”, making no explicit link with inventory behaviour.

The cycle is evident in commodity prices because changes in demand for production inputs affect their price as well as volumes – chart 2.

Chart 2

Tech investors often dismiss the cycle as an “old economy” phenomenon but electronic components are a key production input subject to the same inventory-related demand swings as traditional industrial commodities.

There is no single price index capturing the changing nature of electronic components. However, export prices of key supplier economies are a rough proxy. Chart 3 shows that the annual rate of change of an average of Taiwanese and Korean export prices in US dollars tracks the national accounts-based measure of G7 stockbuilding changes.

Chart 3

Chart 4 overlays the annual rate of change of an average of 12-month forward earnings estimates, showing a similarly significant correlation.

Chart 4

Based on the cycle assessment here, the implication is that momentum of component prices and earnings should be at or close to a peak.

Why could this prove wrong? One possibility is that the current stockbuilding cycle will extend. This cycle is judged to be the last of a set of five constituting the current housing cycle (which began in 2009). Final cycles tend to be longer than the 3.5-year average, with one recent example (1986-91) reaching 4.5 years. The next low, therefore, could be delayed until H2 2027, in turn suggesting a later start to the downswing.

Another counter-argument is that strong demand for components is being driven by an ongoing upswing in the business investment cycle – narrowly focused on AI-related spending in the current cycle – as well as peak stockbuilding. This cycle last bottomed in 2020 and has ranged between 7 and 11 years historically, so the upswing could – in theory – continue for several more years. The thinking here is that the current cycle is more likely to be short, reflecting a long prior cycle (11 years) and a drag from the expected stockbuilding downswing.

L’infrastructure numérique est un sujet de plus en plus souvent abordé dans les discussions sur l’investissement institutionnel. Dans un récent article de Benefits and Pensions Monitor, « Is it time to embrace digital infrastructure? », les directeurs généraux Kaitlin Blainey et Andrew Parkes ont été interviewés dans le but d’exposer la façon dont les investisseurs abordent ce segment en croissance rapide et son incidence sur la construction de portefeuille.

La façon dont l’infrastructure numérique se pose comme complément, et non comme remplacement, des portefeuilles d’infrastructure traditionnels est mise en évidence. À mesure que la demande des investisseurs pour des actifs essentiels de longue durée augmente, l’infrastructure numérique s’harmonise de plus en plus aux caractéristiques défensives et axées sur le revenu longtemps associées à une plus vaste catégorie d’actifs.

L’article reflète également l’importance croissante de l’expertise au-delà de la seule sélection des actifs. L’infrastructure numérique peut jouer un rôle stratégique au sein de portefeuilles institutionnels diversifiés, en particulier lorsque les investisseurs soupèsent les considérations relatives à l’adaptabilité, à la résilience et au déploiement de capitaux à long terme.

Lire l’article complet (en anglais)

« Le monde est en perpétuel changement. » – Sir John Templeton

Peu de domaines illustrent mieux cette réalité que l’investissement institutionnel. Il y a près de trois décennies, j’ai quitté le Royaume-Uni pour m’établir au Canada. Au fil du temps, j’ai été témoin privilégié d’une transformation remarquable du paysage canadien de l’investissement, couvrant les régimes à prestations déterminées (RPD), les fonds publics, les fonds de dotation et les fondations, ainsi que, de plus en plus, les régimes à cotisations déterminées (RCD).

Cette réflexion personnelle ne porte pas uniquement sur ce qui a changé, mais surtout sur ce qui compte réellement : les enseignements que les investisseurs institutionnels devraient retenir.

Investisseurs canadiens en RPD, fonds publics, dotations et fondations

La gouvernance détermine les résultats

Les résultats de placement s’améliorent de façon significative lorsque la prise de décision est protégée des influences politiques ou des promoteurs de régime. L’expérience canadienne en constitue un exemple probant.

En 1997, la création de l’Office d’investissement du Régime de pensions du Canada (aujourd’hui Investissements RPC), en tant qu’entité indépendante opérant à distance des pouvoirs publics, a marqué un tournant déterminant en matière de gouvernance.

Avant cette réforme, le RPC fonctionnait principalement selon un modèle de répartition avec des réserves limitées. La transition a été progressive, initialement financée par les cotisations annuelles et investie surtout dans des actions publiques passives. Toutefois, l’instauration d’une gouvernance indépendante a profondément modifié la trajectoire du fonds, permettant une diversification accrue, une transparence renforcée et une viabilité financière à long terme.

L’élimination des contraintes favorise de meilleurs résultats

En 1996, les investisseurs institutionnels canadiens étaient soumis à la règle du contenu étranger, limitant à 20 % les investissements étrangers dans les comptes à imposition différée. Malgré certaines solutions de contournement, cette contrainte entraînait une concentration excessive dans les actifs canadiens.

Cela exposait les portefeuilles à un risque domestique accru et faisait en sorte que la réglementation, plutôt que les principes de la théorie moderne du portefeuille, dictait les décisions d’allocation d’actifs.

L’abolition complète de cette règle en 2005 a marqué un tournant majeur en permettant une diversification mondiale accrue.

Le risque finit toujours par se matérialiser

Les 30 dernières années ont été marquées par de nombreux chocs : éclatement de la bulle technologique, crise financière mondiale, pandémie de COVID-19, hausses rapides des taux d’intérêt en 2022 et tensions géopolitiques persistantes.

Chaque épisode a confirmé une réalité constante : le risque peut demeurer latent pendant de longues périodes, mais il finit toujours par émerger.

Ces événements ont notamment entraîné :

• une adoption accrue de stratégies axées sur le passif dans les RPD;
• une diversification vers les placements non traditionnels;
• une attention accrue au risque de liquidité;
• une importance grandissante de la gestion tactique et du rééquilibrage.

Gérer le risque, et non seulement l’allocation d’actifs

Les crises successives ont démontré que les problèmes proviennent du risque mal géré, et non d’une allocation d’actifs imparfaite.

Les risques les plus importants sont souvent invisibles dans les cadres traditionnels d’allocation :

Figure 1 : Risques cachés au-delà des catégories d’actif

Cette réalité a favorisé l’émergence de l’approche globale de portefeuille (total portfolio approach), qui considère le portefeuille comme un système intégré plutôt que comme une juxtaposition de catégories d’actif.

L’essor des structures d’investissement déléguées

La pandémie a mis en évidence les limites des ressources internes et la complexité croissante des portefeuilles.

En réponse, plusieurs institutions ont adopté des modèles délégués, notamment le modèle de chef des placements externalisé (OCIO), afin d’améliorer :

• la gouvernance,
• la rapidité décisionnelle,
• l’exécution des stratégies.

Ces plateformes permettent aux investisseurs de se concentrer sur leurs objectifs stratégiques à long terme.

L’investissement responsable s’impose

L’investissement responsable est désormais un élément central des pratiques institutionnelles. Les facteurs environnementaux, sociaux et de gouvernance (ESG) sont reconnus comme financièrement significatifs et intégrés aux processus de placement.

Cette évolution, largement impulsée par les investisseurs, reflète l’importance d’une gestion rigoureuse des risques et de la création de valeur à long terme.

Le trio gagnant : gouvernance, flexibilité et gestion du risque

Au cours de trois décennies marquées par des chocs de marché, des changements réglementaires et des transformations structurelles, le message à l’intention des investisseurs institutionnels est demeuré constant : le succès n’a pas reposé sur une capacité à prévoir parfaitement les marchés ou à optimiser finement la répartition de l’actif, mais plutôt sur la mise en place de cadres de gouvernance capables de reconnaître les risques tôt, d’y répondre avec fermeté et de résister aux périodes de tension.

Lorsque la gouvernance a été solide, que les contraintes ont été levées et que les responsabilités clairement établies, les résultats se sont améliorés. À l’inverse, lorsque les risques ont été ignorés, dissimulés ou reportés, ils ont inévitablement refait surface, souvent au pire moment possible.

Le défi fondamental auquel les investisseurs font face aujourd’hui n’est pas la complexité, mais la responsabilité. La délégation, la diversification et l’investissement responsable sont des outils, non des substituts au jugement et à la surveillance. La gestion du risque exige une vision intégrée du portefeuille, une compréhension des interactions entre les décisions et la capacité de faire évoluer les structures au rythme des marchés.

Les investisseurs ne sont pas récompensés pour leurs intentions, mais pour la qualité de leur gouvernance. Ceux qui priorisent le suivi et la gestion rigoureuse des risques seront les mieux positionnés pour offrir des résultats résilients au cours des prochains cycles de marché et des décennies à venir.

Investisseurs canadiens en RCD

Le coût caché de la simplicité

Dans les années 1990, de nombreux employeurs ont fermé leurs régimes PD aux nouveaux participants, transférant ainsi le risque vers les individus.

Les premiers RCD proposaient des choix simples, mais peu encadrés.

Le risque est bien réel pour les RCD

La bulle technologique a révélé une faiblesse fondamentale : les pertes sont directement assumées par les participants.

Les comportements amplifient souvent le risque :

• désengagement en période normale,
• réactions excessives en période de stress.

Options par défaut et éducation : des éléments essentiels

Les fonds à date cible et les stratégies cycle de vie ont été introduits pour encadrer les décisions et réduire les biais comportementaux.

Le décaissement : la véritable mesure du succès

Les régimes à cotisations déterminées ne réussissent pas parce que les participants prennent leur retraite avec des soldes élevés. Ils réussissent lorsque ces soldes se traduisent par un revenu fiable à vie. Or, les efforts de conception des RCD s’arrêtent souvent à la phase d’accumulation.

Les fonds à date cible sont principalement optimisés pour la croissance des actifs, et non pour la gestion de la transition plus fragile vers la retraite. À mesure que les participants approchent de la retraite, ce déséquilibre devient le risque central.

Contrairement aux régimes à prestations déterminées, les RCD transfèrent aux individus la responsabilité de gérer les risques de longévité, de marché, d’inflation et de séquencement des rendements. Cela rend les années immédiatement avant et après la retraite particulièrement critiques, au moment où les soldes individuels atteignent leur niveau le plus élevé.

En l’absence d’une stratégie de décaissement délibérée, même une épargne disciplinée peut mener à des résultats de retraite décevants. Le décaissement constitue la phase déterminante d’un RCD et représente une responsabilité de gouvernance croissante pour les promoteurs. La manière dont l’épargne est convertie en revenu, ainsi que la durée de ce revenu, détermine ultimement si les participants bénéficient d’une sécurité financière à la retraite.

Des progrès, mais encore du chemin à parcourir

Le marché canadien des RCD est passé d’un simple substitut à faible coût des régimes à prestations déterminées à un système de retraite plus sophistiqué, mais encore incomplet, dans lequel la conception du régime, les solutions par défaut et le décaissement peuvent avoir plus d’importance que le choix individuel.

L’histoire a rendu une leçon incontestable : le risque ne disparaît pas simplement parce qu’il est individualisé. Lorsque les RCD privilégient la simplicité sans cadre structurant, ou le choix sans accompagnement, ils ne donnent pas plus de pouvoir aux participants, ils les exposent davantage.

La véritable responsabilité de la conception moderne des RCD n’est pas de maximiser les options offertes, mais de gérer les risques susceptibles de compromettre les résultats de retraite : les erreurs comportementales, le mauvais moment des décisions et une transition vers la retraite mal encadrée.

Les solutions par défaut, l’éducation réfléchie et des cadres de décaissement délibérés sont les mécanismes qui permettent de transformer l’épargne en sécurité financière à la retraite. En définitive, les RCD ne seront pas jugés en fonction des soldes de compte au moment de la retraite, mais selon le revenu qu’ils procurent par la suite.