Last week, we visited Federal Signal’s flagship manufacturing facility alongside a select group of investors. Touring the plant floor, seeing the latest innovations in action and engaging directly with the teams driving Federal Signal’s record-setting growth gave us invaluable insights that numbers alone can’t provide. This on-the-ground approach reflects our commitment to deep diligence and transparency – values that set us apart in the investment community.

Our group witnessed not only the impressive scale of production, but also the operational excellence and culture of continuous improvement that permeate every corner of the company. From the hum of new automated machinery to the pride in the eyes of long-tenured employees, the visit reaffirmed why Federal Signal remains a leader in its field and a valuable investment.

Vactor Manufacturing production plant in Streator, IL. Source: Global Alpha.

A truck outside the Vactor Manufacturing production plant. Source: Global Alpha.

Another section of the production plant, highlighting other brands produced by Federal Signal. Source: Global Alpha.

A specialized truck produced by Federal Signal. Source: Global Alpha.

Who is Federal Signal?

Federal Signal Corp. (FSS NY) makes specialized vehicles and equipment that help keep communities safe, clean and running smoothly. In simple terms, the company builds things like street sweepers, sewer-cleaning trucks, fire rescue vehicles and emergency warning systems. Their products are used by cities, governments and businesses to clean streets, manage waste, respond to emergencies and alert people to danger.

Federal Signal: A platform built for power and agility

Federal Signal’s story is one of transformation and resilience. Over the past decade, the company has built a powerful platform that combines organic growth, strategic acquisitions and a robust aftermarket business. Since 2016, net sales have grown at a compound annual rate of 13%, reaching a record $1.86 billion in 2024. The company’s ability to scale quickly has been critical in overcoming challenges and seizing new opportunities.

Inside the plant: Innovation, efficiency and teamwork

During our visit, we saw firsthand how Federal Signal’s operational strategies translate into real world results:

Production efficiency: The Streator, Illinois facility set a new record for unit production in 2024, thanks to improved supply chains and process enhancements.

Lean initiatives: The Federal Signal Operating System, including 80/20 programs and lean manufacturing, is driving efficiency, cost savings and reduced lead times across the organization.

Electrification and new product development: The company continues to invest in electrification, with new offerings like the fully electric Broom Bear street sweeper and Rugby Vari-Class dump platform.

Safety and security: The Safety and Security Systems Group (SSG) posted a 7% sales increase, with EBITDA margins rising by 170 basis points, reflecting strong demand for public safety equipment and operational discipline.

These achievements are not abstract – they are visible on the plant floor, in the streamlined workflows and in the pride of the workforce.

Strategic growth: M&A and aftermarket expansion

Federal Signal’s disciplined approach to mergers and acquisitions (M&A) has been a key driver of its growth. Since 2016, about half of top-line growth has come from M&A, with a focus on integrating and strengthening acquired businesses. The recent acquisition of Hog Technologies, a leader in road marking and water blasting equipment, expands Federal Signal’s reach into new geographies and end-markets, such as airports.

The company’s aftermarket business – parts, service, rentals and training – continues to expand, providing stable, recurring revenue and deeper customer relationships. This diversification of revenue streams helps buffer the company against economic cycles and positions it for long-term sustainability.

Positioned for the future: Resilience and opportunity

Federal Signal’s future is bright, supported by a robust backlog, a healthy M&A pipeline and a diversified customer base. The company is well-positioned to benefit from ongoing infrastructure investment, including federal stimulus funds and the bipartisan Infrastructure Bill, which are driving demand for essential equipment like sewer cleaners, street sweepers and safe digging trucks.

A key differentiator is Federal Signal’s ability to adapt – whether by bringing more production in-house, optimizing distribution or leveraging cross-selling opportunities among its brands. The company’s platform approach ensures that every new acquisition and product line strengthens the whole.

What sets Global Alpha apart: The value of being there

Our recent plant visit is more than a symbolic gesture – it’s a core part of our investment philosophy. By engaging directly with Federal Signal’s people and processes, we gain a nuanced understanding of the company’s strengths and opportunities that goes beyond financial statements. This hands-on diligence gives us – and our investors – confidence in the company’s trajectory and our decision-making.

In a world where many rely solely on remote analysis, our willingness to “walk the floor” sets us apart. It’s how we build conviction, spot emerging trends early and ensure we’re investing alongside the best teams in the business.

Conclusion: Moving forward together

Federal Signal’s journey is one of continuous growth, innovation and resilience. As we saw firsthand this week, the company’s success is driven by a powerful platform, a culture of excellence and a commitment to serving customers and communities.

We are excited to continue this journey with you – on the ground, in the field, and at the forefront of industry leadership. Thank you for your trust and partnership.

One of the greatest disruptions in recent years to the global grocery market has been the rising popularity of discount retailers like Lidl and Aldi. The two German-based supermarket chains have expanded rapidly, challenging the incumbent grocery players to rethink their strategies.

Lidl and Aldi have consistently taken market share in key markets. In the United States, Lidl and Aldi had a combined market share of 10% in 2024. It is a similar story in the UK where the two now account for around 18% of the grocery market, up from just 4% in 2008.

Source: Grocery Market Share – Kantar

The recipe for their massive success is well known: a low-cost business model that aims to offer customers high-quality products at lower prices compared to traditional grocery chains.

The Global Alpha team recently added B&M European Value Retail SA (BME LN) to the portfolio to gain exposure to the discount retailer trend. B&M is the UK’s leading variety goods value retailer. The main brand, B&M itself, offers grocery, fast-moving consumer goods (FMCG) and general merchandise in a variety of stores, located in out-of-town, suburban retail parks or, more recently, town centers.

B&M has a similar playbook to when Aldi and Lidl first entered the UK market, with an everyday-low-cost operating model leading to an everyday-low-price offering. Where B&M differs from Aldi and Lidl is that they offer a more targeted range of branded convenience grocery products such as shelf-stable food, soft drinks, confectionery and alcohol, in addition to FMCG categories such as toiletries and cleaning products.

Aldi and Lidl’s success has been built largely on the back of private-label products. Aldi stocks its stores with around 90% private-label products across all categories. B&M sells the well-known brands that families have been accustomed to using for years, sometimes generations, often at a 15% to 20% discount to the traditional grocer. B&M can do this as they have a disciplined approach to which stock keeping units (SKUs) they keep in store. By focusing on the top sellers, the volume demanded for a particular SKU creates buying power and more advantageous buying terms.

An easy way to visualize what B&M offers is to think of the middle aisles of a supermarket. B&M’s offering should be seen as complementary to, rather than a substitute for, a fresh grocery shop. Management has even communicated that some of their better performing stores are located next to an Aldi or Lidl; a customer will shop for fresh or frozen items in Aldi or Lidl, then completes the shopping in a B&M store.

In addition to the focused grocery offering, B&M offers higher-ticket general merchandise products that cover product categories such as homewares, electrical, gardening, toys and DIY. As customers wander the aisles, there is a “treasure hunt” browsing experience that often leads to impulse purchases. The general merchandise products are more aligned to seasonal trading patterns – the spring/summer seasons will see more garden and outdoor living products, whereas the autumn/winter seasons will see more toys and Christmas decorations.

The low-cost sourcing discipline is key to maintaining a price advantage over the competition. The reduced complexity of the supply chain helps keep costs low. Selling no fresh or frozen products means no need for refrigeration or freezers either on the shop floor or in storage areas. There is also less waste and the need to reduce prices to clear fresh produce approaching expiration date. B&M does not have an online or click-and-collect operation. As well as being historically lower profitability than offline purchases, it also adds a layer of complexity.

When shopping for groceries, a little bit of planning can go a long way. B&M has increasingly become a part of the weekly routine for budget-conscious shoppers. B&M will be a long-term beneficiary of the discount retailer trend and shows that growth can be found in “value.”

Like-for-like growth is typically highly profitable and the most desirable form of growth. B&M themselves state that 1% in LFL sales growth is the same as opening over seven new stores, but without the associated capex or increase in fixed costs. This can be achieved by taking a bigger share in existing catchment areas by offering a great value proposition. But B&M has a parallel growth strategy. The company expects to increase store numbers by at least 60% to reach no less than 1,200 B&M stores in the UK. This represents a decade-long growth runway at the current pace of openings. The new stores tend to be larger and often with a garden centre attached, so underlying sales are expected to grow ahead of the 60% increase in stores. More stores equal more volumes and, in turn, greater benefits to buying and productivity.

France is another avenue of growth. B&M entered the French market in 2018 via an acquisition, but all stores now operate under the B&M fascia. B&M currently operates 124 stores in France which has a population like that of the UK where B&M is targeting over 1,200 stores. Despite the upside potential in new stores, the pace of the rollout is slower than in the UK, opening around 10 new stores per year, due to a focus on profitable growth rather than rapid expansion.

The traditional top four UK grocers are not idly standing by while the discounters take market share. Asda was the first to come out and promise price cuts to be more competitive. Tesco PLC (TSCO LN), the market leader, expects a significant reduction in profitability owing to “a very competitive market.” J Sainsbury PLC (SBRY LN) then announced price cuts to compete with Tesco and Asda.

Price war or not, discount retailers are here to stay, and we believe B&M has a long cycle of growth ahead.

“You are what you eat.”

The importance of gut health has been gaining a lot of attention in the last couple of years. There has been research highlighting the importance of gut health and how it contributes to the better overall health of an individual. More research is emerging, but many experts believe that we are still at the tip of the iceberg in terms of understanding the incredible role that the gut has to play in our bodies.

The gut is responsible for breaking down the food that we eat and absorbing nutrients. The trillions of microorganisms that live inside the gut are meant to help boost the immune system, help with weight management and stabilize the body’s blood sugar levels, among many other functions. These microorganisms are impacted by the foods we ingest; eating nourishing whole foods rather than processed foods can promote greater colonization and multiplication of the gut bacteria, improving overall health. Numerous studies have shown that ultra-processed foods – typically high in fat, sugar and additives like emulsifiers – can alter the gut microbiome and trigger chronic inflammation. Since the discovery of the gut microbiota’s role in health, research on how diet affects it has grown significantly.

Ultra-processed foods are industrially manufactured, highly palatable and convenient, but they often have poor nutritional value. Their consumption is especially high in high-income countries where they contribute a substantial portion of daily energy intake. As incomes rise, dietary patterns shift toward these types of foods, leading to increased rates of non-communicable diseases such as obesity, type 2 diabetes and cardiovascular conditions. This rise in disease burden in wealthier nations is closely linked to both changes in diet and lifestyle, including more sedentary behaviour and urbanization.

Given the negative impact of ultra-processed foods on gut health and their association with chronic diseases in high-income countries, there is growing interest in strategies to support and restore a healthy gut microbiome. One such approach is the use of probiotics which are live microorganisms that help increase the diversity of the gut microbiome and enhance overall gut health. With rising consumer awareness of gut health’s importance, probiotics have gained popularity as a vital component of dietary supplements and functional foods. Beyond gut health, probiotics contribute to a stronger immune system.

A significant portion of the body’s immune cells lives in the gastrointestinal tract, and a healthy microbiome is essential for optimal immune function. Probiotics can enhance immune response, reduce the incidence of respiratory infections and may even help manage allergic conditions. Furthermore, emerging research suggests potential mental health benefits linked to the gut-brain axis, indicating that probiotics might help alleviate anxiety and depression symptoms. Among the companies leading this movement, BioGaia stands out due to its strong scientific foundation, innovative products and dominant market presence.

BioGaia

BioGaia AB (BIOGB SS), a Swedish biotechnology company, has positioned itself as a global leader in probiotic development, specifically in the medical-grade and pediatric segments. With over 30 years of research, BioGaia focuses on developing probiotic products based on robust scientific research. Their flagship strain, L. reuteri DSM 17938, is backed by numerous clinical studies demonstrating its effectiveness in treating infant colic, reducing diarrhea in children and improving oral health.

One of BioGaia’s key strengths is its commitment to science and partnerships with academic institutions and healthcare professionals. Unlike many supplement companies that rely on generalized claims, BioGaia ensures its probiotics are clinically tested and validated for specific health conditions. This evidence-based approach has earned the company credibility and trust among pediatricians, dentists and gastroenterologists worldwide.

Additionally, BioGaia has achieved a strong market presence through strategic global distribution. Its products are available in over 100 countries, either under the BioGaia brand or through licensing partnerships with pharmaceutical companies. This extensive reach, combined with a focus on high-quality, well-researched products, has helped BioGaia capture significant market share in the growing probiotics industry.

One of the joys of investing in the world of small caps is discovering a company that has carved out a niche in the most unexpected of markets. Most of these companies go unnoticed as part of a larger value chain, their products often hidden from the eyes of the end consumer. The idea of a “hidden champion” toiling away in deliberate obscurity while quietly dominating a niche sector or technology was first highlighted by renowned management consultant Hermann Simon in his book – “Hidden Champions of the Twenty First Century.”

What is a hidden champion, one might ask? According to Simon, hidden champions have the following three attributes:

1. They are in the top three of their chosen global niche.
2. They generate revenue between $5 million and $5 billion.
3. They maintain obscurity in terms of brand recognition (B2B in most cases).

Some of the attributes that define them are also what makes them successful. The key lessons we can take from observing hidden champions are:

• Ambition: Despite their size, they set extremely ambitious goals. It is market leadership or bust. Goals are invariably long-term focused with decades in mind.
• Specialization: Their preference is both extreme focus and depth of focus. They identify narrow markets and specialize in them.
• Globalization: Their specialization is then unleashed on global markets. They aggressively hunt for new markets and prefer to serve those markets with their own subsidiaries instead of getting tied up with third parties.
• Innovation: Scarcity of resources due to their small size means they need to be much more effective with R&D. Thinking outside the box means you need to innovate not just products, but processes as well.
• Customer closeness: Large customers can be demanding and often want the lowest price. Hidden champions respond by engaging closely with customers. Providing advice and system integration services by closely engaging with customers creates stickiness and deep moats.
• Financing: Most hidden champions are self-financed with ownership that is long-term oriented and conservative with capital allocation.
• Culture: Culture is high performance with more work to go around than headcount. Turnover is low and managers tend to have long tenures.

Hidden champions tend to be everywhere in the world of small caps, including in emerging markets. In our emerging market small cap portfolio, we have a good representation of hidden champions serving a diversity of end markets. Take Hongfa Technology Co. Ltd. (600885 CH), a Chinese company which has carved out a niche in power relays and is the global leader with over 20% market share. Power relays are a crucial component of any electric equipment that is a part of modern life. They convert a low power input into a high power outcome. From home appliances to industrial equipment, alarms and automobiles, its relays form a ubiquitous part of our lives. As the world upgrades its power grids and AI drives higher power consumption, Hongfa’s high-voltage products should see enhanced demand in the coming years.

Similarly, we own a company in Korea called Vitzrocell Co. Ltd. (082920 KS) which is among the top three players globally in manufacturing primary batteries. Primary batteries have high energy densities, a low discharge rate (allowing them to run for 10 years and beyond) and a wide operational temperature range (-55°C–+85°C). This makes them ideal for use in harsh conditions that require extremely high reliability like oil and gas equipment, rockets and utility meters.

Finally, over in India, we own Suprajit Engineering Ltd. (SEL IN), which is the second largest global manufacturer of control cables and third largest manufacturer of halogen lamps. Suprajit makes over 15,000 types of control cables used in passenger vehicles, two- and three-wheelers and off-highway vehicles like tractors and recreational vehicles. Control cables, as the name suggests, transmit control signals to control equipment versus power cables that transmit high voltage power.

Suprajit is the textbook example of a hidden champion with their stated goal of being a leader in control cables, growing a global manufacturing footprint, deep relationships with leading OEMs and nimble, low-cost R&D efforts leveraging talent in India. With most of global manufacturing now located in emerging markets, we see a landscape littered with hidden champions waiting to be uncovered.

President Trump’s spree of tariffs has incited many global leaders to respond in kind by imposing their own tariffs on US exports. But not all leaders have been pulled into the tit-for-tat game. Mexico and Brazil’s economies depend on trading relationships with the United States and their leaders have employed different strategies with which to respond to Trump’s tariffs.

Mexico

The United States is Mexico’s largest trading partner by far. Mexico was the second-largest destination for US exports and the top source of US imports. In 2024, Mexico exported an estimated USD505.9 billion: over 80% of total Mexican goods exports were to the United States and over 40% of total Mexican goods imports were from the United States.

Mexico’s largest exports to the United States include vehicles and automotive parts, followed by electrical equipment like computer data processing units, as well as medical instruments and fruits and vegetables. Given the relationship between the countries, Mexican President Claudia Sheinbaum has a crucial part to play to reduce impacts.

President Trump threatened Mexico with tariffs if there was no increase in effort to reduce fentanyl trafficking. Mexico responded by placing 10,000 troops at the border to reduce drug trafficking and illegal entry, but did not react with reciprocal tariffs, unlike China and Canada. We believe this has played well given that the United States has not implemented any additional tariffs, whereas other countries received a range of 10% to 49%.

Sheinbaum is prioritizing a commercial relationship with the United States and Trump has adopted a warmer tone with Sheinbaum than with foreign leaders who have matched his confrontational style. This strategy has been received well not only by Trump, but by Mexico’s citizens – Sheinbaum’s popularity has surpassed that of previous Mexican leaders.

A company we like in Mexico is Bolsa Mexicana de Valores, S.A.B. de C.V. (BOLSAA MX). Bolsa is a Mexico-based stock exchange operator that functions as an integrated and organized market for equities, financial derivatives and OTC fixed-income instruments. It has access to custody, clearing and settlement of transactions and the sale of information.

The company generates over 50% of revenue through transaction fees. Bolsa should be seeing benefits, given the volatility of the market and the high volume of transactions as investors try to capitalize.

Brazil

The United States’ total goods traded with Brazil was an estimated USD92 billion in 2024, and imports from Brazil in 2024 totaled USD42.3 billion. Industrials comprised over three quarters of Brazilian exports to the United States. Key industrial products exported include crude oil, aircraft, coffee, cellulose and beef.

Brazilian President Luiz Inacio Lula da Silva (also known as “Lula”) has been in a tough spot. As the trade fight escalates between Brazil’s two largest trading partners, Lula does not want to have to choose between China or the United States. China has been Brazil’s largest trading partner for the last 15 years and this relationship has only grown.

The United States has implemented just 10% tariffs on Brazil. Lula has not retaliated, which we believe has worked in his favour, and recent approval ratings reaffirm.

A company we like in Brazil is Vivara Participações S.A. (VIVA3 SA). Vivara is the largest jewelry player in Brazil. The company sells jewelry, watches and luxury accessories under two different brands: Vivara and Life.

Vivara has unparalleled scale, doubling their store footprint since 2018 with 265 Vivara and 180 Life stores representing 20% market share. The next four jewelry players represent a total of 6%, and the remaining smaller players represent 74%. Vivara has built all its production steps vertically, manufacturing ~80% of products sold. Vivara’s main production facility is in the Free Economic Zone of Manaus where it benefits from certain business tax incentives. The company currently trades at a P/E ratio of 7x which is half the multiple that its global luxury jewelry peers trade at.

Nobody is as opiniated as a fan of a particular sport team. This probably explains why there exist so many metrics for any given professional sport: to justify why your team is the better team. Despite multiple millions of data points now gathered per baseball game, no one seems to be replicating the success of the Moneyball story, but that doesn’t stop fans from spending hours upon hours analyzing data in an attempt to make a quick dollar from sports betting.

Sports betting was legalized in the United States in 2018 after the Supreme Court decision to strike down the Professional and Amateur Sports Protection Act (PASPA). Since then, 39 states have legalized sports betting, and that number is expected to reach 45 in the next two to three years. The US market therefore represents a large opportunity compared to the more mature international markets:

• In 2024, Americans legally wagered $150 billion on sports, up from $121 billion the year before.
• 95% of all sports bets placed in 2024 were placed via mobile phone apps.
• 80% of bettors are between the ages of 21 and 54, and over half of the bettors hold a bachelor’s degree or higher.
• Canada sports betting penetration rate is close to 50% versus the United States at 11%.

Modern sports betting is much more data-driven and real-time than it was just 10 years ago when the majority of bets were simply on which team would win. Now, more than half of bets are made during the games (in-play betting) and can be made on virtually anything from coin toss (NFL), first foul (NBA) or number of fights (NHL). This new breadth of betting requires robust data integrity and is therefore why industry stakeholders must rely on a single source of truth (read: data providers).

“Without data you’re just another person with an opinion.” – W. Edwards Deming, Statistician

The professional sports data-aggregation business is essentially a duopoly run by Sportradar Group AG (SRAD US) and Genius Sports Ltd. (GENI US), and Global Alpha is a shareholder of both. These two companies offer B2B data and technology solutions for the sports industry. The core of their business models is to hold streaming rights and exclusive data acquisition for specific sports leagues that are then sold to sportsbook operators like DraftKings and Flutter. They also offer solutions back to sports leagues, teams and broadcasters such as data analytics and insights, as well as augmented display and data overlay or even odds creation.

The lucrative reason for their existence is straightforward: the technology platforms used to collect, clean and aggregate live data require specific expertise that sports leagues do not possess and would be expensive to replicate; it is much easier for leagues to outsource to SportRadar and Genius Sports and benefit from the materially increased consumer engagement as well as royalties.

SportRadar was founded in 2001 and was one of the first online live sports statistics data collection websites. Its initial public offering (IPO) happened in 2021 and it owns rights to the NBA, NHL, MLB, F1 and the European Football League.

Genius Sports is the new(er) kid in the industry, resulting from a merger of Betgenius and SportingPulse in 2016 to create a direct competitor to SportRadar. It owns data rights to NCAA, NASCAR, NFL, PGA Tour and European Basketball.

These two companies check many of the boxes we look for when investing:

• The majority of revenue is steady, predictable and globally diversified.
• A net cash position and resilient balance sheet allowing for flexibility and potential M&A.
• A large growing market with catalysts for accelerated growth.
• A competitive advantage that is unlikely to be challenged over our investment period.

Between the two companies, SportRadar and Genius Sports own the official rights to virtually all major western sports leagues. Furthermore, they have been developing other angles for partnering with leagues beyond just distribution of data and they’re progressing toward becoming their technology arms. Through their data aggregation and technology solutions, the US sports-betting players are poised to grow and with plans for future innovation, they look to be investments you could bet on.

Since taking office in January, the Trump administration has attacked the wind and solar energy industry. It withdrew the United States from the Paris climate agreement and rolled back the Inflation Reduction Act (IRA).

President Donald Trump took swift action on the first day of his second term. He paused federal permits and leasing for onshore and offshore wind projects and ordered a review of existing leases. On April 17, he went even further and blocked work on a wind project already in progress off the shores of New York State.

This is not a new direction for President Trump.

In January 2018, the first Trump administration put a 30% tariff on solar panel imports. Despite the challenges, the federal Investment Tax Credit (ITC) remained in place and the solar energy industry continued to grow. However, amid much confusion in the tariff announcements and rollbacks of the last few weeks, solar cells were not exempted from US tariffs and are now subject to tariffs that range from 50% to 3,521%. If we add the 25% tariffs on steel and aluminum imports, the cost of installing solar energy has increased dramatically.

Why is this important?

In the last two decades, the growth in both US oil and gas production and in renewables made the United States an energy superpower that enjoyed a competitive advantage over most countries.

Electricity prices for enterprises worldwide in March 2024, by country (in USD per kilowatt-hour)

UK	0.52	Mexico	0.19
Italy	0.43	Canada	0.14
Singapore	0.32	India	0.12
Japan	0.19	Brazil	0.11
France	0.18	China	0.09
USA	0.14

Source: Statista

However, in the last few years, with the reduction in costs for solar and wind energy, the cheapest additional kilowatt of electricity is wind-powered, closely followed by solar (taking into account capital cost, operating costs and efficiency). The advantage the United States is currently enjoying will disappear fast and become a disadvantage by 2035 – possibly before.

It is already a major disadvantage compared to China.

While the United States backtracks, China is accelerating, installing more wind and solar power last year than ever before. The nation built capacity for 357 gigawatts (GW) of solar and wind power generation, a 45% and 18% respective increase over what was operating at the end of 2023, according to China’s National Energy Administration. That is equivalent to building 357 full-sized nuclear plants in one year.

The United States also had a record clean energy installation in 2024, supporting millions of jobs. Although less than China, it built capacity for 268 GW of solar and wind energy, according to preliminary numbers from the American Clean Power Association.

With the restrictive legislation put in place by the administration, the impact of tariffs, the complexity of multiple jurisdictions, as well as multiple grid operators with complex interconnections, the cost to install a GW of solar or wind power in the United States is now among the highest in the world: twice that of the UK or Germany and over 400% more than in China.

As the share of renewables in total electricity generation increases, the United States will soon face some of the highest electricity costs in the world. This, at a time when demand is increasing significantly – driven by AI, data centres, warming temperatures, etc. – will prove to be costly.

Let us examine how various countries and region are investing in renewables:

Europe

The Ukraine war was an enormous shock for Europe. About a quarter of the energy Europe consumes comes from natural gas and before the Ukraine war, much of that gas came from Russia. Europe needed a new source of gas quickly. It built LNG terminals and increased its imports from the United States, Norway and Qatar. As a result, Russia’s natural gas now accounts for less than 12% of Europe’s imports.

High energy prices pushed Europe to accelerate the green transition. Renewables doubled as a share of EU energy consumption from 2004 to 2022 but still accounted for only about 20% of total consumption.

In 2023, the EU increased its 2030 target for renewable energy from 32% (set in 2018) to 42.5%. By easing regulations surrounding new projects, it should reach that target ahead of the deadline.

EU countries invested over €110 billion in renewable energy generation in 2023 – ten times more money than it invested in fossil fuels. The EU wants to end its dependence on foreign sources.

Investment in the energy transition ($ billion), by region

Source: Bloomberg NEF. From 2020, grid investments are added.

Solar power is booming in Asia and Europe
Total installed solar power capacity

Source: IRENA 2024

What about China?

Clean energy contributed a record 10% of China’s GDP in 2024, represented 40% of the economic growth in China and overtook real estate sales and agriculture in value. China’s 2024 investment in clean energy alone was close to the global total invested in fossil fuel and was similar in size to Saudi Arabia’s entire economy.

China’s investment in solar power capacity has risen 10-fold in five years
Value of investments in new clean power capacity, billion yuan

Source: CREA analysis for Carbon Brief.

Solar and other clean energy sources have gone global in the past decade. In 2010–2015, 70% of solar and 50% of global wind installation occurred in developed economies. By 2023, these proportions had fallen to just over 20%. The United States now represents only 7% of the global market for newly installed solar power plants. The EU is around 12% while the rest of developed economies is around 47%.

The United States has imposed tariffs on imports from China for a long time. As a result, most of the United States’ clean energy supply now comes from Southeast Asia which was just imposed new tariffs of up to 3,521%. Only 4% of China’s total exports of solar power and wind power equipment and electric vehicles (EVs) go to the United States. Almost half of China’s export of clean energy products now go the Global South.

So, despite what looks like a step backward in the United States, the rest of the world is moving on.

According to the IEA (International Energy Agency), global renewable electricity generation is forecast to climb to over 17,000 TWh by 2030, an increase of almost 90% from 2023. This is more than the combined total power demand of China and the United States projected for 2030. Over the next six years, several renewable energy milestones are expected:

• In 2024, solar and wind generation together surpassed hydropower generation.
• In 2025, renewables-based electricity generation overtakes coal-fired.
• In 2026, wind and solar power both surpass nuclear.
• In 2027, solar electricity generation surpasses wind.
• In 2029, solar electricity generation surpasses hydropower and becomes the largest renewable power source.
• In 2030, wind-based generation surpasses hydropower.
• In 2030, renewable energy sources are used for 46% of global electricity generation.

How do Global Alpha portfolios participate in the clean energy boom?

Over the last fifteen years, Global Alpha has always had investments that benefit from the growth of renewable energy. We have written numerous weekly commentaries on the topic and our exposure, all of which are available on our website under the Insights tab. Below are a few of our current holdings.

Ormat Technologies Inc. (ORA US)  is a holding in our Global, International and Global Sustainable funds and has been profiled numerous times in our weeklies. Ormat is a global leader in geothermal power, recovered energy and solar energy, as well as energy storage solutions.

Nexans S.A. (NEX FR), a holding in our international small cap portfolio, is a leading global player in sustainable electrification, supplying high-voltage transmission cables.

Nextracker Inc. (NEX US) is a holding in our global sustainable small cap portfolio and is a global leader in intelligent, integrated solar tracker and software solutions used in utility-scale and distributed generation solar projects.

Mentioned earlier, the Global South and emerging markets are now the fastest growers in the renewable energy market. In our emerging market small cap portfolio, we own many companies benefiting from that growth.

One example is Cenergy Holdings S.A. (CENER GR). Cenergy is a global leader in energy transmission infrastructure, and a competitor of Nexans, highlighting the synergies between our research analysts and opportunities created by our thematic overlay.

As the global economy contends with mounting climate-related losses – over USD600 billion in insured damages over the last two decades – the investment case for climate adaptation is gaining strength. From flooded subways in New York and burnt-out neighborhoods in California, to drought-stricken farms in Europe and storm-ravaged coastlines in Japan, major environmental disasters are no longer fodder for movies, and the costs to rebuild are no longer abstract.

In the United States alone, hurricane Milton and Helene in 2024 were amongst the costliest hurricanes in US history, at approximately USD35 billion and USD80 billion in damages respectively, while Canada’s wildfires in 2023 became the most expensive on record for the country, with damages surpassing $1 billion.

The future also holds a sobering reality: insurance claims are likely to rise in regions that were once considered “safe.” In fact, properties along Florida’s eroding shorelines are beginning to lose insurability altogether as entire homes inch closer to the sea with every storm surge. Meanwhile, infrastructure around the world faces the stress of extreme heat, intense rainfall and prolonged droughts, putting pressure on insurers, governments, and private capital to respond.

While mitigation (reducing emissions and overall environmental impact) remains essential, adaptation (making systems more resilient to the physical impacts of climate change) is emerging as an investable trend. For long-term investors, this shift presents an opportunity to capture growth, hedge risk, and align capital with real-world resilience.

Companies that help communities, infrastructure and ecosystems adapt to physical climate risks are unlocking new growth markets while also de-risking their operations and strengthening their long-term resilience. For investors, these businesses represent not only defensive plays but also strategic exposure to rising demand for resilient systems in sectors like water, energy, agriculture and construction.

At Global Alpha, we aim to capture these adaptation-driven opportunities across our small cap portfolio. Several of our holdings are actively contributing to building climate resilience from various angles including conservation, advisory services and infrastructure.

Valmont Industries Inc. (VMI US) offers advanced adaptation solutions for the agricultural sector. As climate change intensifies, the demand for efficient water management and resilient farming practices grows. Valmont’s innovative irrigation technologies, such as their Valley® centre pivots and remote monitoring systems, help farmers optimize water usage, enhance crop yields and reduce operational costs. These solutions not only support sustainable agriculture but also position Valmont as a key player in addressing the challenges posed by climate change.

Mueller Water Products Inc. (MWA US) develops smart water infrastructure, including leak detection and pressure management solutions. These technologies help cities reduce water loss, extend infrastructure lifespan, and ensure a stable supply of clean water – all essential in the face of increasing droughts and floods. By investing in smart water technologies, Mueller enables communities to make informed decisions and prioritize spending on critical assets, thereby enhancing resilience against climate-related challenges.

Montrose Environmental Group Inc. (MEG US) captures opportunities by providing end-to-end solutions for environmental risk management. From air and water quality monitoring to remediation and climate risk advisory, Montrose helps clients adapt operations to a changing climate. Their expertise in climate risk assessment and sustainability advisory helps clients navigate the complexities of climate adaptation, ensuring resilient and sustainable operations

Casella Waste Systems Inc. (CWST US) plays a critical role in climate adaptation by delivering resilient waste management and recycling services. From post-disaster clean-up to ensuring service continuity in rural and underserved areas, Casella helps communities recover quickly and maintain public health as climate-related events grow more frequent.

Rockwool A/S (ROCKB DC) supplies stone wool insulation that improves energy efficiency and helps buildings withstand extreme heat, fire and moisture. As the built environment faces growing physical risks, Rockwool’s products contribute directly to urban structural climate resilience.

Investors should consider these companies as part of a diversified portfolio aimed at capitalizing on the growing demand for climate adaptation solutions. By investing in firms that prioritize resilience, investors can not only mitigate risks but also drive sustainable growth and long-term value.

The stock market experienced significant volatility last week due to escalating trade tensions following President Donald Trump’s announcement of new tariffs aimed at reducing the US trade deficit. These tariffs were implemented on April 2, 2025 – a day referred to as “Liberation Day” – leading to widespread market reactions across developed markets globally.

The technology sector for both large and small caps were among the sectors most adversely affected during this period. Technology stocks faced substantial declines, with companies like Tesla and Nvidia experiencing drops of 36% and nearly 20% respectively, over a two-day span. Industrials and consumer discretionary also suffered notable losses, as companies within these industries are often sensitive to trade policies and global economic conditions.

In contrast, defensive sectors such as consumer staples, healthcare and utilities showed resilience. These sectors tend to be less sensitive to economic cycles and trade fluctuations, providing a buffer during periods of market volatility.

The new US tariffs could reduce global GDP growth by 50 bps, with a 100-150 bp drag on US growth, a 60 bp drag on Asian growth and a 40-60 bp drag on Euro-area growth. It is expected the US administration will negotiate country-specific comprehensive packages involving trade, defense, energy and immigration. The aim is de-escalation in the global trade war over the coming weeks and months, though negotiations with China will likely prove difficult, given the geopolitical tensions between the two countries.

Global Alpha will continue to monitor the effect of tariffs on the companies it is invested in. From supply chain to end consumer, the ripple effects are multi-factor dependent. Can production relocate? Is it a service or a good?  Where are competitors located? Can the buyers absorb the price increase? And ultimately, what is the demand destruction?

The length of tariffs is also unknown as we recently saw with Vietnam which offered to remove tariffs less than 48 hours post Liberation Day. Nike re-couped half its losses on the announcement.

Presently, our largest exposure to tariffs is the aluminum company Alcoa Corp. (AA US) with 50% of its Canadian production destined to the United States with no real US substitution. The company estimates that a car price tag will increase by $1200 from aluminum alone. If tariffs persist, on-shoring plans could re-surge.

On-shoring will continue to accelerate whether tariff induced or not. Political tensions are only increasing and productivity will continue to rise and automate. In fact, we may be on the verge of one of the largest productivity gains in recent times through the realization of a theme society has dreamt of for a long time: humanoid robotics.

In our discussion with companies, we can start seeing mid- to near-term plans to use humanoid robots. Tesla’s development plans for the Optimus humanoid robot begins with progression of human-superior autonomous driving by Q4 2025 (sensorial decision making). Following that step would be the replication of that technology in humanoid robots. The first launches of the Optimus Robot in the logistics sector are planned for Q1 2026. With this plan, it is easy to imagine Mr. Musk telling President Trump that his industrial labour shortages will be solved in the mid-to-long term.

The global humanoid robot market size was valued at USD 2.4 billion in 2023 and is projected to grow from USD 3.3 billion in 2024 to USD 66.0 billion by 2032, exhibiting a CAGR of 45.5% during the forecast period. Asia Pacific dominated the humanoid robot market with a share of 42.0% in 2023.

The wheel-drive version (versus biped) segment held the highest market share of 65.6% in 2024 and an even higher market share in real-use cases; the biped is still in its infancy when addressing performance.

In 2022, Elon Musk suggested that the Optimus robot could eventually be priced at around $20,000 to $30,000 per unit when mass production begins. This price range is based on Musk’s vision for the robot to be affordable, allowing widespread adoption and possibly replacing some human labour in industries like manufacturing, logistics and even home use.

The Optimus robot is designed to resemble a human in both appearance and movement. It stands 5’8” tall (around 173 cm) and weighs about 125 lbs (approximately 57 kg).

Global Alpha is a shareholder of GXO Logistics Inc. (GXO US)

GXO is a global leader in supply chain solutions and logistics services. The company focuses on providing advanced logistics capabilities for customers across a variety of industries, including retail, e-commerce, consumer goods, automotive and technology. GXO operates with a strong emphasis on innovation and technology, aiming to enhance efficiency, optimize operations and improve customer service through automation, robotics and artificial intelligence.

Today, GXO is a leader in the implementation of traditional robots like autonomous mobile robots (AMRs) or robotic arms. However, the company is likely to continue exploring humanoid robots as the technology evolves.

Key areas of GXO:

1. Warehouse management: GXO operates large-scale, automated warehouses that utilize sophisticated technology to manage inventory, order fulfillment and distribution. This includes the use of robotics, AI and data analytics to improve efficiency and accuracy in managing supply chains.
2. E-commerce fulfillment: GXO specializes in providing logistics services for e-commerce companies, including fast order processing, picking, packing and last-mile delivery solutions.
3. Transportation and distribution: The company offers end-to-end transportation management services, optimizing routes and using data-driven systems to improve fuel efficiency, delivery time and cost-effectiveness.
4. Cold chain logistics: GXO also manages cold storage and temperature-sensitive goods, offering specialized logistics solutions for food, pharmaceuticals and other perishable products.

GXO is exploring humanoid robots for:

1. Assistive tasks in warehouses: Humanoid robots are being developed with the potential to assist in warehouses with tasks that require human-like dexterity and mobility. They could perform tasks like sorting, packaging and even delivering materials across different sections of a warehouse.
2. Customer service: Humanoid robots might also be used in customer-facing roles within logistics operations. For instance, they could assist with customer queries or provide support in retail environments where GXO provides fulfillment services.
3. Human-robot collaboration: GXO, like other companies in the logistics and supply chain sector, is likely to focus on robots that complement human workers rather than replace them entirely. Humanoid robots can be deployed in environments where human workers are still essential, but can be augmented by automation to handle repetitive or physically demanding tasks.

Global Alpha also owns Kerry Logistics Network Limited (636 HK)

Kerry Logistics is a Hong Kong-listed third-party logistics (3PL) provider offering a comprehensive range of supply-chain solutions. Their services include integrated logistics, international freight forwarding (air, ocean, road, rail and multimodal), industrial project logistics, cross-border e-commerce, last-mile fulfillment and infrastructure investment. With a presence in 59 countries and territories, Kerry Logistics has established a solid foothold in many of the world’s emerging markets. ​

Incorporating robotics into their operations has significantly enhanced Kerry Logistics’ efficiency and profitability. For instance, in 2023, they implemented the “KOOLBee” sorting robots across facilities in Hong Kong, Tianjin and Dongguan. These intelligent and flexible robots increased overall sorting productivity by 270%, enabling the company to meet the growing demands of fashion e-commerce fulfillment. ​

Additionally, in 2021, Kerry Logistics introduced “KOOLBotic” robotic arms dedicated to cold chain logistics in the food and beverage industry. These robotic arms improved sorting productivity by 20% and allowed operations to run 20-hour shifts in low-temperature environments, effectively reducing human contact during the pandemic. ​

By integrating such robotic solutions, Kerry Logistics has not only boosted operational efficiency but also enhanced its capacity to handle large volumes and meet customer expectations, thereby positively impacting profitability.

Although we are excited by the prospect of humanoid robots, the early stages of the technology keeps us from integrating their commercial viability in our financial assumptions.  It is a question of “when,” not “if.” These themes continue to provide us with opportunities and earnings growth in our investment universe.

In early March, our emerging markets team traveled to Jakarta, Indonesia. Given the political transition following the presidential election last year and ongoing macroeconomic headwinds, we sought to assess the market firsthand. For bottom-up investors, Indonesia has long been one of the most promising equity markets in Emerging Asia, and despite near-term challenges, we continue to see compelling long-term investment opportunities.

Jakarta can be a difficult city to navigate, but with the onset of Ramadan, the usual congestion was noticeably lighter, allowing us to efficiently move between meetings. As the world’s largest Muslim-majority country, Indonesia experiences notable shifts in consumer behavior and urban activity during the holy month. While moving around the city, we were particularly impressed by the quality of Jakarta’s road infrastructure, which, in many areas, exceeds what we have seen in the capitals of more developed countries. The improvements in connectivity and urban planning are a testament to Indonesia’s infrastructure investments over the past decade. Over the course of the week, we met with companies across the consumer, healthcare, real estate and industrial sectors, gaining valuable insights into the country’s evolving economic landscape.

A recurring theme in our discussions was the growing fragility of the Indonesian consumer, particularly in Java, the most economically and demographically significant of Indonesia’s 17,000 islands, accounting for 56% of the population and 57% of GDP. Over the past few years, real wage growth has lagged inflation, eroding purchasing power across all income segments. However, while businesses serving the urban middle class are experiencing a notable slowdown, some ex-Java regions have shown resilience, benefiting from recent minimum wage increases, social aid for low-income groups, commodity-linked employment and past infrastructure investments.

This consumer sentiment is most evident in downtrading, as households opt for cheaper alternatives across food, personal care and general merchandise. A notable trend has been the shift away from multinational companies, such as Unilever, in favour of more affordable local alternatives that offer comparable quality at lower price points. Companies in healthcare and discretionary retail are reporting lower volumes, even as premium segments remain more stable. Our meetings and channel checks confirmed that consumption weakness among middle-income consumers is entrenched, creating a challenging near-term outlook for businesses exposed to domestic demand.

The continued depreciation of the rupiah adds to the pressure. The currency is among the worst-performing in Asia year to date, despite active central bank interventions. Foreign investors have pulled USD1.8 billion from Indonesian equities this year, and on March 18, the Jakarta Composite Index triggered a trading halt after a 5% intraday drop, highlighting nervousness in the local market.

Although the new government has set ambitious economic targets, many investors remain cautious about execution risks. President Prabowo has announced a goal of achieving 8% GDP growth, a level Indonesia has not seen since 1995. With structural constraints and weak private sector investment, breaking out of the 5% growth range recorded in recent years remains a significant challenge.

One of the government’s most ambitious initiatives is the Danantara Sovereign Wealth Fund, designed to consolidate state-owned assets and fund strategic projects. Danantara has a goal of reaching USD900 billion in assets under management, which would make it one of the largest sovereign wealth funds globally. However, questions remain about its governance, transparency and the potential impact on state-owned enterprises (SOEs). With Danantara expected to rely on SOE dividend payouts, banking and energy sectors could see their capital allocation priorities altered.

At the same time, the government’s pivot away from infrastructure spending raises concerns about long-term economic sustainability. Over the last decade, Indonesia’s growth has been supported by significant public infrastructure projects, such as the Trans-Java Toll Road, which improved connectivity and regional economic development. The decision to reallocate resources toward populist policies, such as the free school meal program, has introduced fiscal uncertainties, particularly as recent revenue collection fell short of expectations.

Implementing free school meal programs has proven effective in combating malnutrition and improving educational outcomes in various countries. For instance, India’s Mid Day Meal Scheme, which serves nutritious lunches to over 97 million children daily, has led to increased school attendance and a 31% reduction in anemia prevalence among adolescent girls. However, executing such an initiative across Indonesia’s vast archipelago presents significant logistical challenges. Ensuring the consistent distribution of fresh meals to remote and diverse regions requires substantial infrastructure and coordination efforts.

Beyond economic policies, we noted concerns about the rising military presence in government institutions, a development that some investors worry could signal a shift toward a more centralized power structure. While Indonesia has undergone remarkable democratic progress since the fall of Suharto’s authoritarian rule in 1998, memories of military-dominated governance still linger. While this shift has raised alarms among some observers, it is important to distinguish today’s political landscape from the Suharto era, as institutional limits on military influence have since been established.

For foreign investors, rule of law, policy predictability and strong institutions remain critical factors in assessing investment opportunities. Any perception of reduced transparency or shifts away from a market-driven economy could weigh on investor sentiment. While the trend warrants monitoring, fears of a full-scale return to military-dominated governance appear overstated.

Despite macro headwinds, Indonesia continues to offer structural advantages that make it one of the most attractive long-term investment destinations in Emerging Asia. With a population of over 270 million and a median age of just 30, the country remains one of the largest and youngest consumer markets globally.

Amid the macroeconomic pressures, healthcare remains one of Indonesia’s most resilient sectors, driven by rising demand and structural under-penetration. The country’s healthcare expenditure stands at only ~3% of GDP, one of the lowest in ASEAN, with the doctor and hospital bed ratios per 1,000 inhabitants (0.7 and 1.2, respectively) remaining well below the global average. The positive demographic trend and government-backed healthcare program (BPJS Kesehatan) continue to support patient volumes, with private hospital networks benefiting from both scale efficiencies and growing intensities. As Indonesia works to improve access to quality healthcare and expand private insurance adoption, the sector presents compelling long-term growth potential, even in a more challenging economic environment.

Indonesia has demonstrated resilience through past economic cycles, maintaining a relatively strong external position with foreign exchange reserves of approximately USD155 billion and government debt at ~39% of GDP. In 2024, the country recorded a current account deficit of 0.6% of GDP and a fiscal deficit of 2.3% of GDP, both within a manageable range for an emerging market. From a valuation perspective, Indonesian equities are now trading at very compelling levels, with the Jakarta Composite Index (JCI) at ~11x forward P/E, roughly two standard deviations below its 10-year average.

Source: Bloomberg

If global monetary conditions ease, Indonesia could be well-positioned for a rerating.

In this environment, stock picking is key. We continue to focus on companies with strong pricing power, resilient demand drivers and long-term structural advantages – qualities exemplified by our holdings in Sido Muncul and Mitra Adiperkasa.

Industri Jamu Dan Farmasi Sido Muncul Tbk PT (SIDO IJ) is Indonesia’s leading producer of traditional herbal medicines and functional beverages. Its flagship brand, Tolak Angin, is synonymous with natural flu and cold relief, commanding a market share of 72% in the herbal cold symptoms product category and enjoying strong consumer loyalty and premium pricing power while remaining a staple of Indonesian households. The company’s vertically integrated supply chain improves cost efficiency, further strengthening its margin resilience in an inflationary environment. Unlike many consumer goods companies that face pressure from rupiah depreciation, Sido Muncul is largely insulated from currency volatility as its raw material sourcing and key input costs are primarily local. With a net cash position and ~7% dividend yield, Sido Muncul combines defensive qualities with long-term structural growth, supported by expansion into functional beverages and overseas markets.

Mitra Adiperkasa Tbk PT (MAPI IJ) is Indonesia’s largest specialty retailer, operating a diverse portfolio of global brands, including Zara, Sephora, Nike, Starbucks and Apple (via authorized retail partnerships). The company benefits from strong pricing power through exclusive brand partnerships and a premium positioning, which allows it to maintain healthy performance even in softer consumption periods. While mass-market retail faces headwinds, Mitra Adiperkasa is well-positioned in the more resilient mid-to-premium consumer segment. Its long-term structural advantages stem from strong brand relationships, a well-executed omnichannel strategy and a track record of navigating economic cycles, making it a long-term winner in Indonesia’s evolving retail landscape.

Indonesia is experiencing a challenging economic transition, but its long-term structural advantages remain intact. Our Indonesian holdings are positioned for strong business fundamentals despite macro volatility.