At Phoenix, where we manage Aurora UK Alpha, we buy bargain stocks that sit well below what we think they are worth, then hold, often for years, while that value is recognised. We look for businesses with enduring demand and the strength to serve it better than their rivals, run by people we trust with our capital.

Markets have a habit of paying up for excitement and marking down neglect. Today the excitement is AI and the neglect is much of the British stock market. We have no doubt that AI will reshape economies and business in the future. But how much a technology matters and what investors earn from it are different things. Railways changed the world, but ruined many who funded them.

Here are three examples of bargain stocks for UK investors to consider.

Three bargain stocks for your portfolio

Frasers (LSE: FRAS) grew from a single sports shop into one of Britain's largest retailers, spanning Sports Direct, Flannels and a stable of other brands it either owns or has partnered with. Retail is unforgiving and Frasers thrives in it for two reasons. It is the lowest-cost operator, so it can sell at prices rivals cannot match and still earn high profits. And it never stands still: it experiments, expands what works and stops what doesn't, so it constantly evolves with the consumer. The market treats Frasers as if it were a shop exposed to the high street's decline. We see a capital allocator that happens to sell trainers, expertly navigating a changing environment and compounding capital for the past 40 years.

Barratt Redrow (LSE: BTRW) is Britain's largest housebuilder. Housing is a basic need and decades of undersupply have left the country short of homes. Housebuilding is less risky than it looks. Builders buy land, build and sell, pricing each plot to leave their margin intact after building costs. When the market turns, land prices fall to restore that margin. The risk in the cycle is largely borne by landowners, so builders' cash returns remain high and steady.

Barratt has around £6 billion invested in land and homes, yet the market values the business at around £4 billion. We estimate that if it simply built out the land it owns and handed back the cash, shareholders would receive close to three times today's market value. The board has started buying back shares with its excess capital, turning that gap into a permanent gain for remaining shareholders.

Ryanair (Dublin: RYA) carries more than 200 million passengers a year, more than any other airline in Europe. Its success rests on one idea, pursued by Michael O'Leary for four decades: have the lowest costs and charge fares no rival can match. Its culture treats every pound of cost as the enemy. It flies one type of aircraft, turns them around in minutes and refuses to pay for anything a passenger will not clearly value. Rivals have copied the model for 30 years without closing the gap.

Getting the right culture and the right people is hard. The shares have fallen by a fifth this year due to worries about the oil price. But every shock to aviation, from 9/11 to the pandemic, has ended with Ryanair holding more of the market, because the lowest-cost operator is the last to cut flights and the first to buy aircraft when others cannot. A difficult year for airlines is not a difficult year for Ryanair.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Venture capital trusts (VCTs) could be an interesting route into the UK’s tech sector. The UK is routinely criticised for its lack of big technology companies capable of competing on the global stage, particularly in the age of AI. But while it's true that the country lacks household names in the mould of, say, Google or Anthropic, the range and depth of the British technology sector might surprise you.

There are plenty of examples. Quantexa, for example, is a data, analytics and AI software company; founded just ten years ago, it's now valued at $2.6 billion. Thought Machine, an AI and cloud-computing company focused on the banking sector, is worth a similar amount. ManyPets, an “insurtech” business, has been valued at $2 billion.

All three of these unicorn businesses – start-ups that have achieved billion-dollar valuations – have taken funding from venture capital trusts during their early years. And the next generation of VCT-backed technology companies are snapping at their heels. Examples include Resurrect Bio, using AI for gene editing in agriculture; Spaceflux, whose technologies help governments and commercial operators to track objects in Earth's increasingly congested orbit; and CreativeX, an AI-enabled content company.

“VCTs were once regarded as an investment scheme for those focused on reducing their tax bills, but they now represent an opportunity to back some of the UK's most innovative tech businesses,” says Will Fraser-Allen, managing partner at AlbionVC, manager of the Albion VCTs, which have invested in Quantexa.

Data from the Association of Investment Companies (AIC) reveals that VCTs have made 25 separate investments in British AI businesses over the past three years alone. They've also been major investors in technology sub-sectors, including software, fintech, cybersecurity and the internet of things.

It's a record that would greatly please Ken Clarke, who first launched VCTs in 1994 with the aim of unlocking investment in early-stage and potentially high-growth British companies. The former chancellor remains an advocate for the VCT industry, speaking out recently against changes to the tax reliefs available to investors in these funds. Those changes came into effect from the start of the current tax year. Investments in new VCT shares made since 6 April still qualify for 20% upfront income-tax relief – so the maximum £200,000 contribution allowed would cost you only £160,000 – but this is down from 30% previously.

Alex Davies, the CEO of Wealth Club, a platform specialising in VCT investments, says this reduction is having a significant effect. While fundraising in the 2025-2026 tax year came close to hitting record highs as investors raced to capture the higher upfront relief while it was still available, 2026-2027 has so far been much slower. “The impact has been stark,” says Davies. “The three most established VCTs to launch offers since September have each raised more than 70% less than at the same stage of fundraising last year.”

Davies – like many others in the sector – is disappointed that new chancellor John Healey decided not to reverse the reduction in tax relief, particularly as he undid other changes announced by his predecessor.

“We heard more talk about getting money into startups and scale-ups [in the Budget],” says Davies. “Yet the government has cut relief on VCTs, a proven way of getting substantial amounts of private money into precisely those businesses. Why undermine something that already works? Restoring relief to 30% would have been an obvious place to start.”

VCTs are a tried-and-tested model

Still, VCT fundraising may now pick up and it's important not to let the perfect become the enemy of the good. “VCTs still offer 20% upfront relief, tax-free dividends and exposure to promising British businesses,” adds Davies. “Less attractive does not mean unattractive, especially in a high-tax environment with very few options to shield your money from it.”

The latter point is important. Tax rates on both dividends and capital gains, also free from tax in a VCT, have risen in recent years while allowances have been reduced. And the value of other tax-efficient investment vehicles has been eroded. The £20,000 individual savings account (ISA) limit, for example, hasn't been increased since 2017, so is now worth much less in real terms. Private pensions will soon move within the reach of the taxman for inheritance-tax purposes, reducing their attractiveness for many families.

But the case for VCTs should not rest primarily on the tax breaks available. First and foremost, the funds have to make sense in the context of investment potential. Certainly, the technology angle is interesting in the current market environment. “VCTs are backing the most ambitious British companies in sectors from AI to advanced manufacturing and helping the government deliver its industrial strategy,” says Richard Stone, CEO of the AIC. “They invest at an early stage of a company's development, and VCT funding is often the catalyst to help those companies expand, create new jobs, or compete internationally.” And technology is not the only game in town, with many VCTs investing in a broader range of sectors, or focusing on certain regions of the country. Previous VCT star performers include property website Zoopla, food-delivery service Gousto and the clothing marketplace Depop.

“Ultimately, we're investing in founders,” says Andrew Wolfson, CEO of VCT manager Pembroke. “We're trying to identify the best founders with the best business ideas at the earliest stage possible.” That could mean meeting 1,000 companies to make as few as ten investments. “It's a tried-and-tested model and we've got some great businesses in our portfolios, but you do need to accept it takes a long time for them to achieve their potential,” he says. “Anyone who tells you these are, say, three-year investments is talking nonsense.” There will definitely be failures along the way. The fact that the VCT structure provides exposure to a diversified portfolio of early-stage companies provides some protection, with VCT managers often focused on, say, five to ten outperforming holdings that will deliver most of the fund's returns overall. But individual setbacks can be costly: in one recent example, the collapse of Honest Brew cost one VCT more than £3 million.

In this context, choosing VCTs and VCT managers carefully is critical. This is not an investment discipline where a rising tide floats all boats, with performance disparities between the best and worst funds often very wide. Past performance is one factor to consider, even with the usual caveat that historic data provides no guarantee of what might happen in the future. A manager with multiple years of successful fundraising, investment and exit activity under their belt has at least demonstrated the experience and expertise necessary to make discerning investments; this record also suggests the manager has access to a good network providing a strong flow of potential deals. Equally, where VCT managers are raising new money for an existing fund – rather than launching a new vehicle – you can run the slide rule over its portfolio. How mature are the businesses and how are they performing? How much diversification is there?

Start with the established names in the VCT sector

There are also some technical issues to consider. For example, VCTs often fund dividend payments from realisations of successful investments, providing shareholders with valuable tax-free income. But managers don't have to pay out the proceeds of exits in full straight away and, since they earn fees based on the value of the fund's assets, it may not be in their interests to do so. Check what the policy is on this issue.

More broadly on fees, VCTs are expensive compared with traditional funds, with annual charges that may be as high as 3.5%. Some also charge performance-related fees, so check if this is the case and how they are levied. It's common to charge such fees on the basis of estimated net asset value, for example, even though this is a subjective valuation rather than a realised gain.

One way to cut the cost of investment is to buy VCT shares early in the tax year, when funds often offer “early-bird” discounts. Managers know that people tend to leave decisions about investments with a tax incentive until the final months and weeks of the tax year, so they offer these discounts to try to persuade you to commit earlier. Already this tax year, around 15 managers have begun marketing new funds or new share issues on existing VCTs. It's important to base your decision about which fund to back – and whether VCTs are right for you at all – on investment factors rather than upfront freebies. But if you are going to invest in a VCT in the 2026-2027 tax year, it makes sense to get the most attractive deal possible – and the most popular funds do sell out.

Finally, bear in mind that VCTs come in different flavours. Investors new to VCTs may be better suited to a more generalist fund – one that invests across multiple sectors and industries, potentially including companies listed on the Aim junior market. “I would always start with the more established, diversified VCTs before considering newer funds,” says Davies.

If you already have several holdings in a fund of this type, it may be worth considering a more specialist fund this year. Octopus Investments, for example, is currently marketing both a generalist fund and two separate vehicles dedicated respectively to software companies and businesses solving big societal challenges. Other managers are offering specialist digital plays, healthcare-focused funds, and VCTs invested primarily in business services.

How the VCT rules work

VCTs must invest at least 80% of their assets in qualifying holdings – typically, that means companies with assets of no more than £30 million, fewer than 250 employees and a trading record no longer than seven years. VCTs build portfolios of these firms – no single investment can exceed 15% of the VCT’s total investments – which helps to spread risk.

Investors get further downside protection from a raft of tax breaks. These are led by 20% upfront income-tax relief on investments in new VCT shares of up to £200,000 each tax year, although you must hold on to these shares for at least five years or repay the relief. Also, both dividends and capital gains from VCT shares are tax-free – you don’t need to declare them on your annual self-assessment tax return. There is no inheritance tax benefit, however.

It’s worth noting that while VCT managers have bemoaned this year’s drop in upfront relief – it was 30% until 6 April – other changes, widely seen as positive, have received less publicity. In particular, VCTs are now allowed to invest up to £20 million in individual companies, compared with only £10 million today – and up to £40 million in “knowledge intensive” companies. And the maximum size of firms eligible for VCT investment, now £30 million, was £15 million previously.

As a result, VCTs now have access to a larger range of potential investments, including more mature businesses – and may find it easier to participate in further rounds as fast-growing companies raise more money. That could help to reduce risk and accelerate returns.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Typing relentless.com into a browser redirects you to Amazon's homepage. In the summer of 1994, Amazon's founder Jeff Bezos nearly chose Relentless as the permanent name for his fledgling online business, before friends persuaded him that it sounded rather too sinister. He registered the domain anyway. Amazon was eventually chosen because Bezos wanted a name that conveyed vast scale. He planned to build the world's largest bookstore, and ultimately something much bigger – an “everything store”. Relentless, however, captured the philosophy behind the business rather better: to be relentless in its pursuit of efficiency and customer service.

From the beginning, Bezos believed that lower costs should be passed on to customers rather than taken as profit. An online retailer did not need thousands of shops and sales assistants. It could use technology to handle a growing volume of transactions without adding costs at the same rate. The greater the scale, the more efficiently Amazon could spread its fixed costs and reinvest the savings in the customer proposition.

Bezos later gave this self-reinforcing process a name: the Amazon flywheel. The story goes that, in 2001, he sketched the idea on a napkin after an internal retreat with business writer Jim Collins. It set out how lower prices could attract more customers, increasing sales and scale, which in turn would allow Amazon to lower prices further. The sketch was a simple way of capturing a philosophy that had already been shaping Amazon for years, which was that Bezos was prepared to sacrifice profits today if doing so made the customer proposition stronger and the business larger tomorrow.

That philosophy was already visible in Bezos's first big decision – what to sell. He arrived at books through logic rather than any particular attachment to literature. He made a list of products that might sell well on the internet and ranked them. Books came out on top because there were millions of different titles in print, far more than even the biggest physical bookstores could stock. There were also only two distributors, making sourcing simple. Finally, books are similar in size and shape, making packaging easier. The internet offered something a conventional shop never could: nearly limitless range. Amazon could be a bookstore that sold more than three million titles rather than merely tens of thousands.

Bezos was leaving a successful career at investment firm D.E. Shaw to build a business selling books using a technology most people had barely heard of. When his parents invested a large part of their savings, he warned them that he thought there was a 70% chance they would lose the money. So he was giving himself a 30% chance of success, which may seem low, but is roughly three times the odds he believed a typical start-up had.

That combination of ambition and clear-eyed acceptance of the possibility of failure is central to the Amazon story. Bezos could envisage a business that would eventually sell almost anything, yet he was prepared to start with one narrow category in which the internet offered an overwhelming structural advantage. But turning the ambition into a reality required money. Bezos spent months pitching the idea to investors and held more than 50 meetings before raising $1 million. The most common question for Bezos was “What's the internet?”, showing just how much of a challenge it was to raise money. His parents made up about $250,000 of that initial funding. Their investment is now worth several tens of billions of dollars.

How Amazon operated from Bezos's home to the stock exchange

Amazon opened for business in July 1995 from Bezos's home in Bellevue, Washington. The operation was famously frugal, with desks made from doors and a culture in which every dollar mattered. Books also gave Amazon an unusual financial advantage. Wholesalers already held vast catalogues, allowing Amazon to offer far more choice than it could possibly have stocked itself. When a customer placed an order, Amazon could buy the book from its supplier rather than keeping every title on its shelves. More importantly, customers paid Amazon before Amazon had to pay its suppliers, making the business cash-flow positive early on. As the business grew, that helped to finance further growth.

By the time Amazon floated in May 1997, Bezos had decided that shareholders needed to understand how he intended to build the company. His first letter to shareholders was unusually clear and is today considered one of the most important letters to investors ever written. It said Amazon would prioritise long-term growth over short-term profits, measure itself by customer growth and repeat purchases, and make bold investments even when the financial returns were uncertain. If he had to choose between profit today and building a more valuable business for the future, Bezos made clear that short-term profits would be sacrificed.

He also described Amazon as being in “Day 1” of the internet. The phrase captured his belief that the company should always behave like a young business even as it grew, continuing to experiment, invest and adapt rather than becoming defensive. That philosophy soon took Amazon beyond books. It added music and other categories, while the introduction of third-party sellers began to turn the website into a marketplace rather than simply a retailer selling its own inventory.

Although few knew what the internet was in 1994, by the late 1990s investors had become convinced that it would transform the economy. Money poured into young internet companies, many of which had little revenue and no profits. Share prices soared and businesses found it remarkably easy to raise capital simply by promising rapid growth. Amazon benefited from this enthusiasm, but it also got caught up in it, making investments and commercial agreements with other young internet businesses.

Pets.com became the most famous example of what followed. The online pet-supplies retailer floated in February 2000, having been backed by Amazon among others, but collapsed before the end of the year. It had spent heavily trying to acquire customers without first proving it could serve them profitably. Pets.com was not alone. As investors lost faith in dotcoms, funding dried up and hundreds failed. The bubble burst. Amazon survived, but its shares fell from more than $100 at their peak to less than $6.

The experience forced Bezos to confront the difference between growth for its own sake and investment that strengthened competitive advantage. The firm cut costs and became more disciplined, but it did not abandon the long-term approach outlined in the 1997 letter. Instead, it focused its resources on making the core business more useful to customers and more efficient at scale. The easy money had disappeared, but what remained was a growing customer base, a widening selection of products and a business that was starting to prove it could survive without it.

How Amazon expanded into a platform

Surviving the dotcom crash changed Amazon, but it did not alter Bezos's ambition. The company had learned how to process millions of orders, manage warehouses and move goods around the world. Bezos began to see that the technology and systems Amazon had built to run its retail business could have uses far beyond selling products. The idea was bigger than simply finding new things to sell. If Amazon could build common systems that could be used repeatedly, the same investment could support entirely different businesses. Technology developed for one purpose could become the foundation for another. Amazon was beginning to look less like a retailer and more like a platform on which other businesses could be built.

Amazon Web Services (AWS) was the most important example. The origins of AWS lay in a problem Amazon had created for itself. As the company grew rapidly, its engineers were spending too much time building basic technology for individual projects. Teams were repeatedly creating their own storage systems and computing capacity. Amazon needed a better way to provide these services internally. The answer was to build them once, make them reliable and allow developers to access them whenever they needed them. Essentially, they built a centralised pool of high-grade computer infrastructure.

The genius was to realise that Amazon did not have to keep this infrastructure to itself. If its own engineers needed storage and computing power on demand, other developers probably did too. Instead of buying expensive servers, installing them and maintaining them, a start-up business could rent what it needed from Amazon and pay only for what it used.

Amazon began testing this idea in the early 2000s. S3, its online storage service, launched in 2006, followed by EC2, which allowed customers to rent computing capacity. Cloud computing is commonplace today, but 20 years ago the proposition was revolutionary. A small firm could access the same kind of computing infrastructure that previously required a large company to build and maintain it. This was a classic Bezos move. Amazon had spent years investing in infrastructure because it needed it to serve its retail customers. Once that infrastructure existed, Bezos looked for other ways to make it useful. The firm could then spread the cost of its investment across millions of customers rather than simply millions of book orders.

The stock market initially struggled to understand what Amazon was doing. Here was a company best known for selling books, offering computing infrastructure to software developers. Developers understood the attraction more quickly. A couple of engineers working from a flat could rent storage and computing power from Amazon without buying a room full of servers or signing a large technology contract. AWS helped remove one of the biggest barriers to starting and scaling a software company.

The financial potential took longer to become obvious. Amazon did not initially report AWS as a separate business, making it difficult for investors to see how profitable it was. Instead, for a decade the revenue it generated was lumped together in a segment with the vague title of “Other Revenue”. When the company first broke out the figures in 2015, AWS generated $7.9 billion of revenue and $1.9 billion of operating profit, a margin of almost 24%. AWS has since become vastly larger. In the most recent full year, it generated $128.7 billion of revenue and $45.6 billion of operating profit. To put that into perspective, a service created partly because Amazon's own engineers were struggling with their IT infrastructure now produces more operating profit than HSBC, the most profitable company in the UK.

AWS is more than a successful diversification. It provides a clear example of how Bezos thought about Amazon. Build infrastructure to solve your own problem. Make it simple enough that thousands of other people can use it. Then keep investing so the platform becomes more useful as it grows.

Amazon's loyal customer base

The same philosophy drove Amazon Prime, launched in 2005. Until then, online shoppers could choose slow delivery for free, or pay more to get their order quickly. Bezos wanted to remove that choice. Delivery should be both fast and free, with customers paying an annual subscription rather than a fee every time they ordered. There were concerns about the economics of the model, particularly the cost of serving customers who made heavy use of the unlimited two-day delivery.

Bezos went ahead anyway and it changed how customers used Amazon. Once they had paid for Prime, there was less reason to shop elsewhere or think about delivery costs on individual orders. Members tended to buy more frequently and spend more with Amazon. A membership fee could create a more loyal customer base that bought more from the business.

Prime then expanded beyond delivery. Amazon began adding services that made the subscription more valuable, increasing the reasons for customers to remain members. The acquisition of LoveFilm in 2011 helped provide the foundations for its streaming service, while Amazon went on to spend billions producing original television programmes and films and securing live sports rights. These investments made little sense if viewed as a traditional retailer moving into entertainment. They made more sense as a way of increasing the value of Prime. The more useful the subscription became, the harder it was for customers to cancel and the more of their spending Amazon could capture. As Bezos once explained, “When we win a Golden Globe, it helps us sell more shoes”.

The same willingness to disrupt existing businesses appeared elsewhere. When the iPod showed how quickly digital music could replace physical media, Bezos did not simply try to protect Amazon's position as the world's largest bookseller. Instead, he backed the Kindle, allowing Amazon to move into digital books before the threat became impossible to ignore. When third-party sellers began bringing millions of products onto Amazon's marketplace, the firm found another way to benefit from the activity by building an advertising business around the search traffic generated by those products. Advertising has since become a business generating tens of billions of dollars in annual revenue.

AI is the latest opportunity. Amazon is investing heavily, but much of its strategy follows a familiar pattern. AWS provides the computing power, chips and software tools that businesses need to develop and run AI applications, while Amazon is using the technology across its own operations to improve everything from warehouse automation to product recommendations.

Once again, Amazon is building infrastructure that can be used both within its existing businesses and sold to millions of outside customers.

That continuity has become more important since Bezos stepped down as CEO in 2021. His successor, Andy Jassy, had been at Amazon since 1997 and had worked closely with Bezos before building AWS from an internal project into one of the world's most important technology businesses. His job was not to preserve Amazon as it was, but to keep the company at “Day 1”, willing to invest, experiment and change while maintaining the discipline that had made those investments work. The post-pandemic cost-cutting programme showed that this could also mean doing less when Amazon had become too large and inefficient.

Is there an investment case for Amazon today?

That brings the story back to the investment case. Amazon has rarely looked cheap on conventional measures of profits or cash flow. Investors have often had to look beyond the earnings of the current year to understand what the company was building. That remains true today. The company is now so large that the extraordinary percentage returns of its early years are unlikely to be repeated, but it still operates businesses with enormous scale and attractive economics across cloud computing, online retail and advertising. The question for investors is whether Amazon can continue to turn that scale into new sources of growth.

Its history suggests that the answer depends less on predicting the next great technology than on maintaining the system Bezos built. Amazon invests heavily in infrastructure, uses it to improve its existing businesses and then looks for other ways to make those assets useful. AWS is the clearest example, while Prime, advertising and the logistics network show the same willingness to invest today for benefits that may take years to emerge. Jassy's task is to implement that approach at a vastly larger scale.

Relentless may have sounded like an unsuitable name for a fledgling online bookseller in 1994, yet it remains a good description of the philosophy that has driven Amazon ever since. The company has spent three decades lowering costs, improving the customer's experience, reinvesting the savings and finding new ways to use what it has built. For investors, the attraction is not simply the size of Amazon today. It is the possibility that the same process can continue to create valuable businesses that are difficult to envisage in advance.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

HgCapital Trust (LSE: HGT) is Britain's second-largest listed tech company. So, with the UK desperately short of exposure to the technology sector, it might be thought that managers would be keen to invest in the £2 billion fund. But far from it. Very few UK specialist funds have any exposure at all and the shares trade on a 26% discount to net asset value (NAV).

The lack of exposure is because HgCapital Trust is an investment trust. Professional managers don't like investing in a fund managed by someone else, even if that is a private-equity fund holding businesses they couldn't invest in themselves. The discount is more recent – in late 2024, it was on a small premium – and reflects wider fears about the impact of AI on software companies.

HgCapital Trust’s NAVis vulnerable

HgCapital Trust's NAV is an independently calculated valuation derived from those of comparable listed companies. If, as is usual, there is no directly comparable company, the net is thrown wider. This means that the NAV is vulnerable to sentiment towards companies that compete with its holdings, and also towards firms that may superficially appear similar, but in reality focus on a very different area of the market. So when the software shares in general fell sharply due to fears about AI, investors could see how that would affect the NAV.

HgCapital Trust has spent the last year trying to show that even if AI is a threat to the broader sector, it is enhancing rather than threatening the outlook for its investments. This argument is supported by the numbers. HgCapital Trust's interim report showed revenue and net cash-flow growth of 16% and 19% respectively for the portfolio over 12 months, of which 11% and 17% was organic. However, the enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda) was reduced to 22.9 from 24 times, so the NAV was 4.9% lower over the period.

This valuation had been over 26 times at the end of 2024. Arguably that – and the sector average it was based on – was too high with or without the long-term threat of AI. However, at HgCapital Trust's current share price of 393p, the look-through valuation is 17 times EV/Ebitda, falling to 14 times on the current year's figures.

Visma's postponed listing is bad news for HgCapital Trust's portfolio

The bad news is that the listing of Visma – its largest holding at 12% of the portfolio – has been postponed. The good news is a steady stream of realisations at significant premiums and a series of interesting new investments. In 2026, HgCapital Trust has made three full exits, one partial exit and received realisation proceeds from four re-financings. The full exits were at an average uplift to book value of 31%, slightly above the ten-year average, so there is no sign of inflated valuations. Three new and two increased investments were announced.

HgCapital Trust has investment commitments amounting to a hefty 85% of NAV, points out Iain Scouller of brokers Canaccord, although it has the ability to opt out of any if it so chooses. It had unused debt facilities of £300 million at mid-year, but there is also debt in the investee companies and in the Hg-managed funds through which HgCapital Trust invests. So while the balance sheet looks sturdy, there is debt below the surface. This is not necessarily worrying: HGT should aim to take advantage of opportunities when valuations are depressed.

As for risks around AI, HgCapital Trust says its portfolio represents one of the largest software environments actively deploying AI at scale, driving transformation via AI. What's more, “investors have begun to distinguish more clearly between businesses positioned to benefit from AI and those more exposed to disruption from it”, says Jim Strang, HgCapital Trust's chair.

Far from being a victim of AI, HgCapital Trust sees itself as a beneficiary, making its shares look highly attractive. Hence the managers' commitment to increase their 6% shareholding to 15%. Their lead should be followed.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Despair in Asia over the Democrats' sweep of the US Congress turned into cautious bullishness as Wall Street woke up on Wednesday. Investors in East Asia, a region at the centre of the AI chip supply chain, interpreted the vote as a clear rejection of AI. Japan's Nikkei index touched a five-month low, with shares in SoftBank falling nearly 9% in intra-day trading, say Peter Landers and Gunjan Benerji in The Wall Street Journal. South Korean and Taiwanese indexes also sold off.

An NBC exit poll showed that 56% of US voters regarded data centres as a “crucial or major factor” in how they voted. Texas and Georgia, which have both elected Democratic governors, together account for “about a third of all AI data-centre spending and projects”, says Tapas Strickland of Moomoo ANZ. “The fear is that the pace of the AI infrastructure roll-out could slow, potentially quite markedly in Texas,” where Democrats want a moratorium on new data-centre development.

Still, more red tape may not burst the AI bubble. “State-level restrictions could have implications for specific” companies and data centres, but ultimately 'data-centre projects will probably shift to friendlier states”, Gil Fortgang of T Rowe Price tells the Financial Times. The Democrats may slow data-centre development, but won't want to “kill the goose that lays the golden eggs”, says Alicia Garcia-Herrero of Natixis.

Democrats’ victory leaves glass half full for markets and investors

Markets bounced back on Wednesday as analysts encouraged a glass half-full view. First, Republicans did not contest the legitimacy of the US election results (no longer a given in the US). Second, a divided US government – with one party in the White House and another in Congress – is historically good for investors. “Control of Congress really only has implications for the economy if it means significant legislation can be passed,” says Daniel Morris of BNP Paribas Asset Management. We're actually in the opposite scenario – gridlock is likely and hence no new regulation.

This is “the best possible outcome for markets”, says Nannette Hechler-Fayd'herbe of Lombard Odier. History suggests that, on average, the US equity market performs best in the third year of a presidential term, says Russ Mould of AJ Bell. Double-digit returns have been the norm since World War II, with only one presidential third year bringing losses.

But there is nervousness about how Donald Trump will react to a setback. Gold rallied 3% to $4,040 (£2,999) an ounce, suggesting investors are fearful. The vote will have “big implications” for US and global politics, but economically the direct implications won't be huge, says Christopher Hodge of Natixis. Corporate earnings and the economic cycle are more decisive factors for investment returns.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

“Our investment philosophy is very simple,” says Stephen Yiu, manager of the Blue Whale Growth Fund. “It’s basically Follow the Money.”

“The way that we understand how the world economy operates is that there are three sources of spending: consumer spending, enterprise [business] spending and government spending. You want to invest into companies that are going to receive incremental spending from one of these three sources.”

That thinking determines where Blue Whale’s highly concentrated and unconstrained portfolio looks like at any point. At present, Yiu is heavily invested in tech stocks and has been for several years – but he is very clear that he is not primarily a tech investor.

He’s simply looking for the type of companies that have the tailwinds to support them. That changes a lot over time, and investors who don’t change in response can get caught out.

Speaking on the MoneyWeek Talks podcast, which is available on all podcast platforms and YouTube, he says: “If I go back in time when we first started in 2017, the leadership - the companies that end up receiving money – are very different,” he says. Consumer spending was a lot more robust in the 10 years up to 2022, helped by factors such as low interest rates, low inflation, the benefits of globalisation and very little geopolitical uncertainty.

“If you look at companies that are exposed to consumer spending, they are in a much more difficult place now.”

Selling software, buying hardware

Since then, technology – more recently artificial intelligence – has been the beneficiary of higher spending. However, even within the tech sector, Blue Whale’s holdings have evolved as the winners and losers changed.

“A very important part of any investor playbook is that you need to sell companies that could have their earnings power disrupted,” says Yiu. So around two years ago, he moved out of the software stocks that had been key parts of his portfolio in the early years for the fund

These companies had been extremely attractive – they had switched away from selling one-time software licences to a subscription model, giving them recurring revenue. Costs of switching away from them were often high, meaning that many users were locked in.

However, while many investors assumed all technology companies were likely to be AI winners, Blue Whale recognised that “AI is actually a big risk to the moats of software companies” because it would make it easier to create rival products – even to the extent of helping smaller firms create their own systems.

So today, while the fund is still heavily weighted towards the tech sector, its actual exposure is principally in hardware stocks – beneficiaries of the huge demand for chips and other components that power the AI boom.

Structural changes

This rotation into stocks that are benefitting from physical shortages is evident in other additions to the fund, some of which may seem surprising for a fund that is associated with high-quality growth stocks.

Blue Whale now holds an oil and gas producer and more recently a refiner, anticipating sustained high oil and fuel prices driven by conflicts and geopolitical tensions – an example of what Yiu calls a shift in the investment regime.

Similarly, the fund has invested in a European defence firm, on the basis that the amount of government spending flowing into the sector has shifted structurally.

“Before 2022, nobody should ever be interested in European defence companies,” he says. Defence budgets were “very much linked to European nominal GDP and European GDP has been very disappointing for many years”.

Now, capital is pouring into the sector, while the fundamentals look better: faster growth, stronger balance sheets and probably a less demanding relationship with their government clients. “Then you look at the return on investment profile, the margins, the shareholder returns, the free cash flow conversion, it’s all completely changed.”

Bottom-up, not top-down

While Blue Whale pays close attention to top-down factors such as geopolitics that shape a company’s prospects, Yiu stresses that they are fundamentally bottom-up investors, focused on understanding what everything means for a company’s earning power.

That’s a crucial part of the firm’s advantage over other investors, he says. After all, Blue Whale invests in very large companies, where everybody has access to the same primary information. Access to management may be limited and unlikely to confer any advantage.

“You have to go back to the basics, which is ‘Do you understand the business or the ecosystem better than the market?’”

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Picture two UK investors who bought SpaceX shares this summer.

The first applied in June and got them at the $135 initial public offering (IPO) price. The second missed out and bought at the end of the first day's trading, at $160.95. By the end of October, in dollar terms, the first had roughly broken even. The second was about 16% down. Same company, same shares, one day's trading apart.

Anthropic could be next. Its filing, published on 26 October, says the offering includes a public offer in the UK. Before you apply, it is worth knowing where the money in these deals is made, and who gets it.

Where is the money made in IPOs?

Jay Ritter, a finance professor at the University of Florida, has tracked US flotations since 1980, and his figures show the same gap between those two buyers, though a smaller one.

Take the biggest companies to float in that time: those with more than $1 billion of annual sales, adjusted for inflation. On average, their shares rose 9.8% on their first day of trading.

Anyone who bought at the end of that first day missed that gain. Over the next three years, the shares rose roughly in line with the US stock market, trailing it by about two percentage points on average. Smaller companies did far worse, falling 34 points behind it.

So for the biggest names, the gain has tended to arrive on day one and go to whoever got the offer price. After that, buyers got roughly the market's return while carrying the risk of a single company.

That gives you the first thing to work out. If you are scaled back (given fewer shares than you asked for) and tempted to top up once trading starts, compare the price on your screen with the offer price. The gap is a premium paid to earlier buyers, and Ritter's figures for big companies give no reason to expect it back as extra return.

Why do you get less of the good ones?

Shares at the offer price are now within reach, but they are rationed. SpaceX’s IPO was made available to UK investors under the FCA's new public offer platform rules, which let companies sell to private investors here without a UK prospectus. Demand came to almost $1 billion, so applications were filled in full only up to £2,013. Bigger ones were scaled back.

Jersey Mike's, the US sandwich chain, used the same route for its New York flotation in July. Its limit was higher: applications were filled in full up to about £3,190. The shares closed their first day six% below the offer price, and were about a fifth below it at the end of October. So the deal you could have more of is the one that fell on its first day.

Economists call this the winner's curse. Kevin Rock set out the mechanism in 1986. Better-informed investors pile into the attractive issues and stay away from the weak ones. Everyone else, including you, tends to be rationed in the good deals and filled in full in the bad ones. That is why, Rock argued, companies have to price new shares at a discount to keep ordinary investors applying.

Two deals prove nothing, but Rock's idea has been tested. In Israel, where every applicant was scaled back by the same proportion and the allocations were published, researchers studied flotations in the early 1990s. Applicants were given more shares in the deals that turned out to be overpriced. The average flotation made an initial return of 12%, but ordinary applicants, allowing for what they actually received, earned a negative one.

Who's next, and at what price?

Bloomberg has reported that Anthropic is working with RetailBook, another platform operator, to take UK orders through the usual investment platforms, and may set aside 15-20% of the shares for private investors worldwide. Neither is final, and no price has been set.

The price of the same business can move a long way. Starling's founder, Anne Boden, has sold her last shares at a valuation of £1.7 billion, Sky News reported in October. That is less than half the £4 billion the bank was reportedly seeking last year. Monzo, Sky also reported, is talking to private equity firms about selling a stake after takeover talks with Brazil's Nubank ended. Neither of these British neobank looks close to floating at present.

Shein shows why that matters. Reportedly valued at about $100 billion privately in 2022, the fast-fashion retailer listed in Hong Kong on 1 September at about a quarter of that price. Its public offer was 5.6 times subscribed, and only about half of applicants got shares. Those who did saw the price close its first day just below the offer and end October about a quarter lower. Rationing told them the deal was popular, not that it was good.

What should you check before applying?

• Decide the most you will put in before you apply. In the offers so far, each platform set its own minimum. As a rule of thumb, treat any allocation as a small, speculative holding.
• Apply only for an amount you would be happy to hold in full. In the deals other investors avoid, that is what you will get.
• Check your platform's currency conversion charge, and whether the shares can sit in your ISA or SIPP.
• Know that an accepted application is binding. Check the offer's terms, but usually you can withdraw only if significant new information comes out during the offer.
• Read the lock-up section of the prospectus, which says when insiders can sell. SpaceX releases its insiders in stages; Elon Musk's own shares are locked up until 12 June 2027.

The verdict

In a mega-IPO, the advantage lies with whoever buys at the offer price, and the better the deal, the fewer shares you are likely to get. If you want a stake, keep it small and treat it as a bet.

Paying up on day one has, on average, bought the market’s return, minus a little, plus one company’s risk. A low-cost index fund buys the market’s return without it.

Concerns over the scale of capital expenditure on artificial intelligence by the industry’s biggest tech companies have seen trillions of dollars wiped off their combined market valuation.

Between its peak on 6 October and the end of the month, the Nasdaq 100 dropped by more than 9%. Estimates put the market value of these losses at around $5 trillion.

“For three years, tech giants only had to announce investment in artificial intelligence (AI) to be rewarded by the stock market,” Grégoire Kounowski, head of advisory at wealth manager Norman K. observed. “That is no longer the case. The third-quarter earnings season marks a turning point: investors now want to know when this spending will pay off, and how it will be financed.”

AI’s biggest names – especially hardware providers like Nvidia (NASDAQ:NVDA) – have seen surging profits and their market capitalisations boom as spending on AI infrastructure has soared.

But investors are becoming increasingly sceptical over the sustainability of these increased AI profits, and appear ready to penalise businesses that can’t demonstrate clear returns on their AI investments.

Has AI cannibalised Google Search?

The rout began when Google’s parent company Alphabet (NASDAQ:GOOGL) reported its results for Q3 of 2026 on 28 October. Diluted earnings per share (EPS) fell 26.1% year-on-year to $2.12 – well short of analyst forecasts of $3.02.

Although Google Search volumes reached record levels, revenue growth in the segment slowed to 12% from 17% in the previous quarter – suggesting that Google’s own AI overviews may be hurting its ability to monetise its core product.

Alphabet’s shares tumbled by 12.6% the following day and lost a further 1.4% on 30 October.

“Alphabet saw $463 billion wiped off its market value [in a single day],” said Dan Coatsworth, head of markets at wealth manager AJ Bell. “Alphabet’s results could go down in history as a major turning point in the AI story. They showed another quarter of cash burn and that AI summaries on search were affecting advertising revenue. The bear case many had dismissed is now becoming a reality.”

Alphabet was joined by Intel (NASDAQ:INTC) which fell by 28.6% on 30 October, following an alarmingly bleak forecast for Q4 accompanying its Q3 results the previous evening.

“The gigantic declines we’ve seen this week in shares such as Alphabet and Intel suggest that investor sentiment has been turned on its head,” said Coatsworth. “Current price action implies tech investors want to jump off the treadmill rather than slow it down.”

How do investors feel about AI?

The longevity of the AI stock market boom will largely depend on how the market sees the potential of the technology.

Research from the Association of Investment Companies (AIC), an industry body representing the UK’s investment trusts, indicates that investors are more negative than positive at present, despite recognising some of the technology’s long-term potential..

Based on a survey of 400 private investors and 200 intermediaries, the AIC found that misinformation (74%), job losses (73%) and loss of human skills (72%) are the top three concerns investors have about AI. Loss of privacy and increased pressure on water resources were also of concern to 51% and 45% of respondents, respectively.

“Given the apocalyptic warnings from AI companies themselves, it’s no surprise that investors are concerned about potential negative impacts of AI,” said Nick Britton, research director at the AIC. “We’ve also seen waves of AI-related job losses reported in the news, while actual or potential benefits of AI remain more distant and hypothetical for most people.

“As long as the AI investment boom continues and investors are making money, such fears may be overlooked,” Britton continued. “But if there is a market correction then AI companies may have to work harder to persuade investors that they can deliver growth while addressing their wider concerns.”

However, 68% said improved access to healthcare and medical breakthroughs was positive.

Will the AI boom recover, and should you invest?

This isn’t the first time that investor sentiment has led to AI selloffs over the last four years, and the market has recovered following every previous bout of pessimism.

Key to whether or not stocks recover will be upcoming earnings releases from the likes of Apple (NASDAQ:AAPL), Palantir (NASDAQ:PLTR) and Advanced Micro Devices (NASDAQ:AMD).

“What investors will want to see to avoid sell offs is a 'reasonable' amount of capital expenditure and growth beating expectations,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “That’s the sweet spot, growth without runaway spending.”

If you think the AI boom could recover then you could consider investing in an AI-focused exchange-traded fund (ETF), or an investment trust that focuses on technology such as the Allianz Technology Trust (LON:ATT) or Polar Capital Technology (LON:PCT).

Biotechnology companies are seeing record levels of innovation. Approvals of new medicines have held up despite staff turnover at the US Food and Drug Administration (FDA) regulator and large pharmaceutical companies, facing patent expiries on many of their biggest products, are acquiring biotech companies to replenish their pipelines. The catch is that the sector rewards specialist knowledge more than most others: a single trial result can move a share price by half in a day. The Biotech Growth Trust gives investors focused exposure to this theme by investing primarily in biotechnology.

We invest from the bottom up, favouring biotechnology companies developing first-in-class or best-in-class medicines, with a tilt towards small and mid-sized companies where much of the sector's innovation now originates. Our high active share (meaning that our holdings significantly differ from the benchmark index) means that our best ideas populate the portfolio, which is essential for navigating biotech's fast-moving, event-driven landscape. Below are three examples of our holdings, illustrating the breadth of our approach.

Three smaller biotechnology companies to consider

United Therapeutics (Nasdaq: UTHR) is an established player built largely on treatments for pulmonary arterial hypertension, a rare form of high blood pressure in the lungs, and pulmonary hypertension associated with interstitial lung disease (PH-ILD). It remains one of the most profitable firms in biotech. The company is now expanding into the much broader fibrosis market. Its lead product, Tyvaso, succeeded in late-stage trials in idiopathic pulmonary fibrosis (IPF) and the firm is expecting a US regulatory decision in spring 2027. If approved, it would be the first inhaled anti-fibrotic treatment for the disease. A legal settlement requiring that a rival withdraw from the market clears the path for the Tyvaso franchise to resume growth ahead of the IPF launch. The IPF launch, a return to growth in the company's core franchise and continued strong cash generation should mark an important inflection point.

In October, Vaxcyte (Nasdaq: PCVX) reported positive Phase III trial results in adults for its pneumococcal vaccine VAX-31, which surpasses the current market leaders, Pfizer's Prevnar 20 and Merck's Capvaxive, in strain coverage. Historically, this is a winner-take-all market where breadth of coverage decides the winner. The next milestone is Phase II data for the vaccine in infants, expected in the first half of 2027. Positive results would open the door to the paediatric market, which makes up the majority of the market opportunity. There is therefore a clear trajectory towards leadership in a pneumococcal market valued at more than $8 billion annually. It would also be an attractive asset for a large pharmaceutical company looking for vaccine exposure.

Palvella Therapeutics (Nasdaq: PVLA) is developing a topical gel form of rapamycin, an established immunosuppressant, for microcystic lymphatic malformations (mLM), a rare, lifelong condition that can cause persistent leaking, bleeding and infection. With no currently approved therapies and an estimated US patient population of 30,000, Palvella is targeting a launch of the drug in the first half of 2027 if approved. Building on positive Phase II trial results, Palvella is also starting a Phase III trial in cutaneous venous malformations (cVM), with data expected in 2028. Palvella is a first mover in an untapped market with big potential.

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In late 2021, Sea Limited (NYSE: SE) was worth almost $200 billion. Its shares had soared above $350 as investors bet that the Singapore-based company could dominate online shopping across southeast Asia and beyond. Within a year, more than 80% of its stock market value had vanished. The extraordinary rise and fall of Sea is also the story of how a computer game helped build a shopping empire.

Sea Limited began in 2009, when entrepreneur Forrest Li founded Garena to distribute computer games across southeast Asia. Few households had reliable broadband or personal computers, so Garena built relationships with cybercafes, installing its software on thousands of machines and giving customers access to popular online games.

The approach reflected Li's understanding of the region. Southeast Asia has hundreds of millions of consumers, but its geography, languages and uneven infrastructure make it difficult for businesses to operate across national borders. Garena succeeded by finding ways around these obstacles.

Li soon recognised a much larger opportunity in online shopping. In 2015, he launched Shopee, a website and app where independent sellers offer clothing, cosmetics, household goods and much more. Shopee initially concentrated on small sellers offering inexpensive everyday goods. Customers could chat directly with merchants, while promotions, games and rewards encouraged them to return. The approach proved popular, but attracting buyers and building the delivery infrastructure to serve them required enormous investment. Fortunately, Garena was about to produce a remarkable success. In 2017, it released Free Fire, a game designed to work on inexpensive smartphones and unreliable internet connections. It became hugely popular, eventually attracting more than 100 million daily players. The game was free, but players could buy virtual items. These generated substantial profits without the costs associated with producing and distributing physical goods. Free Fire gave Sea a valuable source of cash to invest in Shopee.

Ups and downs for Sea Limited

Then came the Covid pandemic. Lockdowns encouraged people to spend more time playing computer games and shopping online. Both businesses benefited enormously. Low interest rates encouraged investors to finance fast-growing tech companies, even when they were losing money.

Sea seized the opportunity. Shopee subsidised deliveries, offered incentives to merchants and spent heavily on advertising. It expanded into India, Europe and Latin America, while building its own delivery network. It raised billions from investors, including almost $6 billion through a share and bond issue in 2021. Flush with cash, Sea could pursue growth without worrying too much about profitability. By late 2021, investors expected Shopee to become dominant. Yet it all depended on access to funding and profits from gaming.

The reversal was brutal. As inflation surged in 2022, interest rates went up and investors became less willing to finance loss-making businesses. Gaming declined as pandemic restrictions ended. Worse, India banned Free Fire on national-security grounds, removing one of the game's largest markets.

Sea Limited faced weaker gaming profits, heavy losses from Shopee and a collapse in investor confidence. Spending heavily today in pursuit of profits tomorrow was no longer sustainable. Li responded decisively. Shopee abandoned much of its international expansion, thousands of jobs were cut, spending was reduced and subsidies scaled back. Sea concentrated on making its remaining operations profitable.

It worked. Sea reported its first quarterly net profit in early 2023. The turnaround was striking because Shopee had depended on large subsidies to attract buyers and merchants. The retreat exposed mistakes made during the pandemic, particularly entering markets where Shopee had little established advantage. Nevertheless, Li showed he was willing to abandon unsuccessful investments rather than throw good money after bad.

Sea is a different beast now

Today, Sea Limited is a different business. In 2025, group revenue rose 36% to $22.9 billion; net profit hit $1.6 billion. Shopee handled $127.4 billion of merchandise, nearly 27% more than the previous year. Its scale creates opportunities to raise earnings without repeating the mistake of the spending spree of the pandemic years. Merchants can pay to advertise their products on Shopee, while greater delivery volumes should help spread the costs of its logistics network. Both could allow profits to grow faster than sales. Online shopping still has room to expand across the region and Shopee's delivery network may be difficult for smaller rivals to match.

Sea's third business, Monee, grew from a payments service launched in 2014 to help gamers without bank accounts buy digital products. It now provides loans and other financial services to consumers and small businesses. Shopee knows how much its merchants sell and how regularly customers make purchases. That information could help Monee assess borrowers whom conventional banks struggle to serve.

There are risks. TikTok Shop and Lazada compete fiercely, while lending exposes Monee to borrowers who may fail to repay. Garena also remains heavily dependent on Free Fire, whose popularity cannot be guaranteed indefinitely. Nevertheless, Li has proved adaptable and built substantial businesses in markets that still have room to develop. The attraction now is that Sea may be able to earn much more from the customers and infrastructure it already has. If Li can maintain that discipline, Sea could enjoy years of profitable growth.

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In the last fortnight, stocks in the nuclear industry have seen their steepest decline for five years. Rising real yields have punished assets with a long duration whose value lies years away, and nuclear has been dragged down with the AI power trade it is now lumped in with.

The price of financing the AI build-out tells its own story. Anthropic is paying Blackstone a 10% coupon on a $60 billion chip financing, against 8.5% on a similar deal just four months ago and 7% for comparable credits in the public high-yield market. Lenders want a fatter premium for AI risk, and nuclear has been sold in sympathy. Yet that same deal pays for 1.5 gigawatts of new chips. Somebody has to power them.

Jim Reid at Deutsche Bank recently circulated a note that makes the point better than any argument. Over 80 years, power has become roughly 50 times cheaper. Computer chips got a hundred billion times cheaper in 60 years. AI has fallen some 200,000 times in barely five, the steepest cost curve ever recorded. Intelligence is now the fastest deflating good in history, and it runs on the slowest deflating input.

William Stanley Jevons taught us in 1865 that when a resource gets cheaper we don't use less of it; we find a thousand new uses and consume vastly more. Cheap intelligence won't shrink the power bill, it will explode it. Value migrates to whatever cannot be compressed, and nothing compresses less than firm, reliable power and the fuel that makes it. Whoever owns the electrons owns the toll road to superintelligence.

There is a second property of electricity that the market forgets in a panic. Demand for it is among the most price-inelastic of any good. Households and hospitals don't switch off when the bill rises, and a data centre training a frontier model will pay almost anything to keep running.

The same holds one link further up the chain. Uranium is a small fraction of the cost of running a nuclear reactor, so utilities will pay whatever it takes to keep their plants fuelled – 2006 and 2007 proved it. When the flooding of Cigar Lake knocked out expected supply, uranium rose sevenfold in six months. Consider the world in which that happened. Half of it was set against nuclear power. There was no iPhone in anyone's pocket, no AI and no data centres drawing a city's worth of power. Even then, with demand flat and politics hostile, a single supply shock was enough. When buyers cannot walk away, price is the only thing left to give, and it gave violently. Inelastic markets don't drift. They gap.

The nuclear industry has been hit by “gamified finance”

So why has the market priced the opposite for the nuclear industry? Look at who owns the shares. This rally was built by a new breed of investor. Finance has been gamified, put on a phone and turned into entertainment, with conviction sourced from Substack, StockTwits and X rather than from balance sheets.

The numbers are startling. Retail flows now account for roughly 20% of US equity volumes, and as much as 55% to 65% of daily turnover in South Korea and China. Seven in ten retail investors are under 45. In 2015 just 6% of 25-year-olds held an investment account; by 2024 it was 37%.

US exchange-traded funds (ETFs) took a record $1.5 trillion of net inflows in 2025. In Britain, retail equity and ETF flows reached £228 billion. This is a younger, less wealthy cohort with thin cushions against loss, and it has learned to borrow. Margin accounts, options and leveraged ETFs are now standard kit on trading apps.

Now the brokers are pulling the ladder away. Last week one of Europe's largest retail trading platforms asked for 110% collateral on positions. At that level, margin is no longer leverage at all, it is a demand for more than the position itself is worth. When the cost of carrying a position exceeds the position, holders don't sell because they have changed their minds. They sell because they have no choice. That is precisely what unravelled in 2008 and 2009. The leverage went first and prices followed, whatever sat underneath.

Which brings me to the nuclear industry trades I find most compelling. Lightbridge Corporation (Nasdaq: LTBR), ASP Isotopes (Nasdaq: ASPI) and Fermi America (Nasdaq: FRMI) are among a group of nuclear names now trading, in some instances, below the cash on their balance sheets: strip out the cash and the market is assigning the business itself a negative value. The technology, the enrichment capacity, the land, the permits, the people and years of regulatory work are being thrown in for less than nothing.

It's 2009 all over again

That price makes sense in only two ways. Either the board is about to set fire to the cash, or the seller doesn't care what he is selling. Any serious investor must ask how fast the money is being spent, what commitments sit against it and how much dilution lies ahead.

Here the answer is reassuring. None of these companies is burning cash at a reckless pace. Lightbridge spends $2 million a month, a modest sum against the cash it holds. When names across a whole sector slip below cash in the same fortnight, and none of them is squandering it, the explanation lies with the holders, not the businesses. The holders were forced.

That is the asymmetry. Buy below cash and the downside is cushioned by money already in the bank, while the upside is whatever the business turns out to be worth. In 2009 the market made that offer on housebuilders and miners that went on to multiply. Today it is making it on the companies building the fuel, enrichment and power that the age of cheap intelligence will depend on.

Nothing about nuclear reactors, fuel or enrichment has changed in a fortnight. What we are hearing is margin calls, momentum funds and macro traders crowding towards the same exit. I have heard that sound before. On that day in March 2009, it told me the equities business would be shut by the following day. It turned out to be the best buying opportunity of a generation.

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Consumer brands used to be dependable outperformers. But quality companies that have consistently and reliably delivered compounding growth in value for shareholders over the long term – companies such as Diageo, Unilever and Reckitt Benckiser – have all struggled in recent years.

Their global consumer brands, including Johnnie Walker (Diageo), Dove (Unilever) and Dettol (Reckitt), generate the bulk of their sales outside the UK, so they can even benefit from a weak pound. But their international diversification and high gross margins have failed to deliver for investors, catching out high-profile professional fund managers such as Nick Train and Terry Smith.

In the period that saw the internet bubble bursting a quarter of a century ago and the financial crisis of 2007-2009, Unilever's share price quadrupled, Diageo was up six times and Reckitt Benckiser by almost 11 times from 2000 to 2020. That might sound pedestrian for investors in US technology stocks, but consider that the FTSE 100 trod water over those two decades, a time when blue-chip shares such as Lloyds Bank or Vodafone fell by between 75% and 95%.

Warren Buffett and the economics of consumer brands

Berkshire Hathaway's investment in See's Candies illustrates the economics of consumer brands. In the 1970s Warren Buffett received a phone call asking if he was prepared to pay three times book value to buy See's Candies, an unheard-of multiple for a value investor from the Benjamin Graham school, who would normally look to buy tangible assets with a “margin of safety” of 50p in the pound. Buffett almost dismissed the opportunity as too richly priced, but upon reflection he returned the phone call to do the deal.

The experience worked out well and taught the then middle-aged Sage of Omaha that much of a company's brand value is not recorded on the balance sheet. For a technology or pharmaceutical group, research and development (R&D) costs can be capitalised and recorded as “intangible assets”. Marketing costs, a key investment for consumer brands that often make up between 12% and 18% of revenue, are expensed as they are incurred through the income statement. Accountants take a cautious view of advertising expenses, assuming the costs are effectively wasted, or at least should not be counted as assets.

Analysts can add back marketing spending and capitalise it as an asset on the balance sheet, the same accounting treatment as for R&D. However, they would then need to form a view on the lifespan of that asset, when in reality cherished brands such as Diageo's Guinness maintain their value through the decades. Brands can wither, losing their appeal through lack of care, despite continued marketing spending. Tango, the fizzy drink famous for edgy, award-winning marketing, outselling Coca-Cola's Fanta two-to-one in the 1990s, is an example of the latter. Although Britvic continued to pour large sums of money into marketing, the brand failed to refresh. Organically generated brand value, such as that deriving from Diageo's Guinness, does not therefore feature on the balance sheet, whereas acquired brands and trademarks can be recorded as intangible assets. Examples for Unilever include Horlicks (€2.3 billion), Knorr (€1.8 billion) and Hellmann's (€1.2 billion). The latter two brands have been sold on to US food group McCormick in a $44 billion deal, announced in March this year, to create a group with $20 billion of revenue and an operating margin target of 23%-25%. Unilever's shareholders retain 55% ownership of the combined group and the shares will have a secondary listing in London, while Unilever itself will keep 9.9%.

Just how significant intangible assets can be is illustrated by Diageo's acquisition of the “super premium” Don Papa rum brand for £294 million in early 2023. Only £1 /millionof that was represented by property, plant and equipment, and £6 million by inventory. The brand was valued at £293 million. Just two years later, Diageo wrote down the value of the brand by $287 million. (Diageo had in the interim changed its reporting currency from pounds to dollars.) That write-down is dwarfed in comparison with Kraft Heinz, which announced a $15.4 billion write-down of its best-known brands in 2019, following a deal backed by Buffett and private-equity firm 3G five years earlier.

Unsurprisingly, many investors take a sceptical view of intangible assets because the value can disappear from the balance sheet at the stroke of a pen and management can be slow to write down the value of acquired brands. Casamigos, the tequila brand acquired by Diageo from George Clooney and others for $1 billion, saw an organic sales decline of 25% this year, but so far there has been no write-down. Yet the power of some brands to keep generating cash flows was demonstrated by this year's 12% sales growth of Guinness.

Struggling to keep pace with price rises

Around the time of his See's Candies deal, Buffett had a headache with his original Berkshire Hathaway acquisition. While See's was demonstrating pricing power in an inflationary environment, Berkshire itself, the textile factory based in Berkshire County, Massachusetts, had tangible assets such as machinery that were obsolete. To continue to generate cash flow, Buffett had to keep funding capital expenditure (capex) in new equipment, despite knowing he'd fail to achieve an acceptable return. It's all very well owning factory assets as inflation rises, but at some point the machines need to be replaced at a price greater than the original cost. Depreciation policies, which assume a finite useful life, implicitly assume that replacement costs don't increase with inflation. Thus Berkshire's tangible assets were a drag on returns, while the intangible assets, the See's Candies brand, unrecognised by the bean counters, was paying for itself many times over.

A second attraction of consumer brands is that they tend to report high gross margins (more than 60% in the case of Reckitt Benckiser and Diageo, just below 50% in the case of Unilever). A buttress against rising inflation is a relatively low cost of goods sold (CoGS) – making things for 40 and selling at 100 – meaning that a 10% rise in CoGS has much less impact than upon a group with lower margins. All three groups have been reporting stable gross margins, passing on rising input costs to consumers. The trouble has been revenue growth that has struggled to keep pace with inflation.

By contrast, supermarket groups Tesco and Sainsbury's, with gross margins below 10%, have seen their share prices do unexpectedly well in response to inflation. Although low margin, they have been able to pass on the rising cost of essential items to shoppers, with many consumers favouring supermarkets' own brands. In the 1970s these own brands were synonymous with low quality and cheapness, but recently supermarkets have become more sophisticated at marketing their own-label alternatives. Across the largest six markets in Europe, supermarket own-label brands are growing faster and have reached a 50% share of the grocery market.

The supermarkets have been winners since Russia's invasion of Ukraine, with Sainsbury's up by a third and Tesco up by 90%. By contrast, Diageo has halved in value over the same time period, as other global spirits groups such as Brown-Forman, Pernod and Rémy Cointreau have all struggled. Reckitt and Unilever, which sell everyday items, have also struggled to match the performance of the food retailers.

Some of that performance reflects the starting point, with investors in Reckitt, Unilever and Diageo prepared to pay 20 to 30 times earnings, a premium valuation. Brands are long-duration assets. Arthur Guinness began selling beer in 1759. Before the pandemic, investors were prepared to accept low dividend yields as the discount rate for long-lived assets was low. When “risk-free” UK ten-year gilt yields rose from around 1% five years ago to approach 5.5%, the low dividend yields of consumer staples groups lost their relative appeal.

In an inflationary environment, consumer brands should be able to raise dividends in line with nominal growth. Yet Diageo halved its dividend at the group's December half year to give management more financial flexibility as it struggled with falling sales and a 26% drop in reported earnings per share while burdened with $22 billion of net debt, equivalent to 3.4 times Ebitda.

This points to an essential difference between 1970s inflation and the 2020s version. Although the cause of the inflation was remarkably similar – energy-price shocks from conflict – the level of indebtedness has proved more significant for share-price performance. The corporates themselves are carrying more net debt: Diageo's interest costs have risen 2.3 times from 2022 to 2026. Customers who buy brands are more heavily mortgaged than in previous decades. Unlike in the 1970s, middle-class professionals have faced a severe wage squeeze relative to inflation and many carry far more household debt relative to disposable income. Following the financial crisis, real wages have stagnated in the UK, but those earning close to the minimum wage have seen their earnings outpace those earning the median – the so called “K-shaped recovery”, with the top 10% and the bottom 10% seeing gains, while workers in the middle of the pay distribution have been going backwards in real terms.

Thus, despite the expectation that consumer-brand groups would protect investors from inflation, the groups have lost market share and struggled to grow revenue. At €50.5 billion, Unilever's turnover remains below the €51.3 billion that the group reported in 2012. There are signs of recovery. At the first-half results in June, the group reported 4.8% underlying sales growth, and at £49 per share the group trades on a price/earnings (P/E) ratio of 16.9 times December 2027 forward earnings and an EV/Ebitda of 12 times the same year. That includes the food brands, with the McCormick deal expected to complete next year.

Some consumer brands groups have ‘lost the plot’

Some of the consumer-brands groups have also become unfocused and inefficient. Dave Lewis, the new CEO of Diageo, is targeting $1 billion (or 12% of administrative expenses) of annual savings and is aiming to reduce waste, duplication and inefficiency. In his 2021 letter to investors, Terry Smith questioned whether Unilever had “lost the plot” as management pondered the broader purpose of Hellmann's mayonnaise, trying to convince us that buying the condiment was a step towards sustainability and environmental friendliness.

Unilever responded to the criticism by restructuring its portfolio. First it demerged Magnum Ice Cream into a £9 billion spin-off, then combined its food brands with McCormick in the US. At its first half results in June, Magnum reported organic sales growth of 4.7%. The group trades on a P/E ratio of 16 times December 2027 forward earnings and an EV/Ebitda of 9.2 times.

Brands, by their nature, attempt to create a feeling of association, that they stand for values consumers identify with. This association should mean a brand occupies a place in the collective consciousness so a shopper feels good choosing their ice cream on criteria other than price. Yet as brands become more global and management fear offending anyone, they become anodyne. Reckitt Benckiser defines its purpose as being to “protect, heal and nurture in pursuit of a cleaner, healthier world”. Diageo says its purpose is celebrating life. Perhaps they're losing their edge?

Aside from existential angst over purpose, consumer brands have also created their own problems, not least with poor-value acquisitions. Reckitt is facing legal problems in the US over its infant formula feed. In March 2024, an Illinois state court jury awarded $60 million to a plaintiff. In June this year, the court overturned this verdict and ordered a re-trial. It remains unclear what the final liabilities will be. Management impaired £5 billion of goodwill from the Mead Johnson Nutrition acquisition in its 2019 fiscal year, primarily due to increased competition in China and weaker Chinese market growth, followed by further large impairments in 2023 and 2024 related to the infant formula specifically. Reckitt's acquisition of Mead Johnson for $16.6 billion (at the time £13 billion) in 2017 was an “unforced error” and represents one of the worst UK corporate acquisitions since Royal Bank of Scotland's bid for ABN Amro.

Investors must tread carefully

Investors have long accepted that hubristic bank management can make foolish acquisitions at the wrong point in the cycle. However, consumer-brand groups that sell household products and over-the-counter treatments such as Strepsils and Nurofen should not be causing investors headaches. Reckitt's first-half results in June 2026 showed that goodwill and intangible assets on the balance sheet stood at £15.9 billion, almost three times the group's shareholders' equity of £5.7 billion. Net debt stood at £9.4 billion (2.5 times adjusted Ebitda). Reckitt reported like-for-like revenue growth of 2.6% at its first-half results in June, below the level of inflation. The shares trade on a 15.2 times P/E based on 2027 forward earnings, or 11 times the same year's EV/ Ebita. Unlike Buffett's purchase of See's Candies in the 1970s, it has been the “goodwill” from the acquisition of Mead Johnson that has caused problems. That said, even Kraft-Heinz, backed by Buffett a decade ago, has seen its shares fall 70% since 2017. Investing in consumer brands can trip up even the best investors.

The case for buying Diageo

Diageo, owner of the Johnnie Walker whisky, Smirnoff vodka and Guinness brands, as well as of around 200 others, has seen its rating go from above 30 times P/E during the pandemic to 13 times now. Some of the exuberance five years ago was driven by a rise in demand from households stuck at home, which saw sales jump around 40% to £15.5 billion in the two years of the pandemic to the June 2022 financial year.

This was not sustainable, and sales are now forecast to remain below the $20 billion (£15 billion) level until the June 2029 financial year. Some of the derating has been driven by fears that GLP-1 weight-loss drugs will also reduce alcohol consumption. However, Diageo’s stalling revenue growth predates the advent of these drugs. Between 2013 and 2018, sales flat-lined. Management responded by suggesting that although alcohol consumption was on the decline, drinkers would pay up for quality – the trend towards so-called “premiumisation”.

Certainly, “Generation Z”, those born between 1997 and 2010, are drinking less. Yet premiumisation was a strategy that might have appealed to management and high-earning fund managers, but not to middle-class customers. Perhaps those who sit in the top half of the “K-shaped recovery” are out of touch with the challenges that consumer-brands groups’ customers have faced.

Effectively, the investment case in Diageo has shifted from being that of a “quality compounder” to becoming a classic turnaround story, with the new chief executive “kitchen sinking” his first set of results. In November last year, Diageo announced that Dave Lewis, former boss of Unilever and well regarded for his turnaround of Tesco, would become CEO from the start of this year. Lewis has wasted no time, first cutting the dividend in February, then hosting a Capital Markets Day (CMD) in August. At the CMD, management presented targeted cost savings of $1 billion per annum from group overheads, back-office operations ($850 million) and supply-chain efficiencies ($150 million). Results for the financial year to June showed that organic sales were down 2% across the group, and down 8% in North America. Management expects that negative trend to continue in North America, but the medium-term group target is for low single-digit organic sales growth.

Management hopes that its ready-to-drink (RTD) offerings – that is, pre-mixed gin and tonics and the like – could deliver growth and appeal more to younger generations. It is also walking back from the premiumisation strategy and will now put a greater emphasis on value brands to remain relevant to customers who are feeling squeezed.

Diageo’s shares are trading on a 13.3 times P/E based on June 2028 forward earnings or ten times EV/Ebitda the same year, well below historic averages. The yield is 2.5% as the dividend was cut to $0.50 (or 37p) in February, although the full-year dividend is now covered three times. The shares are down 60% from their peak in 2022, but have begun to recover this year. They are a buy.

Bruce owns shares in Diageo

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The latest battery pack from Chinese company CATL promises to put range anxiety to bed for good, with the potential for 1,500km on a single charge. When they finally come to top up, electric car drivers can add 520km of range in just five minutes. Chinese car maker BYD has introduced a vehicle-mounted drone platform. In theory, the average Chinese electric car driver could drive from Beijing to Shanghai on a single charge, receiving food deliveries on the way.

This is just one way Chinese manufacturers are reshaping industries and a clear sign of China’s extraordinary innovation impulse. China is leading the way on patents, currently submitting around 4x the level of patents as the US. It is a global leader in areas such as robotics, clean energy technology and electric vehicles (EVs), and is increasingly competitive with the US on artificial intelligence (AI).

Yet many conventional economic indicators for China look depressing. Retail sales, for example, have barely grown over the last 12 months. The housing market, long a drag on household wealth, continues to go backwards. Deflation is a spectre looming over the economy. There is huge over-supply in certain industries thanks to inefficient government subsidies and difficulties in key export markets, such as the US.

Potential investors in China must deal with these competing realities. The Chinese stock market has real breadth and encompasses the good and bad of its economy. On the one hand are innovation powerhouses, on the other are sclerotic state-owned enterprises run for the good of the country rather than the good of shareholders.

Shifting sources of growth

For Will Mackintosh-Whyte, fund manager of asset manager Rathbones’ multi-asset portfolios, this is the sign of an economy in transition.

“We believe that the growth model in China is changing,” he says. “Property and infrastructure are no longer doing the heavy lifting they once did. Increasingly advanced manufacturing – semiconductors, automation, robotics, machine tools, EVs, batteries – and increasingly sophisticated capital goods, technology and AI… are the new growth drivers.

“China's manufacturing competitiveness remains an important source of support to the economy, and is likely to be a bigger driver of growth than the consumer,” he added. Domestic consumption, by contrast, “while strategically important, is currently weaker, weighed down by the continuing softness in property impacting consumer confidence”.

This dual-speed economy is evident in funds investing in the region. While returns from the Chinese stock market have, as a whole, been pretty miserable over the last 12 months, some funds have delivered excellent returns. The gap between the top and bottom performing funds in the IA China sector is 64% over three years. Top-performing funds such as the T. Rowe Price China Evolution Equity Fund or JPM Greater China Fund have risen more than 50% over that period, but the weakest funds are under water.

Targeting innovation

China has seen the same boom in AI infrastructure spending as the US. It is now becoming increasingly competitive with the US, albeit with a different model. Its AI is open-source, meaning it can be used and adapted by anyone. This makes it different from US AI, which is owned by individual companies. China doesn’t have the sophisticated ‘frontier’ models for AI, such as those from Anthropic, but these aren’t necessary for many of the hoped-for productivity gains from the new technology.

Mackintosh-Whyte, for example, is gaining exposure to AI growth through cloud provider Alibaba (NYSE:BABA).

“It gives exposure to Chinese cloud, enterprise AI and model adoption, which has its own chips and around 10,000 enterprise large language model (LLM) clients,” he says.

He also has exposure through non-US listed companies with significant Chinese businesses. “ASML (AMSTERDAM:ASML) and Applied Materials (NASDAQ: AMAT) are names we own who produce products which are part of the semiconductor supply chain where China is an important end market. We have copper exposure – directly and via owning Freeport-McMoRan (NYSE:FCX) – where the Chinese investment in the electricity grid is driving significant demand for the metal.”

Dale Nicholls, portfolio manager of Fidelity China Special Situations (LON:FCSS), says it is still early days on AI investment and there will be winners and losers, but initial signs for many of the large platforms – TenCent (HK:700), Alibaba and Bytedance - is positive.

“Encouragingly, we are seeing them become more disciplined elsewhere, reducing losses in highly competitive areas such as food delivery while directing more capital towards AI infrastructure, cloud and applications that could strengthen their long-term competitive position,” said Nicholls.

Nevertheless, as in the US there are some worries over the potential for an AI bubble. Valuations in AI companies in China may not be as stretched as their US peers, but they have been subject to similar excitement. With that in mind, Nicholls is seeking less obvious routes into the Chinese innovation trade.

He expects the next phase of adoption to extend beyond digital applications into physical or ‘edge AI’.

“Robotics, autonomous driving, smart devices and wearables should become increasingly important as intelligence is embedded directly into products and services,” he says. He holds robotaxi group Pony.ai (HK:2026) in the portfolio.

Looking beyond AI, Nicholls also holds battery pioneer CATL (HK:3750). While the electric car market looks saturated and most companies are unprofitable, CATL should be a major beneficiary of the electrification trend. It is also moving beyond cars, leveraging its capabilities in energy storage systems to capture growing demand from the AI infrastructure buildout.

“As AI deployment increases electricity requirements, we see opportunities across the wider power ecosystem,” said Nicholls.

Roderick Snell, manager of the Baillie Gifford Pacific Fund, is investing in some direct AI beneficiaries, such as Mech-Mind (HK:9615), a company that develops 3D machine-vision systems – effectively the eyes of robots. However, he is also investing in energy, resources and construction companies that will benefit from demand for power infrastructure and critical materials, both from AI and from the electrification of China’s economy.

How can you invest in China?

A low cost route to access China’s stock market would be through an index-tracking fund or exchange-traded fund (ETF). The HSBC MSCI China UCITS ETF (LON:HCHA), for example, would give investors a decent weighting in Alibaba and TenCent. The problem is that it also gives access to a lot of ‘old economy’ Chinese companies. It has just 11% of assets invested in technology as of 30 September, with higher weightings in consumer and financial companies. Like the broader Chinese stock market, it has fallen over the past 12 months.

Paul O’Neill, chief investment officer at Bentley Reid outlines a possible alternative: “We own the Amundi Core MSCI China A Swap ETF (LON:C027). It tracks the MSCI China A index, which covers large and liquid A-shares listed in Shanghai and Shenzhen, priced in RMB.” The ETF’s top holdings include CATL and chipmaker Cambricon (SHANGHAI:688256). The ETF mixes battery and AI hardware leaders with banks, insurers and utilities.

“The top ten are only about 18.5% of the fund, and it is diversified across roughly 400 stocks,” said O’Neill.

Active funds may provide more targeted exposure to China’s new innovation economy. The Baillie Gifford Pacific fund, for example, has 48% of assets invested in technology, with only negligible amounts in areas such as real estate. The Allianz China A-Shares Equity Fund focuses on ‘created in China’ industrial and technological advances.

The innovation story in China is every bit as powerful as that of the US. There are industries where China is leading the world and it looks increasingly competitive in areas such as AI. Investors have plenty of options to target this part of China’s economic growth story, while ignoring its sluggish, legacy industries.

AI and technology stocks perked up early this week following the publication of the IPO prospectus for Anthropic. Investors took heart from news that the Claude chatbot maker pulled in more than $16 billion in revenue in the first half, says Ipek Ozkardeskaya of Swissquote.

But cracks have begun to emerge in parts of the AI landscape. The cost of insuring debt issued by CoreWeave, a “neocloud” data-centre business, recently rose to allow for “a more than 60% chance of default within the next five years”, according to Bloomberg. CoreWeave is a highly leveraged owner-operator of potentially fast-depreciating assets, says Victor Balfour of Rothschild & Co. It's little surprise the shares have plunged 67% since their peak in June 2025.

That doesn't necessarily spell doom for AI more generally. The technology “hyperscalers” are much more robust – Microsoft shares have risen 38% since the start of July. These companies are issuing a lot of debt to pay for their AI investments, but their strong operating cash flows and balance sheets are “reassuring”.

Stijn Van Nieuwerburgh of Columbia University estimates that spending on AI data centres, power systems, networking infrastructure and specialised chips will hit $10.3 trillion in 2025-2032. On an annual basis, investment will run at 3.63% of US GDP. For comparison, the late 1990s dotcom boom saw capital spending equivalent to 1.1% of annual GDP; the 1870-1890 US railroad mania was previously the historical leader at 2.24% of GDP.

As the credit boom goes on, Van Nieuwerburgh warns financing is moving into an opaque world of “joint ventures, private credit, securitisation, special-purpose vehicles, lease commitments and loan guarantees”. That makes it much harder to keep track of where dangerous credit risks are accumulating.

AI profits bubble?

The Nasdaq 100 trades on a forward price-to-earnings ratio a little over 20 times, a premium rating but not obviously bubbly. That's because the “bubble is in profits, not valuations”, says Edward Chancellor on Breakingviews. Big American blue-chips have reported breathtaking earnings growth; S&P 500 earnings per share rose 26% in the 12 months to July, far above the long-term average of 7%. Morgan Stanley predicts the 42 most AI-exposed firms will grow profits by 67% this year.

But the AI profit boom is something of an accounting “mirage”. When a hyperscaler such as Microsoft buys a chip from Nvidia, the latter is able to book an immediate sale, but the former acquires an “asset” that depreciates slowly over a number of years. Unless the chips deliver the promised earnings bonanza, an earnings hangover will eventually catch up with the hyperscalers – “by the end of the decade… annual depreciation charges will range between $500 billion and $1 trillion”.

Earnings bubbles have occurred before, notably in US housebuilders at the 2006 peak of the property bubble. Should US profit growth revert to the historical mean and losses emerge at data-centre operators and AI frontier labs, then the damage could “metastasise through the financial system”.

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The utilities and infrastructure sector has seen new structural growth drivers in the last few years. And the Ecofin Global Utilities & Infrastructure Trust (LSE: EGL), launched just ten years ago, gives exposure to the sector's long-term trends, solid protection from inflation and high degrees of predictability of future cash flows.

The bulk of our infrastructure was built in the era following World War II and now significant capital expenditure is required to renovate it after decades of under-investment. The US's Inflation Reduction Act of 2022 and Germany's €500 billion infrastructure programme aim to address the issue.

Furthermore, demand for electricity is accelerating after 25 years of decline and is expected to rise by about 50% in the next decade. Energy-intensive AI data centres are securing their power supplies through multi-decade procurement contracts, which are proving highly profitable for utilities. Such fundamental drivers are yet fully to be appreciated by equity markets and there are attractive entry points for undervalued companies with solid earnings outlooks. Three shares stand out to me as particularly compelling.

Three utilities and infrastructure stocks to consider

One of the most unfairly hit infrastructure stocks is Canadian developer Brookfield Renewable Partners (NYSE: BEP), down more than 20% since its highs at the end of May. The group operates a portfolio of high-quality renewable assets in North America and across the world and its strategy is to gather assets essential to energy security to meet growing demand worldwide. This includes nuclear assets in the US through Westinghouse, acquired in 2023. The group has developed a major franchise in batteries, with an 80GW development pipeline, reinforced by the 2024 acquisition of Neoen, and is well positioned to supply data centres. The firm also has one of the strongest balance sheets in the sector and we expect it to deliver earnings growth of about 15% a year over the next three years, with 90% generated from long-term contracts and with 70% of revenues inflation-linked. The stock offers a 5.5% dividend yield.

Greece's power transmission operator ADMIE (Athens: ADMIE) provides exposure to one of the fastest-growing markets in Europe. Its subsidiary, IPTO, Greece's sole transmission system operator, plans to double its regulated asset base by 2029. A $530 million equity issuance earlier this year provided the finance for this ambitious capital-expenditure programme. The regulatory framework provides a pre-tax return on equity of 9.8%, at the top end of the range of its European peers. The stock, down by more than 10% since late June, trades on a price/earnings ratio (P/E) of 14 times, with a 2.7% dividend yield. This looks attractive and growth in earnings per share (EPS) over the medium-term is expected to be 25%-30% a year.

Through its combination of flexible renewable-power generation and transmission assets, SSE (LSE: SSE), the UK-listed energy group, is well positioned to benefit from the energy transition. By 2030, 80% of group revenues are bound to be either regulated or fully contracted. SSE expects 25% annual growth in its regulated asset base over the 2025-2030 period via a fully funded £33 billion capital-expenditure programme. The stock trades on a p/e of less than 12 times and annual growth in EPS solidly in the double digits. Annual dividend growth is expected to be 5%-10% over the medium term. SSE looks like one of the cheapest stocks in the pan-European utilities sector.

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British engineering firm Tek4 is joining London's junior market, Aim. It’s particularly welcome, as the London stock market has spent much of the past decade shrinking. British companies have been taken private or, in some cases, tempted to list in New York instead. Too few new arrivals have replaced them, leaving investors with a dwindling choice of growing domestic businesses.

Tek4 is a small engineering company based in Leicestershire. It makes highly specialised equipment for some of the world's biggest manufacturers of jet engines and power-generating turbines. Its shares will begin trading on 26 October. But is Tek4 worth buying?

Tek4 helps solve tough engineering problems

Modern jet engines operate at extraordinary temperatures. The gases flowing through their turbines can be hotter than the melting point of the metal blades inside them. Nonetheless, those blades must survive thousands of hours of service without failure. The solution is ingenious. Engineers pump relatively cool air through hollow passages inside each blade. Thousands of tiny holes allow that air to escape across the blade's surface, forming a protective film between the metal and the scorching gases. This lets engines run hotter, improving efficiency and reducing fuel consumption. Making those holes is extremely difficult. Turbine blades are made from exceptionally tough alloys and protected by ceramic coatings. The holes must be drilled at precise angles, sometimes through walls barely a millimetre thick. Drill too far and the tool can damage the opposite wall inside the hollow blade, ruining an expensive component.

This is where Tek4 comes in. Its equipment uses electrical sparks to remove tiny amounts of metal with extraordinary precision, a technique known as electrical discharge machining (EDM). Sophisticated controls detect when the tool breaks through the blade wall and stop it before it causes damage. Other systems combine lasers with EDM, allowing manufacturers to drill through ceramic-coated blades without moving them between machines. For an engine manufacturer, the purchase price of such equipment is less important than its ability to produce thousands of accurate holes without damaging valuable components.

Tek4 was founded in 2002 by Jason Duffin, an engineer who had already spent years developing machinery for the turbine industry. He previously helped establish MJ Technologies, another specialist engineering business. Drawing on that experience, Duffin concentrated on solving the difficult manufacturing problems faced by turbine makers rather than competing in the crowded market for general-purpose machine tools.

That focus has given Tek4 an international customer base. Its customers include aerospace and power-generation companies such as Rolls-Royce, GE Vernova and Siemens Energy. Although based in Leicestershire, much of its sales go overseas, principally to America and Europe.

Customers also have good reasons to stay. Manufacturing processes for critical engine components must meet exacting standards. Once equipment and its operating procedures have been approved, switching suppliers can require expensive testing and disrupt production.

Tek4 also supplies maintenance, upgrades and specialist tooling. These relationships give it more durable earnings than investors might expect from a small machinery manufacturer.

Tek4 still has room to grow

Tek4 generated about £16 million in revenue in 2025, almost twice the previous year's figure, while reported profit more than tripled to around £4.2 million. It sold more than 40 machines during the year, with individual systems typically costing between £300,000 and £750,000. Such expensive equipment makes annual results inherently uneven. A handful of additional sales can transform revenue and profit, particularly given the fixed costs of running a factory. Equally, delays to a few orders can have a disproportionate impact on earnings.

New equipment accounts for most of the business, but servicing, maintenance and upgrades contribute a meaningful amount of revenue. This provides a more dependable income stream, as customers need to maintain their machines throughout their working lives. It also strengthens Tek4's relationships with customers and creates opportunities to sell additional equipment as their requirements evolve.

Demand is supported by rising aircraft production and investment in electricity generation. Modern engines require increasingly sophisticated cooling systems, while manufacturers are seeking ways to improve productivity and reduce waste. Tek4 plans to add a second assembly line at its Leicestershire factory, increasing production capacity substantially.

The company is also broadening its capabilities. In April it acquired Rugby-based InnoLas, a British specialist in advanced laser technology. This could strengthen its existing equipment and eventually open opportunities in other precision industries, including medical devices and semiconductors. But for now, its prospects rest chiefly on turbine manufacturing.

Why investors should buy Tek4

The listing will also give existing investors an opportunity to sell shares. Robin Womersley, a corporate financier and early investor, currently owns 56% of the business, while Duffin holds 34.5%. Duffin is expected to retain a substantial stake after the listing. His interests will therefore remain closely aligned with those of other shareholders.

Once trading on Aim, investors will need to assess the valuation alongside the company's earnings, growth prospects and the amount of capital, if any, raised for the business itself. There are risks. Tek4 operates in a narrow market, depends on a relatively small number of major customers and sells expensive equipment that buyers can postpone ordering. Its recent results have been impressive, but investors should not assume sales and profits will keep rising at the same pace.

Nevertheless, Tek4 has built a profitable international business around a difficult engineering problem, supported by specialist expertise that competitors cannot easily reproduce.

One flotation will not reverse years of decline in London's equity market. But Tek4 is a reminder that Britain still produces successful engineering businesses capable of competing internationally. The company looks a promising addition to the Aim market. Whether it becomes an attractive investment will depend on the price shareholders are asked to pay.

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JCDecaux (Paris: DEC) has become an unexpected winner of the global AI boom. The company, which owns thousands of billboards and other advertising assets worldwide, isn't the most obvious AI play. But thanks to its vast real-world estate, it's reaping the benefits of a shift in spending by advertisers. As the market has woken up to this potential, the shares have charged higher, rising more than 70% this year alone.

Why JCDecaux's advertising strategy is a success

JCDecaux operates in the so-called out-of-home (OOH) advertising market. As I mentioned in a recent feature, this is one of the few traditional advertising mediums that have seen demand from advertisers rise over the past decade. According to WPP, one of the world's leading advertising companies, OOH advertising revenue is expected to grow 5% to $57.5 billion globally in 2026, then grow another 5.3% in 2027. By 2031, the group has pencilled in a total market size of $73.7 billion. WPP calls this growth a “structural anomaly”: while other traditional advertising mediums, such as radio, TV and print, are shrinking as a percentage of global spending, OOH is holding its own.

In the $720 billion-a-year global advertising market, digital platforms get the largest share of spending. Platforms such as Facebook and Google account for half the market. These are designed to get users to click through to websites and buy products or services. Alongside these are AI platforms, such as ChatGPT and Gemini, that have started embedding advertisements into responses, a market expected to exceed $100 billion by 2031, up from only $5 billion today.

The thing is, no one really knows whether people are seeing the advertisements displayed on these platforms. Fraud is rife and more than half of all online traffic is now just AI bots. Estimates vary, but on average, figures suggest that as much as $1 of every $3 advertisers spend online is lost to fraud or non-human engagement. In some cases, that rises to $1.5 of every $3.

Advertising has always had some level of such “leakage”, but this level is unprecedented. OOH fills in this gap nicely. Advertisers can pick one location, say Bank Underground station in the City of London, and know they're in one place, with tens of thousands of people passing through every day. It's straightforward to target a particular audience in a given place with digital advertising, but there's never a guarantee that that person or digital device is where it says it is. It's hard to move a station, airport, or shopping centre, where the most lucrative OOH billboards tend to be located. Stadiums are another top play.

That's not to say OOH is winning at digital's expense. It's part of a toolkit. OOH is mainly used for visibility and brand building and helps drive awareness of the brand, increasing the likelihood you'll click a similar advertisement the next time you see it online. As analysts at Berenberg note, OOH enables the “critical need for brand differentiation as AI rapidly commoditises content”.

JCDecaux is a family success story

JCDecaux effectively created the market for outdoor advertising. In 1964, Jean-Claude Decaux invented the concept of “street furniture”, with bus shelters financed by advertising in Lyon (France). Two years later, it started rolling out the same concept across Europe. Since then, the business has grown alongside the advertising industry. It has worked with local governments, advertising agencies, clients, and world-leading designers, such as Norman Foster, to create street furniture and OOH advertisement placements that fit the environment, using space that would otherwise go unused.

Today, the founding Decaux family still owns a majority of the business (66% via JCDecaux Holding SAS) and it holds a 12% share of the global OOH market, making it the largest single player. France is still its largest single market with 17% of revenue generated in the country, followed by the UK (11%) and US (8%). The rest of Europe accounts for 30% of revenue, Asia-Pacific for 21% and the rest of the world 14%. Street furniture is the group's biggest revenue segment, making up just over 50% of sales and 66% of earnings before interest, tax, depreciation and amortisation (Ebitda).

Should you invest in JCDecaux?

Operating OOH assets is not particularly capital- or resource-intensive. The company has reported near 20% Ebitda margins for the past few years and Berenberg has pencilled in margin growth to 22.2% by 2028. While the group has some debt, it's manageable at 1.1x Ebitda. What's more, with free cash flow of €336 million in 2025, rising to €354 million by 2028, analysts believe the company is on track to wipe out its debt within the next three years.

However, that's unlikely as the group is hunting for deals in multiple markets, in the range of around €100 million – or around 50% of annual free cash flow after dividends. Even without these deals, Berenberg believes the group can grow its top line in line with the market over the coming years, with adjusted Ebitda rising faster – 6%-9% thanks to margin growth.

Even after running 70% higher this year, the shares trade at a relatively undemanding valuation of 17.1 times forward earnings and a free cash-flow yield of 6.6%. That does not appear to give any account for its growth or possible bolt-on deals. On Berenberg's 2028 estimates, JCDecaux is selling at 14.4 times earnings and a free cash-flow yield of 7.2%. The shares also yield 3%.

JCDecaux stands out for its rock-solid balance sheet, free cash flow and presence in a market that is full of AI-related risk, and seems to be holding its own against the digital onslaught.

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Our ETF portfolio has become a little over-exposed to tech, so it's time to introduce a new fund.

“Unprecedented” is a word that gets thrown around too easily, but make no mistake: the AI infrastructure boom that many investors are betting on would be unprecedented in scale – if it materialises.

Total spending based on the announced data-centre pipeline could amount to $10 trillion in the US between 2025 and 2032, according to a paper by Stijn Van Nieuwerburgh of Columbia Business School, which would be 3.6% of GDP. The previous record was the 2.2% of GDP spent on railways between 1870-1890.

This doesn't mean that it's impossible, but if expectations are not met, makers of chips and other hardware – who are earning huge profits from an incredibly tight market – may not enjoy as many years of limitless demand as forecasts currently suggest. And the recent jitters in data-centre and memory stocks are a sign that the cost of disappointment could be severe.

The most unexpected downside could be in emerging markets; almost 45% of the MSCI Emerging Markets is now in tech, mostly in hardware suppliers. At present, we have 10% of our MoneyWeek ETF portfolio in the iShares MSCI Emerging Markets ETF (LSE: EMIM). We also have 5% in WisdomTree True Emerging Markets ETF (LSE: WEMP) to tilt to traditional emerging markets (there's no China, Korea or Taiwan in that fund).

I have often said that if we start to worry more about the sustainability of the AI cycle, we need to keep an eye on our ETF portfolio's tech exposure via EMIM. Increasingly, we feel the urge to act on that, so we are going to cut the 10% in EMIM to 5%. This brings our headline emerging-markets exposure to 10%, but the real effect is to bring down the total tech exposure that is hidden in our overall emerging-markets position.

We can still have higher tech exposure if we want, but do so in a way that becomes explicit – eg, hold something like iShares MSCI Global Semiconductors (LSE: SEMI). Or we can dial it down altogether. Either are valid – the key is that we can see more clearly what we have chosen to do.

When we look at how different sectors are performing, it is clear the market's top anti-AI or risk-off trade is healthcare. You can see in the chart how it has moved broadly inversely to the tech-influenced markets indemerging-ex over the past year.

A change to the MoneyWeek ETF portfolio

This makes sense. Other defensives such as consumer staples are battling a number of problems, including changing tastes and weaker pricing power. Of course, healthcare is not risk-free either. Medical costs are a political issue. The patent cliff never goes away. Concentration is not low: Eli Lilly is 11% of the sector index. It is not cheap: on a forecast price/earnings ratio of 17.5, the MSCI World Health Care is at the same valuation as the overall MSCI World. However, demographics bode well for demand and earnings should be steady. It is attractive in its own way, as well as diversifying us from AI. So we will add 5% in Xtrackers MSCI World Health Care ETF (LSE: XWHS) to our portfolio.

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So-called frontier markets account for about a quarter of the world's population today, but only 5% of global GDP. A little over half of the world's eight billion people are in emerging economies and about 12% of the world's population lives in developed countries.

The US and North America as a whole account for only about 4.7% of the world's population. But the US stock market makes up around 73% of the MSCI World index. And, while the World Federation of Exchanges tracks about 58,200 listed companies worldwide, the Magnificent Seven technology stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla) account for about 22% of global equity benchmarks.

Those figures speak volumes about the global influence of the US economy and financial system, but it also reminds us that there are other options out there for investors. Many frontier markets are chalking up growth rates in the mid- to high single digits and economies are opening up. Investors generally overlook these countries. But they really shouldn't.

One of the biggest success stories recently has been Vietnam. Its economy has been on a tear over the past five years as the trade war between China and the US has drawn in producers attracted by the country's low-cost labour and healthy infrastructure investment. GDP growth in the first nine months of the year hit 9%. To sustain growth, the government aims to invest $1.5 trillion in infrastructure by the end of the decade. Index providers didn't allow it to join emerging-market indices until the country pushed through major trade-settlement reforms and opened its markets to foreign investors. But on 21 September 2026, Vietnam officially became an emerging market when 27 Vietnamese stocks entered the FTSE Global All Cap index, with full integration phased in over 12 months.

Vietnam's growth and graduation underline one of the key trends that is set to shape the global economy over the next decade. As the Western world ages, emerging and frontier markets will play a crucial role in global economic expansion, contributing about 65% of global economic growth by 2035, according to S&P Global. Notably, frontier markets, particularly those in sub-Saharan Africa, will play a prominent role in this growth due to their favourable demographics.

What is a frontier market?

The term “frontier markets” was coined by the International Finance Corporation, the World Bank Group's private-sector arm, in the early 1990s, to serve as shorthand for the next generation of emerging markets. What constitutes a frontier market varies by the bank or NGO conducting the research, but generally, markets in this category have meaningful but still limited access to international financial markets and GDP per capita around one-third of the median level of emerging markets. That's not to say all frontier markets are low-income countries. Barbados and Bahrain are both classed as frontier markets by rating agency S&P Global and have estimated GDP per capita figures of around $30,000 (about 15% below Spain and Japan).

At the end of 2025, there were 56 frontier markets, up from 39 in 2012. The list has added previously unclassified countries as they've issued debt or made efforts to unlock capital markets. Four frontier markets (Bulgaria, Costa Rica, Panama and Romania) have become emerging markets since 2012 by attaining high-income status, but as the World Bank notes, only Vietnam has actually graduated from frontier market to developing market in the eyes of equity-index providers.

Around a third of frontier markets are located in Africa, which has long drawn investors seeking exciting, underdeveloped growth markets. But its reliance on the volatile commodity industry, along with limited internal investment and unsustainable growth, has often left investors disappointed. Now, it could be about to turn a corner, thanks to one man's vision.

One person lifts Africa's prospects as a frontier market

Africa holds about 30% of the world's mineral reserves, 8% of its natural gas and 12% of its oil reserves. It holds 40% of the world's gold and the largest reserves of cobalt, platinum and uranium, all key to the global energy transition, not to mention 60% of the world's uncultivated arable land. However, the continent has never really controlled its own resources. Money has flowed in to develop mines, then flowed right back out to shareholders in London and New York. Nigeria is a great case study. The US Energy Information Administration (EIA) notes that the country was one of Africa's top crude-oil producers in the 2000s, producing two million barrels a day. However, it lacked the refining capacity to turn this into usable fuel. Nigeria exported oil and then imported it back at market rates, losing wealth and exposing consumers to global oil-market volatility.

Africa's richest person, Aliko Dangote, has changed all that with his 700,000-barrel-a-day oil refinery in Nigeria. The $20 billion project keeps oil in Nigeria and lets it export refined products to other countries (its jet-fuel exports helped ease a global crisis following the closure of the Strait of Hormuz). The continent's largest oil refinery is listing its shares across Africa (on exchanges in Nigeria and Botswana), seeking to raise $1.6 billion from investors, with demand exceeding the offer by three or four times.

Dangote is looking to replicate this with a new refinery in Lamu, a coastal town in southeastern Kenya. Construction on the $16 billion refinery began in September. Tanzanian billionaire Mohammed Dewji has said he intends to invest $100 million in the project. Others are also moving into the region. Canada's Zimar Group signed a deal in August with Niger to build a $1.9 billion oil refinery and a petrochemical complex. France's TotalEnergies SE and its partners say they plan to invest $10 billion in Angola's oil sector over the next five years. China alone committed $33.5 billion to the region in the first half of 2026 under its Belt and Road Initiative.

Another example is fertiliser. It's no help having 60% of the world's uncultivated arable land if you don't have fertiliser to grow crops on it. The African Development Bank (AfDB) estimates that 80% of the fertiliser used on the continent is imported. Despite $15 billion invested in recent years to boost production, it's still not enough. Governments have now committed to tripling domestic fertiliser production and distribution by 2034.

This internal investment, driven partly by supply chains reconfiguring away from China, is fuelling the growth of the middle class in these countries. Rami Sidani, head of Frontier Investments at Schroders, notes that many companies “are benefiting from this expansion in the middle class, from this wealth effect that's trickling down and fuelling this domestic-consumption story”.

“Financial inclusion” is also a big part of the story. In many frontier markets, the vast majority of the population has historically been excluded from the banking system. That's changing rapidly with the adoption of financial technologies (fintech). Sidani cites the example of GCash in the Philippines. The company, which recently floated on the stock exchange with a $7 billion valuation, has become the country's go-to banking app. “Around 70% of the population in the Philippines has an e-wallet compared with around 40% who have deposits with banks,” he explains.

In Africa, the trend is even more pronounced. It used to take 18-24 months to open a branch in a rural area, says Sidani, but now consumers can access their money from their beds anywhere in the country.

Ahmed Awny, head of investments and portfolio manager of the Templeton Frontier Market Strategy, points to Safaricom and Vodafone, which launched M-Pesa, a mobile-phone-based financial services and money-transfer platform, in 2007 to piggyback on text-message technology for sending money. Nearly 20 years later, the technology has revolutionised financial services in Africa, and peers have sprung up all over the world: dLocal in Latin America; GCash in the Philippines; M-Pesa in Kenya; MoMo in Vietnam; Kaspi in Kazakhstan; and Airtel across Africa. The adoption of this technology has been as fast in frontier as in emerging and developed markets, if not even faster, because it has been taken up by younger generations, who are more aspirational, quick to adapt and to learn, says Awny.

How frontier markets are leapfrogging developed peers

Consumers in frontier markets are also leapfrogging their developed- and emerging-market peers in the rollout of AI. Cavan Osborne, a portfolio manager for Old Mutual in South Africa, notes that for this reason one of the most interesting sectors in Africa right now is telecoms. Five years ago, consumers sent messages and searched online using only a few bits of information per request; now, with AI search and AI tools, each request requires many more bits of data.

Sub-Saharan Africa is projected to see the fastest global 5G subscription growth, rising from roughly 30 million in 2025 to 370 million by 2031, according to the Ericsson Mobility Report. Mobile devices account for the vast majority of web traffic across African networks, driven by lower costs and a lack of fixed-line desktop infrastructure. In Nigeria, which has the most mobile users on the continent at more than 100 million, monthly mobile-data consumption surged from about 518,000 terabytes in early 2023 to more than 1.23 million terabytes by November 2025, an increase of roughly 140% in less than three years.

Airtel Money (LSE: AMC), the largest London initial public offering (IPO) since 2021, is one success story, says Osborne. The fintech was spun off from FTSE 100 firm Airtel Africa (LSE: AAF), one of the larger telecoms groups operating in Africa (others are South Africa's MTN, Vodafone, Orange and Dubai Etisalat). Osborne says it is growing by around 30% per year and most of the growth comes from “fees on payments, driven by new users as people switch to smartphones”. The mobile money business is “very capital light” and, despite growing at about 25%, pays out around 80%-90% of its earnings as dividends.

Osborne also highlights the opportunity in Africa's banking sector. “The [African] banks generally are quite simple,” he explains. “A lot of them just gather deposits and put them into government treasuries…where you could be getting 10%, 15%, 20% yields.” With a low cost base thanks to the rollout of technology and a lack of a need for a vast branch network, most lenders are quite profitable. From the bank's perspective, risk is also limited because the currency is hedged and default risk is generally low. That has helped make the banking sector one of Africa's best performers.

Such embedded structural hedges are vital for managing risk, says Awny. Take Vietnamese exporters. Vietnam's currency has been mildly depreciating over time, but for exporters, with a Vietnamese Dong-denominated cost base and exporting into a US dollar market, this has been a structural tailwind; or take Bank of Georgia, a subsidiary of Lion Finance (LSE: BGEO), which, like its peers in Africa, can adjust loan pricing to offset political and economic uncertainty.

Other markets are growing up too

Africa is seeing the most notable economic shift, but investors shouldn't overlook other regions. Awny points to central Asia, to Georgia, which is “now offering Eastern European governance, but at frontier valuations”, and Kazakhstan, home to world-class fintech platform Kaspi (Nasdaq: KSPI). Kaspi has 13 million active users in Kazakhstan out of a total population of around 18 million-19 million. The UAE is another example. It is technically an emerging market, but Sidani believes it's being “disregarded by the big global funds” and offers exposure to “multiple themes on the liberalisation and transformation of the economy”, including data centres and AI infrastructure.

Ten to 20 years ago, investing in frontier markets required a lot of legwork. Investors had to be on the ground, speak the language and be willing to do the work to find the best opportunities. That's no longer the case. Awny notes that many of these businesses are operated by managers of comparable quality to peers in New York or London. CEOs and their teams have also “cracked the manual on how to bring the equity story up to the level of the emerging markets”. “Today, if I take you to a company meeting in Ho Chi Minh City or in Hanoi in Vietnam, you will have the same level of spoken English, same level of detailed PDF presentation, as the one that you would have from Alibaba or from any company that you sit in front of in India or some of the developed markets,” says Awny. “The same is the case with Kenyan banks, Peru and Colombia, Morocco and Oman.”

Because operating in less efficient, less financialised economies adds friction, these companies also tend to have stronger balance sheets and higher returns, Awny notes. “Credit is not that easy; credit is costly,” he says, meaning most businesses must rely on internally generated cash flows. As a result, returns on equity and capital employed can be 300 or 400 basis points higher than the typical emerging-market company.

Much of the opportunity in frontier markets stems from their inefficiency and under-reporting compared with developed or emerging markets. But that opportunity also adds risk. Stocks in frontier markets are typically much less liquid than those in developed or even emerging markets. And while it has become easier to find information on businesses listed in these markets, transparency for the average investor is still poor. That's without considering trading restrictions. Hargreaves Lansdown and Interactive Investor, two of the UK's biggest trading platforms, don't offer direct share trading on any frontier markets, and only offer two or three emerging markets. Many of these countries themselves also place restrictions on international investors.

How to invest in frontier markets

For investors who want to invest directly, London offers a handful of names previously mentioned, such as Lion Finance and Airtel. Dangote Oil Refinery is pursuing a secondary listing in London, while Dangote Cement (the billionaire's first business) has appointed Goldman Sachs and UBS to offer about 10% of its shares in London via a secondary listing. Data from the LSE shows there are 110 African companies listed in London with a combined market value of $200 billion, but these include the likes of Old Mutual and Investec, both of which are based in South Africa. They offer frontier exposure, but you're also taking on extra risk. The National Investment Fund of the Republic of Uzbekistan (UzNIF) also listed in London this year.

Closed-ended vehicles are well suited to navigating the challenges of investing in frontier markets because managers don't face the risk of having to sell illiquid holdings at short notice to meet withdrawals. Jean-Baptiste Andrieux, an analyst at Kepler Trust Intelligence & Expert Investor, highlights BlackRock Frontiers (LSE: BRFI), which specialises in frontier markets and smaller emerging markets, excluding the largest markets by capitalisation (that is, Taiwan, South Korea, China, India, Brazil, Mexico and South Africa). Managers Sam Vecht and Emily Fletcher analyse macroeconomic cycles across the countries, then position the portfolio according to where they see the best stock opportunities.

Andrieux recommends combining frontier with smaller emerging markets, which are often underrepresented in emerging-market indices and funds. Redwheel Next Generation Emerging Markets, managed by James Johnstone and Victor Erch, is one option. There's also the Templeton Frontier Markets Fund, managed by Ahmed Awny and Bassel Khatoun, and the Schroder International Selection Fund Frontier Markets Equity, managed by Rami Sidani.

Neither the quality of management nor the quality of these companies' balance sheets is reflected in valuations. At the end of September, the MSCI World index traded at a trailing 12-month price/earnings ratio of 22.7, a price-to-book-value ratio of 4.1 and a yield of 1.5%. By comparison, the Templon Frontier's portfolio is trading at a book ratio of 2.1, and a 12-month trailing P/E of 10.2. Schroder Frontiers has a valuation of 9.9 times earnings. According to Morningstar, Redwheel's fund has the cheapest portfolio, trading at just 8.3 times historic earnings.

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For investors in healthcare stocks, the Worldwide Healthcare Trust is a one-stop shop. It is run by experienced academic and industry professionals, all with scientific and healthcare backgrounds. We take a bottom-up approach to stock selection, focusing on innovation and growth, resulting in a portfolio of “best ideas”.

Three healthcare stocks to consider

Nothing has been more innovative or had a greater impact on human health recently than the 20-year-old class of drugs known as the GLP-1s. Years of pioneering work by Eli Lilly (NYSE: LLY) has resulted in a metabolic medicine that is better, stronger and safer than ever before. The weight loss and blood-sugar control offered by tirzepatide (brand names Mounjaro and Zepbound) are best in class, but that is not what we are excited about. It is the multitude of other health benefits that is likely to drive future growth. These include relieving cardiovascular, kidney and liver disease, sleep apnea and arthritic pain, and perhaps will extend to cognitive benefits, mood disorders, addiction, cancer, inflammatory disorders and even disease prevention.

Eli Lilly remains at the forefront of this innovation and its offerings include recently launched oral versions, next-generation injectables that should increase efficacy (retatrutide) and tolerability (eloralintide). We are at the dawn of an era of new “super medicines” that will treat and prevent disease, ease ageing and promote longevity.

Bayer (Frankfurt: BAYN) may be best known for aspirin, but for investors the company has become synonymous with the long-running legal issues hanging over it due to its Roundup (glyphosate) product. This may be obscuring a significant transformation in Bayer's underlying businesses. In pharmaceuticals, Bayer is entering a new period of growth. Demand for newer products for prostate cancer (Nubeqa – darolutamide) and kidney disease (Kerendia – finerenone) continues to grow strongly. The lead asset in its pipeline of new drugs, asundexian, has been shown to reduce the risk of recurrent stroke by 26% in patients who are at risk and is now under regulatory review. Bayer also operates one of the world's largest agricultural businesses and has a pipeline of innovative new products. Importantly, the Roundup saga may finally be approaching a resolution and a proposed settlement could remove much of the uncertainty that has weighed on the shares for years.

CareDx (Nasdaq: CDNA) is evolving from a transplant-focused diagnostics company into a broader, high-growth precision-medicine platform. Its core “AlloSure” franchise is the leader in donor-derived, cell-free DNA testing for organ-transplant surveillance and is benefiting from increasing clinical adoption and expanding testing volumes. Growth momentum is already visible, with second-quarter revenues up by more than 50% and earnings by over 500%.

Importantly, CareDx is now leveraging its expertise in highly sensitive molecular diagnostics. The acquisition of Naveris brings “NavDx”, a blood-based test for viral-mediated cancers, opening a speciality oncology opportunity that management estimates represents a $5 billion addressable market. With accelerating organic growth, expanding margins, new opportunities in oncology and cell therapy, and a streamlined portfolio following the divestiture of its Lab Products business, we believe CareDx is at a turning point and has the potential to compound revenue and earnings at attractive rates for years to come.

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US insurance company Lemonade (NYSE: LMND) was founded just over a decade ago. It uses AI at every stage of the insurance process, from selling policies to dealing with claims, though it still employs human staff, arguing that this helps cut administrative costs.

While it is true that AI is undoubtedly going to change the world, not every AI-related share is a compelling investment. To make a success of AI, a company must pass several tests.

First, it has to come up with a way of doing something more efficiently. Next, it must find a way to make money. It will need to fend off competition, both from incumbents and new entrants into the sector. Finally, even firms that meet all these criteria can become poor investments if the shares rise so far that they become overvalued.

Lemonade is still losing money

Lemonade says it spends approximately 5% of the money it earns from premiums on handling claims, as opposed to the 9% figure typical for the industry as a whole in the US.

Lemonade also believes that AI can significantly accelerate operations, with over half of claims paid out instantly and most policies sold in under 90 seconds. Lemonade is undergoing a period of rapid growth, with sales increasing from $94 million in 2020 to $738 million in 2025. Revenue is expected to keep expanding at around 30% a year.

But the company continues to lose money, with estimates suggesting that – at the very least – it will be in the red both this year and in 2027 (though management believes that the firm may start to achieve positive earnings before interest, taxes, depreciation and amortisation – Ebitda – in 2027).

The competition is catching up to Lemonade

Another difficulty is that while Lemonade may be ahead of the technology curve today, other companies are catching up by pouring large sums into AI. For example, rival Allstate announced this summer that it is launching ALLIE (Allstate's large language intelligent ecosystem), while other major competitors such as State Farm plan to use AI too.

And while Lemonade argues that its status as an AI-driven company will always give it an advantage over companies built around legacy systems, it also has to compete with other AI-driven companies, notably Root.

Lemonade could begin to turn a consistent profit and fend off competition from both new and old rivals. But investors still have to acknowledge that its valuation is relatively expensive.

It trades at 3.7 times sales, more than four times the 0.83 times sales that Allstate, a profitable and fast-growing company, sells for. Moreover, Root, which operates a similar tech-driven model but manages to turn a profit, only trades at 0.48 times sales. Furthermore, Lemonade's recent share-price performance suggests that investors are starting to sour on it. The stock has fallen by more than 50% from its 52-week high and has lagged the wider market over one, three, six and 12 months.

It is also below both its 50- and 200- day moving average. I would therefore go short at the current price of $46.46 at $45 a share. Put the stop-loss at $67.46, which gives you a total downside of £945.

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Coupang (NYSE: CPNG) was founded by South Korean-born, US-raised entrepreneur Bom Kim. Having experienced America's customer-focused retail culture, he believed South Korea's dense cities and digitally connected population made it an ideal market for a modern logistics network.

South Korea may be a technological powerhouse, yet for a long time its retail sector lagged behind. The blame lay with the chaebols, the family-controlled conglomerates such as Hyundai that emerged after the Korean War and came to dominate the economy. Protected from foreign competition for years, they faced little pressure to improve service or convenience. That left a gap for Coupang.

Kim initially founded a Groupon-style business in 2010, but in 2012 he abandoned the online-coupon model in favour of logistics. The company began building warehouses and acquiring its own delivery fleet. At the time, venture-capital investors preferred asset-light software companies to capital-intensive infrastructure projects, leaving Kim struggling to secure funding.

The strategy required immense scale to become viable, resulting in years of heavy losses. Rather than relying on third-party couriers, Coupang adopted a direct-inventory model. It buys inventory outright and stores it within its own network. To make this work, Coupang developed proprietary software to predict localised demand, positioning inventory close to consumers before orders had even been placed. That reduced delivery times, improved efficiency and made rapid delivery economical in densely populated cities.

How Coupang went global

For the first few years, Coupang burned through cash and at times looked as though it might not survive. But in 2015, the investment firm SoftBank invested $1 billion, giving it the breathing space to keep operating for several years despite its mounting losses. The funding allowed Coupang to continue building fulfilment centres and refining its software. SoftBank's investment encouraged further backers before Coupang listed in New York in 2021. By then, the logistics network had reached sufficient scale for revenues to outgrow costs. Annual losses became progressively more manageable before the business turned profitable in 2023. This demonstrated that an automated infrastructure platform could generate attractive returns once the investment phase was complete.

Coupang now has more than 100 fulfilment facilities supported by proprietary software. Management has shifted its focus from building the network to increasing its utilisation by layering new services on top of the existing infrastructure. With the warehouses, software and delivery fleet already in place, additional transactions carry relatively little incremental cost. Every extra order offers the potential for higher profitability.

The first major extension was the WOW membership programme. Similar to Amazon Prime, it offers unlimited deliveries and free returns for a modest monthly fee. Members also receive Coupang Play, including live sport. The combination encourages customers to concentrate a greater share of their spending on the Coupang app, strengthening loyalty and encouraging repeat purchases.

Other expansions include Coupang Eats, launched in 2019, using the group's logistics for restaurant delivery. Fulfilment and Logistics by Coupang, introduced in 2022, allows third-party merchants to use the company's distribution network. Rather than simply selling goods, Coupang increasingly earns service revenues from businesses that depend on its infrastructure. In 2024 it acquired luxury marketplace Farfetch. The deal gives Coupang access to affluent consumers and the high-margin luxury segment, while extending its reach beyond South Korea and its core mass-market retail business.

Coupang faces headwinds – can it bounce back?

Building infrastructure on this scale also creates vulnerabilities. When millions of households depend on a single platform, failures can become costly. In 2021, a fire destroyed Coupang's Deokpyeong fulfilment centre, wiping out 16 million items. Regulatory problems have also emerged. In 2024, the Korea Fair Trade Commission imposed a 162.8 billion won (£92.4 million) fine after finding Coupang had manipulated search algorithms to favour its private-label products over third-party merchants.

The most damaging blow came in 2025 with South Korea's largest data breaches. A former employee gained unauthorised access to personal data affecting more than 33 million customers. The incident prompted management changes and a 1.7 trillion won (£1.2 billion) customer-compensation programme through platform credits and vouchers, rather than cash payments. In June, regulators imposed fines totalling £300 million over the breach and separate data-handling violations. The penalties were lower than feared.

The fallout extends beyond cybersecurity. In April, South Korea designated Bom Kim as Coupang's controlling shareholder, potentially subjecting it to stricter rules applied to conglomerates such as Samsung. The financial impact is now evident. Second-quarter sales rose 4%, but the firm fell to a loss of $160 million even excluding fines. Its shares have lost more than 60% since last year's highs. Political tension and weaker profitability have overshadowed a sophisticated e-commerce business. Coupang trades on an enterprise value-to-sales ratio of just 0.7, reflecting legitimate concerns over corporate governance, regulatory uncertainty and profitability, but placing little value on a logistics network that would be extremely difficult to replicate. If management can restore trust and recover margins, today's valuation could prove unduly pessimistic.

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The rise of the so-called “experience economy” offers a welcome alternative to our increasingly digitised life. It promises highly curated, in-person experiences offering the sense of community and direct physical engagement with the world that has been stripped from the daily rhythms of life.

It is a truism that people's lives are increasingly digitalised, but the data still retains the capacity to shock. UK adults spent 4.5 hours per day online in 2025, according to Ofcom. For 18-to-24-year-olds, the figure was six hours and 20 minutes, mostly on their smartphones. And it's not as though we are spending these digitalised lives with others. A significant number of people work remotely, at least some of the time. Over 40% of UK workers spend part of their week working from home.

More unsettlingly, when we are online, we often consume content that isn't even generated by a fellow human being. The marketing platform Ahrefs recently conducted a remarkable study showing that almost 75% of new websites contained significant AI-generated content. The machines aren't just delivering entertainment; they're creating it.

But as investors, we know that when something becomes abundant – screen time, digital content, isolation – something else becomes scarcer, and, typically, more valuable. Today, some of that scarcity seems to be migrating towards the experience economy.

An “experience” might be a trip to a concert or a sports match. It might be dining at a restaurant whose kitchen offers a special menu, or taking a trip to a beach with the softest sand and the bluest water. This isn't new. Business strategists Joseph Pine and James Gilmore coined the phrase “experience economy” in 1998, with the idea that companies could command pricing power through events that engaged consumers on a memorable, emotional level. But the forces that created the need for such an economy have only become stronger over the last quarter of a century.

What is the experience economy?

The evidence for an experiential boom in spending is already widespread. In its 2026 State of the Consumer report, consultancy McKinsey highlighted that the global experiences market between 2023 and 2025 grew more than three times faster than spending on non-essential goods. Mastercard recently found that 88% of British consumers would be happy to redirect their spending on things towards experiences.

Michelle Evans, data group Euromonitor's Global Lead on Retail & Digital Consumer Insights, says there is a broad rotation among consumers from “owning more to experiencing more”. The trend has been building for over a decade, but has accelerated since Covid.

It seems to be a reaction to digital saturation: “In an increasingly digital world, consumers are placing greater importance on experiences that improve wellbeing, create memories, strengthen relationships and feel genuinely human.” And young consumers, those most exposed to digital lives, are leading the rotation.

Live music and sports are among the purest embodiments of these experiential urges. Think of Taylor Swift's Eras Tour, the 149-concert extravaganza in 2023 and 2024, which became an economic phenomenon in its own right. It was the most financially successful tour of all time, generating over $2 billion in direct box-office sales, more than twice its nearest rival.

How Swifties are fuelling the experience economy

Twenty-two million people joined the virtual queue to buy tickets for Swift's Singapore concert, almost four times the country's population. The vast majority of these would-be attendees were planning to fly in from overseas; they were going on a musical pilgrimage. The quasi-religious nature of this fandom is underlined again by the fact that in Philadelphia over 20,000 ticketless fans stood outside the stadium during the concerts, night after night, just to be physically close to the Swiftian phenomenon.

A similar devotion characterises live sports. According to entertainment analytics firm Two Circles, 79.4 million fans attended ticketed professional sports events in the UK in 2025, 1.7 million more than the year before, and this despite a 5% increase in ticket prices. Attendance levels are far above pre-Covid figures.

When the Premier League first started, in the early 1990s, stadium utilisation rates sat at 70%. In the 2024-2025 season, that had risen to 98.8%. There is a sense in which attending a concert, or a Premier League match, is not just entertainment; it is a way for people to forge their identities and feel part of something larger than themselves.

This matters economically. AI may be able to commoditise digital content, but it cannot replicate the experience of standing next to 60,000 people at Anfield. “Travel, wellness, live events and community-based experiences all benefit from the fact that they are difficult to replicate digitally and often become more valuable as consumers spend more of their lives online,” says Evans.

Economist Alex Imas has argued that as AI makes some forms of production abundant, scarcity will not disappear, but will relocate towards what he calls the “relational sector”, where the human element itself contributes to the value of the product. As investors, we want to be in the businesses of monetising this relocated scarcity.

There are several ways we can invest in the experiential economy. Live Nation Entertainment (NYSE: LYV) is the world's largest live-entertainment company, operating concert promotion, venues and ticketing services. It is positioned between consumers and the increasingly valuable experiences they are seeking. Concerns over competitive practices have dogged the stock. A federal jury earlier this year found it operated a monopoly, and it is unclear how this will be rectified.

The experience economy is safe from AI

However, the underlying business, protected by exclusive, multi-year venue and artist contracts, remains structurally difficult even for AI to disintermediate. The extraordinary demand for the sort of experiences it facilitates was illustrated by the collapse of Ticketmaster's system under the weight of 3.5 billion ticket enquiries for Taylor Swift's Eras Tour.

Airbnb (Nasdaq: ABNB), the world's largest platform for booking alternative accommodation, is another interesting play on the experiential economy. The company has a valuable set of inventory consisting of millions of homes across the world, which it has spent almost 20 years building. While its product (accommodation) isn't scarce, Airbnb's value lies in facilitating the increasingly valued experience of global travel, taking a healthy commission in the process.

A third way to play consumers' strong desire to invest in live experiences is TKO Group (NYSE: TKO), a firm roughly split between the UFC, the world's leading mixed martial-arts business, and WWE, the dominant player in the world of professional wrestling. These distinct, but related, businesses are near-monopolies in their respective domains.

TKO Group differs from Airbnb or Live Nation. It is not an intermediary; it owns the product itself. Live sports are perfectly placed to resist the commoditising effects of AI. Their essence is that they are unique and occur in real time; even if you cannot be there in person, you must be sitting in front of a screen as the event unfolds. The fact that there is no algorithmic substitute for their product gives them low price sensitivity.

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Judges Scientific (Aim: JDG) was once a favourite of the London market. Over the years from March 2004 to March 2024, the shares rose 10,300%, compared with a return of just 160% for the FTSE All-Share excluding dividends. But since reaching an all-time high in 2024, the shares have lost nearly two-thirds of their value. Investors have clearly lost patience with the group, which once commanded a valuation of 40-plus times forward earnings. However, the issues seem to be more cyclical than structural, and the underlying business model is far from broken.

How Judges Scientific profits from niche industries

Judges Scientific isn't really one single business. The group operates as a collection of businesses acquired over time and owned under one holding company. Former CEO David Cicurel founded and seeded the firm in 2002. It started as an activist investment company, but shifted direction shortly after its initial public offering in 2003 (priced at 95p per share vs the recent peak of 12,000p).

Rather than buying stakes in public equities, Cicurel decided the business would achieve better returns by acquiring whole companies, particularly small firms serving a niche in key scientific and testing end markets. The first entity acquired under this new regime was Fire Testing Technology, which specialises in measuring how different materials react to differing levels of fire and heat. With $3 million in annual sales and an earnings before interest and tax (Ebit) margin of 25%, the deal became the blueprint for further acquisitions.

Cicurel and his team continued to build Judges Scientific with similar acquisitions. The template they used and continued to use hasn't really changed. Judges acquires small, usually owner-operated entities, and leaves them to it. It provides the capital and funding to develop new technology or processes, while the underlying businesses continue to focus on what they do best – serving their customers with small, but vital tools and products.

A key metric for the group has always been return on tangible invested capital (ROTIC), a measure of profit for every £1 invested in tangible assets. For Cicurel, any business with a ROTIC below 20% was a no-go and, as a group, Judges has tended to earn a ROTIC of 20%+ across the 23 core businesses it owns today.

Why is Judges Scientific struggling?

After nearly two decades of near-continuous growth, Judges Scientific's growth story stalled in 2024. After its Geotek subsidiary reported delays to a key high-margin project, sales ended the year 2% lower. In November of that year, the firm also issued a profit warning, the only one in its history. Profit fell 21% for the full year. Still, three new businesses were acquired across the holding firm and via subsidiaries as the group continued to execute on its acquisition strategy.

In 2025, clouds continued to gather. These included the hit to global research spending following US budget cuts, higher operating expenses and a slowdown in orders from China. North American revenue fell 25% overall. Net profit declined from £22 million in 2024 to £21 million in 2025. At the end of November 2025, Cicurel also announced he would step down as head of the business in February 2026, to be succeeded by former group business development director Tim Prestidge. The group's long-standing CFO also said he would step down in September 2027. Investors didn't hang around to find out how Judges would navigate the transition. Stock sales pushed prices down 50% from their all-time high in 2024 to the end of 2025.

Unfortunately for the new CEO, the outlook doesn't look set to improve anytime soon. Revenue in the first half of the fiscal year fell 21% year on year to £55.7 million, with adjusted pre-tax profit down 75%. Order intake fell 12% in the first half, driven by lower demand from the US and China and softer sales from renewable energy customers. However, Judges says momentum has picked up since the period ended, with order intake running just 1% behind the levels of the prior year.

Judges Scientific is priced for perfection

Judges Scientific's underlying business performance tells one story, but it's also worth noting that the shares have rerated substantially over the past two years. In 2024, before the recent sell-off began, the shares traded at a forward price-to-earnings ratio (P/E) of around 43, a premium multiple by any yardstick. After the recent decline, the shares are trading at just 19 times forward earnings, a much more realistic multiple, but arguably still a bit high for a zero-growth business.

Still, it's clear the company is suffering from cyclical, not structural issues. Underlying end markets are robust and demand for scientific equipment hasn't vanished. Granted, it will take time for funding to return to the sector after budget cuts, but Judges' underlying businesses are still investing, developing the cutting-edge kit that'll be required when funding returns.

What's more, Judges Scientific has the cash to buy peers that might also be struggling and don't have access to the same capital reserves. The group has also extended its banking facilities to 2030, which will underpin its ability to keep growing through its buy-and-build strategy. Net debt of £41 million is equivalent to roughly 1.9 times earnings before interest, tax, depreciation and amortisation (Ebitda), giving headroom for further borrowing. Most of Judges' end markets are highly fragmented, served by smaller owner-operated businesses that may not survive alone.

Analysts at Berenberg say the group's margins will stabilise and sales will improve next year as funding and spending recover. They've then pencilled in a small recovery in 2028, before growth really returns in 2029. Based on these forecasts, now could be a good time to start accumulating shares in this one-of-a-kind business, which is going through a rough patch.

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Our fund, JSS Sustainable Equity – Strategic Materials, invests across the whole value chain for strategic materials. Around 70% to 80% is invested in upstream mining companies. The remainder goes to recyclers, mining equipment manufacturers, battery producers and advanced materials companies. These businesses benefit from the same structural trends, but their earnings often swing less than those of miners.

I score every commodity each month on five factors: the marginal cost of production, inventory levels, the economic cycle, the supply-demand balance and trade barriers. This framework helps us to invest when prices are low. I then rank mining stock by operating cash costs, execution track record, jurisdictional risk, balance-sheet strength and valuation. This is augmented by detailed mine-by-mine valuation models, allowing us to stress-test valuations.

The fund is classified under Article 8 in the EU's SFDR sustainability regulations, meaning we promote environmental or social characteristics, which is relatively rare in the mining sector. For us, sustainability is closely linked to returns. Poor relationships with local communities, regulators, or governments can result in mine delays, higher costs, or loss of a licence to operate. Strict environmental and social standards therefore help protect returns. Here are three of the stocks we like.

Three strategic materials stocks for your portfolio

Acerinox (Madrid: ACX) is a Spanish stainless steel and speciality alloys producer. Through its Haynes International business, the company builds high-performance alloys designed to withstand extreme heat and pressure. These specialised strategic materials are used extensively in aircraft engines and industrial gas turbines. Furthermore, they serve critical aerospace applications such as rocket nozzles and pumps aboard vehicles exploring the frontiers of space.

Wheaton (LSE: WPM) is a streaming company rather than a traditional miner: it provides upfront financing to mining companies in exchange for the right to purchase a portion of their future gold and silver production at predetermined prices. The attraction is the business model. Wheaton does not operate mines itself, so it avoids much of the exposure to rising wages, energy prices, equipment costs and operational problems that can squeeze traditional miners. This gives it a structurally different and, in my view, lower-risk exposure to precious metals. I also see a robust pipeline of future growth.

Large copper projects often contain valuable gold and silver byproducts. These create opportunities for companies like Wheaton to provide financing through streaming agreements. Wheaton can participate in the growth of new mines without taking on the full operational risk of owning and running them.

Freeport-McMoRan (NYSE: FCX) is one of the world's largest copper producers, giving investors exposure to what I see as a critical commodity for the coming decade. Copper is essential for electrification, power grids, data centres and heavy industry. Demand is likely to rise, while supply is proving hard to bring online quickly. That gap between demand and supply could support prices. US trade policy may also favour domestic producers over time. Freeport's giant Grasberg mine in Indonesia is ramping back up. This follows a disruption last year that cut output. Restored production offers a path to growth. The company also carries meaningful gold exposure alongside copper.

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ASML (Amsterdam: ASML) is the only commercial supplier of EUV lithography systems – machines that sit at the heart of the modern semiconductor industry. An extreme ultraviolet (EUV) lithography system is roughly the size of a double-decker bus, weighs roughly 180 tonnes and costs more than €180 million. It fires lasers at tens of thousands of microscopic droplets of molten tin every second, creating a plasma that emits light at a wavelength of 13.5 nanometres. That light is used to print the extraordinarily fine patterns from which the most advanced computer chips are made.

In 2025, ASML recognised revenue from 48 EUV systems and generated €32.7 billion of sales overall, including €8.2 billion from servicing and upgrading its installed base. The Dutch company does not manufacture every component itself. Instead, it coordinates a network of specialist suppliers that has taken decades to assemble. German company Carl Zeiss makes the mirrors at the heart of the optical system. Trumpf supplies the lasers used to generate the EUV light, while other specialists provide components ranging from wafer stages to sensors and software.

Its customers include TSMC, Samsung and Intel, companies with the scale and expertise to develop much of their own technology. Yet when it comes to leading-edge lithography, they have little choice but to buy from ASML. The machines are expensive because the economic cost of falling behind in semiconductor manufacturing is greater still. So how did a struggling Dutch start-up build a position that has become so difficult to challenge? And can that advantage survive the next stage of the industry’s development?

How ASML grew from humble beginnings to industry leader

ASML was established in 1984 as a joint venture between Philips and ASM International. The two companies brought different capabilities to the new business. Philips had already developed the PAS 2000 lithography system, while ASM International specialised in semiconductor manufacturing equipment. The timing was difficult. The company entered a competitive market dominated by established American and Japanese companies and initially had few customers. It also struggled financially. ASM International eventually withdrew after struggling to justify continued investment in a business that was consuming cash, while Philips was cutting costs. ASML survived because its management and shareholders continued to back the technology and because Philips provided further support.

ASML spent its first decade building the business and developing its technology. Rather than trying to make every critical component itself, ASML worked with specialist suppliers and concentrated on integrating their technologies into a complete lithography system. The breakthrough came in the 1990s with the development of the PAS 5500. Its productivity and resolution helped ASML win the customers it needed to become profitable. The company went public in 1995, giving it access to the capital needed to expand its research and manufacturing operations.

The approach mattered because lithography was becoming too complex for one company to master every discipline itself. ASML could concentrate on integrating the system while drawing on specialists in optics, lasers, metrology and other fields. The strategy eventually produced a decisive lead over its two big rivals, Nikon and Canon. But the biggest test was still to come. EUV had been discussed for years as the technology that might allow chipmakers to keep shrinking transistors, yet turning the idea into a machine capable of high-volume production proved difficult. ASML and its customers spent years developing the technology, with Intel, Samsung and TSMC helping to fund the effort.

In 2012, those customers committed €1.38 billion of research and development funding to ASML’s next-generation lithography programme and took minority stakes in the company. Intel alone committed €829 million of R&D funding alongside an investment of up to 15% in ASML. The arrangement illustrates how dependent ASML’s customers had become on its technology. They were helping finance development because the machines would determine how far their own manufacturing could advance. The result was to bring EUV into commercial production, but by then ASML had spent decades building the supplier network, engineering expertise and relationships needed to make it work.

ASML’s competitive moat

That combination forms ASML’s competitive moat – the technology, expertise and relationships that make the business difficult for rivals to challenge. Its position in EUV was therefore built long before the first commercial machines were sold. To understand why ASML can charge hundreds of millions of euros for a single machine, one must consider the economics of modern semiconductor manufacturing. A cutting-edge fabrication plant, or “fab”, can cost more than $20 billion to build and equip. Much of that investment goes on the machinery inside it, with lithography scanners among the most expensive tools.

For a company like TSMC, the economics of a fab come down to how many useful chips it can produce, how quickly, and for how much. Smaller transistors allow more computing power to be packed onto each wafer – a thin disc of silicon on which chips are made – while higher throughput and better yield improve the economics of the plant. This is why lithography matters. The machine prints the patterns that become the transistors and other structures on the chip. If those patterns cannot be printed accurately enough, the economics of the entire fab suffer.

That gives ASML an unusual position. Its customers include some of the world’s largest companies and most buyers of that size would have considerable bargaining power over suppliers. When it comes to leading-edge lithography, their options are much narrower. TSMC, Samsung and Intel cannot simply switch to another supplier offering an equivalent EUV system. A more capable machine can also allow a chipmaker to produce more wafers from an expensive fab, while improvements in accuracy and yield can increase the proportion of those wafers that become saleable chips. The return from a lithography investment therefore depends on the additional output and yield it enables, rather than simply on the purchase price. This helps explain why ASML’s customers have been prepared to commit capital years before they receive their machines.

The company now sells its low-NA EUV systems for roughly €180 million and high-NA ones for more than €350 million. NA means numerical aperture, a measure of the optical system’s ability to resolve very small features. The higher the NA, the more detail the machine can print. Customers continue to buy the machines because the cost has to be weighed against the price of falling behind. EUV system sales reached €11.6 billion in 2025, while ASML’s gross margin was 52.8%. Those figures suggest that customers have little choice but to accept the price of staying at the leading edge.

Customers cannot treat an ASML machine as a one-off purchase. Once a fab is built around its equipment, maintaining and upgrading that equipment becomes part of the production process. ASML continues to service its machines throughout their working lives, helping customers maintain performance and install upgrades. Its installed-base business therefore grows as the number of machines in operation increases, creating a source of revenue alongside new system sales.

How ASML stays ahead of the game

Why can’t another company simply build an EUV machine and compete with ASML? The answer lies in how much has to work together for a lithography system to operate in a semiconductor fab. ASML acts as the system architect, drawing on a network of specialist suppliers that has developed alongside the company. ASML then has to integrate all of the high-precision parts into a machine that can operate reliably in production. Precision matters because an error that would be invisible to the human eye could make a machine unusable for leading-edge production. This is very hard for a competitor to replicate. Roughly 80% of ASML’s bill of materials is sourced from its global supplier network. A rival would have to recreate that network, integrate thousands of precise components and persuade the world’s leading chipmakers to install an unproven machine in their most valuable factories.

ASML also has an advantage that is harder to see. Every machine it installs adds to its practical knowledge of how its technology behaves in a real production environment. ASML has about 10,000 customer-support employees working around the world to keep its systems running. That operation is a continuing relationship with customers after the initial sale; engineers work with chipmakers to maintain performance, solve problems and install improvements. A machine can be designed on a drawing board, but making it run reliably, at high throughput and with the precision required for commercial chip production, is a different problem. Each generation provides information that can be fed into the next one.

ASML therefore remains the company best placed to develop whatever lithography technology chipmakers require next. But that position does not make its earnings immune to disruption. Geopolitical restrictions can limit where it sells its machines. The semiconductor cycle can cause large swings in orders. Changes in chip design could reduce the industry’s reliance on successive generations of lithography.

Threats to ASML’s dominance

China accounted for 29.1% of ASML’s sales in 2025, although much of this was mainstream semiconductor equipment rather than the EUV systems at the centre of its monopoly. Export controls have already restricted the sale of some of ASML’s systems and the provision of certain services to Chinese customers. Losing access to part of the Chinese market reduces revenue, but avoids giving Chinese chipmakers access to an alternative source of EUV machines.

There is also geographic concentration beyond China. Taiwan accounted for 25.5% of ASML’s 2025 sales and South Korea another 25%. ASML has customers and suppliers in both markets, leaving the company exposed to tensions over Taiwan and the Korean peninsula. A serious disruption would affect semiconductor production well beyond ASML itself.

The nearer-term risk is more familiar. ASML sells relatively few machines at very high prices, making the timing of customer capital expenditure critical. It recognised revenue from 327 new and refurbished lithography systems in 2025, compared with 418 in 2024 and 449 in 2023. Its largest customer accounted for 23.9% of sales and its two largest customers for 38%. A major customer delaying a fab or moving its spending into a different year can therefore produce a significant swing in ASML’s results.

The more fundamental threat is technological. ASML’s business depends on chipmakers continuing to invest in new generations of process technology. The company itself acknowledges that customers could delay adoption of new technologies if the economics do not justify the cost, or shift towards architectures that rely less on lithography. The price of each technological advance is rising. High-NA EUV machines cost hundreds of millions of euros, while chipmakers can also improve computing performance through chiplets, advanced packaging and architectural changes. If these approaches deliver better returns than simply shrinking transistors, the industry could become less willing to pay for each successive generation of lithography.

For now, there is little evidence that this is displacing leading-edge lithography. AI is increasing demand for advanced logic and memory, and ASML says growth in both markets helped drive demand for its EUV systems in 2025. This remains the most important long-term question hanging over the investment case. Export controls can reduce sales, a semiconductor downturn can defer orders and customers can become more selective about expensive new technologies. So far, none has emerged at commercial scale as a way of displacing ASML’s leading-edge lithography technology.

The outlook for shareholders

For shareholders, ASML offers a combination of growth and recurring revenue. In 2025 it generated €32.7 billion of sales, a 52.8% gross margin and €9.6 billion of net income. Installed-base management revenue, mainly servicing and field options for machines already in customers’ fabs, reached €8.2 billion, up 26% on the previous year. The outlook has strengthened since then. ASML reported €9.3 billion of sales in the second quarter of 2026, with a 54% gross margin, and raised its full-year revenue guidance to €43 billion-€45 billion, up from €34 billion-€39 billion at the start of the year. It says AI-related investment is driving demand for advanced chips and customers are accelerating expansion plans.

The longer-term opportunity remains substantial. ASML’s modelling puts its 2030 annual revenue opportunity at between €44 billion and €60 billion, with gross margins of 56% to 60%. Those figures are an opportunity range rather than a forecast, but the rapid increase in 2026 guidance shows how quickly the business can scale. AI is helping to drive that growth.

AI should still be viewed as an accelerant rather than the foundation of the investment case. The more durable thesis is that computing demand continues to rise and chipmakers need increasingly capable manufacturing equipment. ASML does not need every future semiconductor application to be an AI application for its long-term case to work. ASML remains a capital-equipment company and its earnings are therefore exposed to the spending decisions of its customers. Even a customer convinced of the long-term need for additional capacity can delay an order for a year. The result is an earnings profile that is more cyclical than the competitive advantage might suggest.

Are ASML shares worth buying?

ASML shares have generally commanded a premium valuation because investors recognise the quality of the business. At roughly €1,700 a share, the stock trades on around 35 times consensus 2026 earnings and 25 times projected 2027 earnings. Those multiples can look reasonable if earnings grow rapidly. ASML is now aiming for €43 billion–€45 billion of revenue in 2026, up from €32.7 billion in 2025, while analysts expect further earnings growth in 2027. The valuation leaves less room for disappointment. A weaker semiconductor cycle, slower high-NA adoption or further restrictions on China could cause investors to reassess the multiple even if ASML’s competitive position remains intact.

The question for a long-term investor is whether earnings can grow fast enough to justify the high price. If growth falls short, the multiple provides another source of downside. More attractive entry points are likely to come when the semiconductor cycle turns down and investors focus on near-term orders rather than the decade ahead.

The investment question is whether the future earnings from ASML’s competitive position justify the price of the shares. A business can continue to compound while its shares fall if investors have already priced in too much of that growth. ASML has spent four decades building one of the most formidable competitive positions in the global economy. The investment case now depends on whether it can turn that position into enough future earnings to justify the premium investors are being asked to pay today.

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Norwegian arms manufacturer Kongsberg Gruppen (Oslo: KOG) is likely to benefit from a big increase in defence spending. The Nato summit in Ankara in July 2026 reported that European allies and Canada had invested more than $139 billion in core defence requirements over the previous year, together with $50 billion of new procurements and a commitment to expand manufacturing capacity. In addition, the allies pledged $70 billion of military equipment, training and support to Ukraine for 2026, with at least that amount again for 2027.

At the 2025 financial year-end, Kongsberg’s order backlog was NKr157 billion (£12.4 billion); the chief executive officer said that, in his ten years in the job, he had never seen such high demand.

Kongsberg 's focus on growth

In February 2026, Kongsberg announced that it had spun off its maritime division as a separate listed company (Kongsberg Maritime) to concentrate business on the three higher-growth divisions. Defence Systems is the largest division (47% of revenue) with Missiles & Aerostructures (30%) and Discovery (23%) together accounting for 53% of revenue.

Then, in June 2026, Kongsberg announced it had completed the acquisition of Zone 5 Technologies, a Californian company that is the market leader in affordable, mass-producible munitions. These include long-range strike and interceptor missiles. Zone 5 will add to Kongsberg’s existing US business since Zone 5 has won US contract including one for the US Air Force’s AGM-188 FAMM (Family of Affordable Mass Missiles).

In September, Kongsberg also acquired Sonatech of California, an underwater acoustics specialist whose technology will be used in Kongsberg’s autonomous underwater vehicles. In July, Kongsberg won a $100 million contract from the US Air Force for stealth air-to-surface Joint Strike Missiles (JSMs), which can be carried internally in the F35-A fighter; deliveries are scheduled up to 2030. The JSM has also been selected by Australia, Canada, Germany, Japan and Norway.

Kongsberg’s results for the three months to the end of June 2026 were the first without the maritime division and showed revenues up 31% from the same period in 2025, rising to NKr10.4 billion. Earnings before interest and tax (Ebit) were up 48.9% to NKr1.67bn and the Ebit margin rose to 16.1%. The order intake for the second quarter rose by 164% of second-quarter revenue, taking the order backlog to NKr157 billion.

New growth drivers for Kongsberg

In the second quarter of the year the Defence Systems division saw strong demand for air defence and counterdrone systems. An agreement was reached with partner Raytheon to start deliveries of the NASAMS air defence system to Kuwait. The Missiles & Aerostructures division was awarded JSM missile contracts totalling NKr10.9 billion to Canada, Germany and the US. The Discovery division also won contracts, including one for the monitoring and protection of critical subsea infrastructure.

The growth drivers for Kongsberg are, firstly, the large and increasing order backlog, which is driving increased investment in new and expanded production facilities. Secondly, acquisitions, new product development and capacity expansion is supported by cash outflow of NKr3.7 billion in the second quarter.

The existing Norwegian missile plant is being supplemented by new factories in Australia and the US, with expanded production of subsea technology in Norway. The Australian and US missile facilities will be operational in late 2027, with full-rate production by 2028, so will contribute to the 2029 revenue target of NKr100 billion by 2029 – 2.3 times the projected revenue for 2026 – rising to NKr150 billion in 2033.

Kongsberg's earnings are on the rise

Kongsberg Gruppen has a market capitalisation of NKr275 billion at the recent share price of NKr312.7, with a one-year price target of NKr396.4. The forward dividend yield is 0.7%.

The balance sheet is strong with cash and equivalents of NKr4.9 billion at the end of the second quarter of this year, compared with loans and lease liabilities of NKr2.1 billion.

Analysts predict 2027 revenues of NKr64.2 billion, a 49% increase over 2026. Earnings per share are projected to rise to NKr11.2 in 2027, a 52% increase over 2026. The contributors to the projected revenue growth of more than three times by 2033 include the Zone 5 and Sonatech US acquisitions and new missile factories in Australia and the US.

There is also the NKr16b billion contract signed with Poland in January 2026 to provide counter-drone (C-UAS) batteries, forming a multi-layered anti-drone wall as part of Poland's East Shield initiative for protection against Russia. Further contracts for C-UAS could follow if other European nations follow this Polish initiative.

At the recent share price of NKr312.7, the price/earnings ratio for 2027 is 27.9. If Kongsberg hits its 2029 revenue target of NKr100 billion and earnings per share rise only proportionately to revenue, then the 2029 p/e would be 18.3.

Kongsberg is a growing defence company with a massive order backlog of 3.6 times annual revenue, substantial sales in the important US defence market, significant sales in Asia and is playing an important part in upgrading European defence capabilities to counter the threat of Russian aggression.

The company plans to more than treble turnover by 2033 and is investing in both acquisitions and new production facilities to achieve this. Directors have significant shareholdings. The chief executive officer holds 250,000 shares and two executive vice-presidents together hold 230,000 shares.

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Aim, the London Stock Exchange's market for smaller or growing companies, is in the doldrums. Hit by negative sentiment towards UK small caps, plus tax reforms that have reduced the attractiveness of many Aim stocks, London's junior stock market has struggled to keep its head above water. The FTSE Aim 100 index, which charts the share-price performance of the largest companies on the market, currently stands at around 3,650. That compares with a peak of almost 6,550 in September 2021.

In fact, the malaise goes back even further. Looking across the whole of Aim, returns over the past ten years are near zero, compared with a 60% gain from the FTSE All-Share index over the same period. And it's not only investors who feel disenchanted; far fewer companies now see a compelling case to list their shares on Aim. In 2007, some 1,700 businesses had Aim quotes, while today the figure is barely above 600.

For all that, “I remain an Aim bull,” says Alex Game, a fund manager in the Economic Advantage team at Liontrust. “We like to back businesses with high levels of founder and manager ownership. These are entrepreneurial companies focused on [growth] and many of them are high-quality businesses, in market leading positions with well-capitalised balance sheets.”

“There's also a diversification angle,” adds Eustace Santa Barbara, co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth, Multi-Cap Growth and Nano-Cap Growth funds. “We're now seeing… the potential perils of holding just a handful of household-name, mega-cap businesses that dominate their indexes and can leave investors at the mercy of market shocks.”

Aim is under domestic pressure

To decide whether you share such optimism, you must first understand why Aim has underperformed in recent times. That is partly explained by the difficult macro environment the UK has faced, with ongoing challenges such as elevated inflation, driven by higher food and energy prices, depressed domestic demand amid the cost-of-living crisis, and political instability. Smaller companies, which tend to have less international activity, are more exposed to these domestic pressures.

It is also a reflection of the bias in the smaller companies sector towards growth stocks. These are companies where investors are betting on the long-term prospects of the business, rather than performance right now. When interest rates rise – and the rapid climb from a base rate of near zero five years ago to above 5% was unprecedented – investors tend to avoid such stocks. They calculate they will need much higher returns to compensate them as they wait for jam tomorrow.

Such worries have prompted a flight of capital. Funds investing in UK small caps have seen withdrawals of £6.1 billion, according to analysis by Hargreaves Lansdown. Most of that cash has gone overseas. Aim, moreover, is at the sharp end of this perfect storm. It's home to many of the smallest listed companies in the UK and features a disproportionate number of growth stocks. No wonder investors have steered clear. That said, Aim has also been hit by problems specific to it.

Above all, the decision by the government in its first budget in 2024 to reduce the value of a key tax incentive for Aim investors has had a significant impact. Many Aim shares qualify for Business Property Relief (BPR), a tax break intended to encourage investment in small businesses – by entrepreneurs starting their own companies, but also by investors backing the ventures. Until April, BPR meant that once you had held qualifying Aim shares for two years, there would be no inheritance tax (IHT) to pay on the assets following your death. This was a powerful incentive to consider Aim stocks, particularly since they can be held inside an individual savings account (ISA), sheltering them from all tax charges on income and capital growth.

Since April, however, BPR has fallen from 100% to 50%. This means the value of Aim shares bequeathed to your heirs could now attract an IHT charge, assuming your estate is valued above the £325,000 threshold at which the tax becomes payable. The rate charged would be 20%, rather than the usual 40%, but the tax bill could still be significant. Importantly, the change applies both to any new investments you make on Aim and to Aim assets you already hold. This has seen some investors opt to sell out – the Tax Efficient Review says investors in specialist Aim portfolio services have sold roughly £170 million worth of shares this year, around 10% of the value of assets held in these services overall. Such sales represent a brake on Aim's potential, even before you factor in reduced future demand for stocks now the IHT tax break is no longer so attractive.

Aim shares are going cheap

Other Aim-specific concerns include something of a dearth of exciting new businesses coming to the market. In today's investment environment, there are more sources of growth capital available to early-stage businesses than when Aim launched 30 years ago. The plentiful supply of venture capital, private equity and even debt finance means companies don't necessarily need to jump through the administrative and regulatory hoops required for a stock market listing to raise money. Corporate governance concerns still worry some potential Aim investors, too. The point of a junior market is to enable less mature companies to secure a public listing even if they are not ready to meet all the requirements of a traditional stock exchange. The London Stock Exchange therefore imposes fewer responsibilities on would-be Aim businesses. Unfortunately, this light-touch approach also increases the potential for governance failures and criminality. The LSE has periodically tightened the rules, but scandals at firms such as Langbar International, Globo and African Minerals continue to cast a long shadow.

All of which explains why Aim has struggled. But as Game points out, the market has been through difficult periods before – and then bounced back. “Aim does go through these spells and right now we're at the nadir of the market,” he says. “But performance is cyclical: throughout its history, there have also been times when Aim has performed really well.”

Santa Barbara adds: “It's easy to claim Aim's glory days are long gone, but it's impossible to argue with Aim's proven track record as an engine of growth. The founding principle of the market – to provide the most promising smaller companies with access to capital and ongoing finance – still applies.”

It's certainly possible to make the case that Aim now looks very cheap. Valuations of UK small caps generally look attractive. The price/earnings ratio on the FTSE Small Cap index is currently 10.6, compared with 15.0 for the FTSE 100 index of large companies, for example. Comparative data for Aim is not available, given issues such as the lack of revenues and profits at some businesses, but many stocks are on low valuations by all historical comparisons. “Private equity has been acquiring Aim companies at quite a pace, suggesting sophisticated investors believe many of these businesses are fundamentally undervalued,” says Jonathan Moyes, head of research at investment platform Wealth Club. What the market needs, then, is a catalyst for a change of sentiment. Investors need a reason to look at Aim afresh – and to decide whether those valuations now represent opportunity. One such catalyst could be lower interest rates. The Bank of England's Monetary Policy Committee cut rates six times during 2024 and 2025 and was widely expected to make further cuts before the Iran war saw energy prices spike.

That prompted the MPC to step back from cuts, but a decisive end to the crisis could prompt looser monetary policy. It helps that early expectations of an inflation spike have so far proved overly-pessimistic.

Another potential game changer would be an influx of new companies that excites investors to return to the market. Initial public offerings (IPOs) have been in short supply on all markets in recent times, but more private companies do now appear to be thinking about going public. That includes potential new entrants to Aim, adds Moyes. “Companies raised around £3.3 billion in the first seven months of 2026, compared with just £1.6bn during the whole of 2024,” he points out. “A significant proportion of this year's fundraising came from one very large transaction, and that activity has been driven by secondary raises rather than new listings; nevertheless, capital is flowing again.”

The LSE is trying to do its bit. It has already unveiled plans aimed at reducing the costs of listing on Aim and at making it easier to raise capital. Greater political stability, particularly once the fiscal and monetary plans of the Andy Burnham-led government become clearer following next month's Budget, could also support an increase in Aim IPOs. Aim may not need seismic shifts in sentiment to change the direction of travel. The market for shares in many Aim companies is illiquid – there are fewer buyers and sellers – so even small shifts in mood can have a significant impact. This is one reason why Aim has often proved volatile, but that can work in investors' favour as well as against.

Aim is a stock-picker's market

One other important point is that Aim investors don't need the whole market to change gear – just the companies in which they are interested. Investment experts agree Aim is an active stock-pickers' market. It's natural to focus on the performance of the market overall, but the qualities of individual firms vary enormously; the dispersion of returns at a stock-specific level is much wider than on other markets. The focus on flat returns over ten years overlooks individual success stories. Indeed, says Game, “Aim has probably generated more ten-baggers than most other developed markets.” Recent examples include healthcare software company Craneware, which joined Aim almost 20 years ago and has since delivered total returns of around 1,500% – an annualised return of about 16%. Defence technology business Cohort has generated annualised returns of roughly 14% over the same period.

Mortgage Advice Bureau is another example. It moved to the main market earlier this year having listed on Aim in 2014. Over its 12 years on Aim, the business returned more than 400%, or roughly 15% a year.

None of which is to suggest Aim, as a market in general, is guaranteed to rebound from its current lows. And there is certainly plenty of scepticism. “The problem in the UK is that very few investors are interested in smaller companies – and even fewer are interested in the spicier end of small cap that Aim represents,” says Ben Yearsley, a director of Fairview Investing. “Some exciting IPOs in the small-cap space might help, but companies are staying private for longer; and while there have been Aim floats, managers who invest in the market say quality has often been lacking.”

The counter argument is that in an improving interest-rate environment and a market where IPO activity seems to be picking up, IHT reforms could clear the decks for a new conversation about the merits of Aim. “Tax relief was never enough on its own to sustain a healthy market,” argues Moyes. “If valuations start to recover, investors will be coming for the investment story first, with a bit of inheritance tax relief as the icing on the cake, rather than the other way round.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

When picking emerging market stocks at Fidelity Emerging Markets, our approach is a flexible one. We have a variety of tools to exploit the best opportunities across the full breadth of the emerging market universe – taking both long and short positions, investing in companies ranging from the very largest to small caps and off-benchmark stocks, and using gearing to extend high-conviction long positions.

We select emerging market stocks based on fundamentals and quality. We look to go long on the stocks of companies that we believe can generate sustainably higher returns, with strong corporate governance and under-leveraged balance sheets. We short those that are the opposite: companies in structural or cyclical decline and that are flying red flags. This approach is made possible by Fidelity's analysts, who help us uncover opportunities across the breadth of emerging markets, including those lesser-known names off the beaten track. Here are three companies that we think bring this approach to life.

Emerging market stocks to watch

The rise in popularity of Korean beauty products, or “K-beauty”, has taken the global cosmetics world by storm, propelled by innovative products and fast-growing beauty trends. But behind many of the best-known brands sit more under-the-radar specialist manufacturers, such as Cosmecca Korea (Seoul: 241710), which develops and produces skincare products on these brands' behalf. As Korea's third-largest manufacturer of its kind, Cosmecca is well-positioned to ride the wave of strong demand for Korean cosmetics. Its scale gives it an advantage over smaller rivals, helping keep costs down while investing more in research and product development. That has helped Cosmecca build a competitive edge in areas such as sunscreen, allowing it to increasingly attract US brands in addition to its Korean clients.

Think of Sinotruk (Hong Kong: 3808) as China's equivalent of Volvo Trucks or Scania – a dominant producer of heavy-duty trucks with a leading position in the domestic market. However, what makes the investment story particularly interesting is that it is increasingly taking Chinese manufacturing capability overseas, selling trucks into more than 150 countries and benefiting from compelling demand trends across emerging markets. Africa is an especially important growth market, where structural growth in mining and infrastructure investment is supporting strong truck sales. Sinotruk also benefits from a competitive edge through its comprehensive service system, which has helped it defend market share from competitors.

Tin might seem an unlikely beneficiary of the artificial intelligence (AI) boom, but growing demand for the metal for use in AI servers and semiconductors, as well as for other technologies such as solar panels, is adding to demand in a market where supply is already tight. Stricter regulations and low inventories have constrained supply, leaving tin as an increasingly important bottleneck in the technology supply chain. We gain exposure to this theme through small-cap and off-benchmark tin producer Alphamin (Vancouver: AFM), based in the Democratic Republic of Congo. The company has a strong market position in tin production, operating two of the world's highest-grade tin mines and producing about 7% of mined tin globally. With high-quality assets and low production costs, it meets the quality criteria we look for and is trading at a very cheap multiple.

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A few years ago we might have assumed that the Revolut IPO would happen in London. It's a British company that built its business here, so why wouldn't it? London was one of the major global stock markets and a natural home for a fast-growing company. Sadly, that is no longer true.

Revolut confirmed last week that it was exploring a “dual listing” IPO, split between the Nasdaq stock exchange in New York and the London Stock Exchange. It is a measure of how far the City has fallen that it will come as a relief to those working in British finance that London is being considered at all.

Back in 2024, CEO Nikolay Storonsky dismissed a London listing as “not rational”, citing the lack of liquidity and the 0.5% stamp duty on every trade as reasons why only New York would make sense. He has now softened that view, suggesting a dual listing between the two cities, even if New York is the senior of the pair. It's better than nothing.

Revolut is a prize worth having. It is one of a handful of genuine successes the British economy has managed to create in the last decade. Its latest results reported $6 billion in revenues and more than $2 billion in profits. It has more than 75 million customers worldwide and has established itself as a leading brand in digital finance. It has a robust business model, at least for what is still basically a bank, with subscription and trading fees, instead of far-riskier loans, accounting for the bulk of its revenues. It is already valued at $115 billion and for an IPO it may well target significantly more than that. Indeed, if it is listed in London, Revolut is likely to be bigger than BP, GSK or Unilever, taking its place at the very top of the FTSE 100.

It could also start to change perceptions. London has turned into a global backwater. In 2024, it had fewer IPOs than Malaysia or Oman. Companies keep leaving the market and there is almost nothing coming through to replace them. In the first half of this year there were only seven new listings, raising less than £600 million between them. Meanwhile, the major companies that are still listed here are mostly a collection of banks, oil giants, and pharmaceutical conglomerates, which are hardly likely to set any pulses racing.

How the government can make the Revolut IPO a success

Revolut will be very different. It is a tech company, is expanding rapidly and has a well-known brand. If it is listed in London, global investors might be willing to take a look at the wider market again. But it will only make a difference if the float goes well. What can be done to make it a success? The chancellor has already suspended stamp duty for the Revolut IPO and for the first three years of trading as well, and that may well have helped sway Revolut's decision. That will give a huge boost to trading and liquidity. Without it anyone with any sense would simply buy the shares in New York, where they are tax free. But why not extend the period to ten years, perhaps as a prelude to abolishing the tax entirely?

At the same time, why not offer investors in the Revolut IPO an exemption from capital-gains tax? That would build a base of “buy and hold” investors that would give the company a great platform. And perhaps add an extra IPO allowance of £5,000 to existing ISAs to tempt small investors into the new-issue market. It would all make the London listing more attractive and persuade companies the City was as good as, if not even better than, New York. A Revolut IPO in the next year or so may well be the last chance to prove that the City still matters.

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One of London's most visible pieces of advertising has greeted railway passengers arriving at London Bridge station for the best part of 100 years. Emblazoned on a Grade II-listed building next to the track on Park Street is the slogan, “Take Courage”, the motto of the Courage Brewery.

This is considered one of the largest and most memorable so-called “ghost adverts” in London, although it's unclear when it was first painted. The Anchor Brewery originally built the property in 1820 and it remained a central location for brewing and operations until 1981, when it was acquired by the local authority. These ghost adverts can be seen all over London and remind us that advertising has been a core part of the UK economy for hundreds, if not thousands, of years.

A brief history of advertising

No ghost adverts in London are more than 300 years old (most of the city has since been rebuilt), but there are older examples elsewhere. Some of the earliest date from ancient Egypt and Mesopotamia, where traders and market vendors used clay tablets and papyrus posters. Archaeologists have also found examples of adverts chiselled out of stone dating back 3,000 years in ancient Babylon. Similar examples appear in ancient Greece, Rome, China and across the Middle East.

In ancient Rome, owners would commission a designer and manufacturer to produce a signboard that served as the business's primary street advertisement. This, it could be argued, was the beginning of what we now know as the advertising industry.

Advertising took another step forward in the 16th century with the advent of newspapers and magazines. The first weekly gazettes appeared in Venice in the early 16th century and in Britain the first weekly publications appeared in the 1620s. From the very beginning, newspapers, magazines and pamphlets carried advertising that helped foot the bill for printing and distribution. However, it wasn't until the mid-1800s that a confluence of factors accelerated the growth of the advertising industry into what we recognise today.

Early print advertisements were primarily in books, mainly due to each printer's desire to cross-sell. Quack medicines also commanded a lot of page space. That began to change in the 1850s and 1860s, when advances in mass production lowered manufacturing costs and an increasingly affluent middle class emerged around the world for the first time in modern history. This new wealthy class had discretionary income and sought out a variety of new produce.

Advances in technology, health and the growing demands of the affluent middle class produced a windfall for companies that could capitalise on these trends. Forward-thinking business owners accelerated growth with pioneering marketing campaigns. Thomas J. Barratt, the chairman of Pears Soap, was one of the first executives to build a brand around an advertising campaign. Barratt has been called one of the fathers of modern advertising in London thanks to the campaigns he created in the first few years of the 20th century. Barratt sought to position Pears as one of the country's highest-quality soap brands. To do so, he created an advertising campaign to drive consumer purchases. One of his most memorable slogans was, “Good morning. Have you used Pears' soap?” He also ran a series of adverts featuring well-groomed middle-class children, linking the product to domestic comfort, high-society aspirations and daily cleanliness. Barratt's approach focused on aspiration and a strong, exclusive brand image, backed by a robust supply chain to meet demand.

Companies were developing similar approaches across the pond. In the last decade of the 1800s, companies such as Procter & Gamble and Quaker Oats drove sales across the United States through national advertising campaigns. Tobacco producers were particularly prevalent in all markets.

Through the first few decades of the 1900s, the first global advertising agencies grew out of local offices. Advertisers began refining strategies across different media, such as print, radio and out-of-home billboards. In the 1920s, psychologists turned their attention to advertising, developing concepts of behaviourism and the consumer's basic emotions, such as love, hate, and fear, refining the strategies Barrett pioneered in London ten years earlier. Exploiting the insights of behavioural psychology became the calling card of one particular agency in Chicago: Lord and Thomas. Founded in 1873 and now known as FCB, it is the third-oldest advertising agency in the US still operating today. Albert Lasker bought the firm in 1912 and devised a copywriting technique that appealed directly to consumer psychology.

One of his most famous campaigns was for Lucky Strike cigarettes. The company wanted to encourage more women to smoke its cigarettes and so Lasker developed a series of ads encouraging women to smoke cigarettes rather than eating high-calorie snacks, using phrases such as “reach for a Lucky instead of a sweet”. The strategy helped Lucky Strike increase market share by more than 200% in its first year.

How the advertising industry became the money machine

Over the past 100 years, advertising spending has tracked global GDP growth. While spending is higher in some countries than others (the UK has the highest relative spend among major economies as a percentage of GDP), the global average has risen from roughly 0.3% of global GDP in the 2000s to around 0.8% today. According to WPP, that figure could hit 1% of global GDP by the end of the decade.

Despite this growth, the industry has often faced criticism for wasteful spending and poor returns on investment. One of the best-known criticisms of the industry is encapsulated in the quote: “I know that half the money I spend on advertising is wasted. My only problem is that I don't know which half” – a saying usually attributed to Henry Ford or the founder of Unilever and later the first Viscount Leverhulme. However, there's no evidence of either of these fathers of industry making such a comment. Ford was in fact highly committed to advertising, stating: “A man who stops advertising to save money is like a man who stops a clock to save time.”

The advertising industry has changed significantly since its early days, but the basic principles the early pioneers developed still apply. Advertising should be designed to capture attention and inform as directly as possible. Today, the industry can be divided into two parts. On the one hand, there are the businesses that sell space to advertisers. This market is dominated by the big four: Alphabet, owner of Google and YouTube; Meta, the owner of Facebook; ByteDance, the Chinese owner of TikTok; and Amazon. Together, these account for around 60% of global advertising revenue throughput, up from around 50% a few years ago. These are all digital-native or digital-dominant platforms that have leveraged their global exposure and creator content to build massive advertising operations. Outside these top four, the rest of the top 25 global advertising sellers include more traditional firms such as Fox, Walmart and JCDecaux.

The second part of the industry is made up of the agencies that design, plan and coordinate advertising across platforms. The biggest fish in this pond in the UK is WPP. Originally called Wire and Plastic Products, the company originally manufactured wire shopping baskets before it became an advertising holding company in the 1980s under the stewardship of Martin Sorrell. Today the group operates a sort of one-stop shop for companies and organisations that want to communicate their message to the outside world.

This process of coordinating campaigns and advertising spending is becoming increasingly challenging. We've long moved on from a world where advertisers only had to worry about painting signboards. Today, advertisers have a plethora of media to consider and the fastest-growing market is, unsurprisingly, generative search (AI). WPP Media's mid-year market forecast notes that advertising revenue on generative search platforms such as ChatGPT is expected to reach $5.1 billion globally in 2026, representing roughly 0.4% of total advertising revenue.

However, the media agency forecasts the market will grow at a compound annual growth rate of nearly 100% over the five years to 2031. This puts it on track to become the fastest advertising segment to reach $100 billion in annualised revenue in recent years. It took 22 years for traditional search (the adverts you might see when you search on Google) to reach this benchmark. It took 14 years for revenue on social media platforms such as Facebook to reach $100 billion, and spending on streaming TV platforms such as YouTube and Netflix has yet to exceed $60 billion annually, despite rapid consumption growth. The expansion of advertising on generative AI platforms is expected to drive much of the industry's growth in the coming years.

Billboards have not gone out of fashion

One medium seemingly benefiting from the growth of AI-based search is the so-called out-of-home advertising market. Out-of-home is one of the oldest forms of advertising. It generally refers to posters or signs located outside a user's property or premises, such as the ghost signs dotted across London. While spending on other forms of traditional media such as TV, print, and radio continues to decline, out-of-home spending is holding its own. According to WPP, that's because the medium is virtually guaranteed to deliver its message directly to humans, unlike digital platforms.

Indeed, earlier this year, we passed the point where more than half of the internet is now made up of machine-to-machine interactions (think AI agents filling in forms, or bots “liking” AI-generated videos), meaning there's an increasing chance human eyeballs will never see the ads that have been paid for. With out-of-home, advertisers can deliver their message to large numbers in physical environments simultaneously, the sort of scale and visibility that digital channels such as social-media platforms increasingly struggle to match.

One of the most prominent operators in this space in the UK is Global Media. The private company manages more than 253,000 outdoor advertising sites across the UK, as well as radio stations. It is one of the most important partners for the London Underground and operates billboards across some of the UK's most important transport hubs and across Europe. In the company's most recent fiscal year, out-of-home advertising revenue rose from £379.9 million to £425.9 million, and adjusted profits for the outdoor business rose 25% to roughly £155 million.

Alongside Global, JCDecaux (Paris: DEC) leads the world in this space. The Paris-based company accounts for around 12% of the global out-of-home advertising market, twice that of its closest competitor. Most of its assets are in Europe (30%), 8% in the US, 21% in the Asia-Pacific and 14% in the rest of the world. More than half of its revenue comes from out-of-home placements on the street, with 13% coming from billboard sales. In addition, 36% of sales come from adverts placed on public transport or around stations.

Analysts at Berenberg expect the company to grow 5.5% this year, faster than the wider market, thanks to growth in Asia and the US, which is underrepresented in the portfolio. While the company earns a healthy Ebitda margin of 21.4%, roughly 60% to 70% of group costs are fixed, meaning the capital structure has significant operational gearing. Still, the business is managed very conservatively, with near-zero debt and a 66% institutional shareholder in the form of the Decaux family. The shares trade at a forward p/e ratio of 15 with a free cash-flow yield of 7.3%.

The best advertising agencies to invest in

Then there are the advertising agencies. This market is really dominated by five major players: Publicis (Paris: PUB), WPP (LSE: WPP), Havas (Amsterdam: HAVAS), Omnicom (NYSE: OMC) and Dentsu (Tokyo: 4324).

Publicis is widely described as the best operator in the sector. Over the past five years, the company has won key contracts from competitors and poached top talent. It has focused on expanding its data and consumer-identity capabilities to gain an edge in the digital advertising market and capitalise on AI-driven market growth. Following a major restructuring and repositioning, growth is accelerating and is expected to rise from around 2.2% in 2026 to nearly 7% by 2028, according to Berenberg. The company is also generating strong cash flow. It is set to end 2026 with a net cash position of roughly €1.7 billion and the stock trades at a free cash-flow yield of 10.3% and a forward P/E of 11.

Once the leader of the group, WPP is now the laggard – and by a wide margin. Since the company lost its visionary CEO Martin Sorrell in 2018, it has really struggled to find its feet. Multiple rounds of job losses, re-organisations and rebranding have left the business gasping for air. Revenue this year is expected to come in at about £9.5 billion, down from £11.4 billion in 2024. However, following the arrival of new CEO Cindy Rose, green shoots have started to emerge. A year into her tenure and the former CEO of Microsoft UK has managed to stem the bleeding. According to numbers gathered by COMvergence, WPP Media has won around $3 billion in new business so far in 2026, versus $2.8 billion in losses last year. Account retention is now running at 43%, up from 16% in 2025. Still, the company has a lot of work to do to prove it is back in business. Analysts forecast revenue declines until 2028. In the meantime, the company is expected to cut jobs further to improve cash generation. It carries debt of around £2.5 billion, excluding leases, against Ebitda of £1.5 billion. A lot of bad news is baked into the valuation, with the shares trading at a forward p/e multiple of 4.9 and a dividend yield of 5.9%. The stock is trading at a free cash-flow yield of 5.2%.

Investing beyond the top tech players in advertising

The big tech players might dominate the ranks of the biggest advertising sellers, but they are no longer the pure-plays they once were. Alphabet, Meta and Amazon are funnelling hundreds of billions of dollars of advertising revenue back into the ground to expand their AI operations. This is turning businesses once touted for high returns on capital and asset-light models into capital-intensive infrastructure plays. Still, there's no denying they remain at the top of the pyramid for advertising spending. Alphabet, Meta and Amazon generated a combined $160.8 billion in advertising revenue in the second quarter of 2026, with Alphabet leading the way. Overall ad revenue rose 14.5% thanks primarily to the group's dominance in AI-powered search. Revenue from search rose 17%. YouTube advertising revenue rose 12.6% year on year as it continued to grab market share from TV budgets. The platform's annual advertising revenue has surpassed the combined spending of traditional legacy giants such as Disney, NBCUniversal, Paramount and Warner Bros. Discovery.

Beyond the top tech players, it may be worth a look at Pinterest (NYSE: PINS). This company has risen to become one of the top 25 advertising platforms in the world over the past decade thanks to its rich pool of ever-growing user content. Part social-media platform, part scrapbook, the platform is designed to help users find ideas, such as for home decor and fashion, and drive them to stores. More than half of the platform's users say they use it to shop. In a world where brands are focused on user-generated content to drive sales, this is a huge edge. The platform has logged 11 consecutive quarters of user growth (there are 640 million in total) and revenue expanded 18% in the second quarter. Pinterest has had a tough time as a public business, with the shares down 65% in the past five years. However, it's on track to generate around $1bn of free cash flow this year, against a market cap of $10.5 billion. It has net cash on the balance sheet and management has spent $2 billion buying back stock. It could be worth a look.

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Back in 2016, French insurance giant Axa (Paris: CS) was known for its complexity. The majority of the company's earnings came from its life insurance and long-term savings business, the health of which was tied directly to interest rates. That began to change under CEO Thomas Buberl, who took over the group in 2016. Buberl's vision for the company was simple. The new boss wanted to turn Axa into a leading global insurer in the “short-tail”, relatively capital-light business of property and casualty insurance (P&C).

One of the main issues with life insurance is its “long tail” business – once the insurer has written the life insurance or annuity policy, it's stuck with the contract for decades, even if it becomes unprofitable. As a result, regulators tend to demand that these firms hold high levels of capital reserves to meet upcoming liabilities and unforeseen developments.

How Axa freed up billions in capital

One of Buberl's first moves was to carve off its US life-insurance arm, Axa Equitable, which freed up billions of dollars in capital for the group to go shopping. Almost as soon as the company announced the transaction, it launched an offer for XL Group, a leading global P&C insurer. Axa paid $15.3 billion for its peer and was instantly catapulted into the ranks of the world's largest P&C insurers. As part of its Vision 2020 growth plan, management continued to exit non-core businesses, de-risking the group's exposure to highly volatile and loss-making segments of the global insurance and reinsurance market and cutting costs.

As a result, the group's revenue mix has changed markedly since 2026. In 2016, before the transformation began, the group reported total revenue of €100 billion, with 50% coming from life and health insurance, and net income of €5.8 billion. By 2022, revenue had fallen 34% to €66.6 billion. However, net income fell just 13% to €5 billion.

Around this time, the group also started to benefit from the dramatic upswing in global insurance and reinsurance prices. Starting around 2019, a combination of inflation and losses has pushed insurers to raise insurance prices globally to offset the added cost of claims.

At the same time, higher interest rates have boosted the returns insurers can earn on the investment portfolios they hold to back up underwriting. Thanks to this double tailwind, insurers have reaped the benefits. Axa's combined ratio, a measure of underwriting profit, fell to just 90.6% in its 2025 financial year, from 99.5% in 2020. Anything below 100% signifies an underwriting profit while anything above signifies a loss. Thanks to this tailwind, Axa's net income rose to €9.8 billion in 2025, on a total revenue of €75 billion. Of that total, €58 billion comprised revenue from P&C underwriting.

The company's next move was to sell its asset-management business. Axa sold this division, Axa Investment Managers (Axa IM), to BNP Paribas for €5.4 billion – 15 times earnings at the time of the deal. The combination of Axa IM and BNP Paribas created an asset manager with total assets under management of €1.5 trillion, giving it the scale to compete in the increasingly competitive asset-management market. Axa immediately gave the bulk of the proceeds from this deal back to shareholders via a share buyback.

Axa's new plan for growth

Axa has changed completely since 2016 and, on 15 September, the group published its new plan for 2027-2029. The new plan builds on the work management has done over the past decade to get the business to where it is today, and the focus is earnings growth. Management wants Axa to reach earnings growth of 7% to 9% on a compound annual basis over the next three years, above the top end of the 6% to 8% target in the previous plan.

To do this, analysts believe the company will have to broaden its base in Europe, notably in the small and medium-sized enterprise sector, while seeking up to €7million a year in cost savings. Overall, analysts at investment bank Berenberg believe cost savings (mostly from AI) will add 1% a year in earnings across the group, a significant figure.

Management is also forecasting higher cash generation from the group's subsidiaries. The plan is to generate €25 billion of cumulative cash over the three-year period, up from €21 billion in the 2024-2026 period. A good chunk of this will flow straight back to investors. Berenberg has the group returning €5.4 billion in 2027 and €5.8 billion in 2028, with the stock trading at a 5.8% dividend yield. Buybacks between 2024 and 2028 could shrink the share count by more than 10%. The total shareholder yield, including dividends and buybacks, is pencilled in at 7.8% for 2027 and 8.4% for 2028.

Based on the bank's estimate of future earnings growth, Axa shares are trading at a forward price-to-earnings (P/E) ratio of eight and a price-to-book ratio (P/B) of 1.59. That looks cheap compared with the group's earnings outlook and plans to return cash.

There is, of course, risk. A soft insurance market, where prices start to fall, could wipe out growth across the business, and a jump in losses could vaporise profit and force the group to postpone returning cash. All insurers face similar risks, which is why they generally carry a lower rating than the rest of the market.

In Axa's case, however, its rating seems too low. Indeed, because Axa's insurance policies are short-tail and reprice every year, the group could quickly adjust to a new environment. As one of the largest players in the global P&C and health-insurance market, Axa shares are worth a closer look at their current valuation.

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As the investing truism goes, time in the market is better than timing the market. The spirit of this adage is that it’s generally better to sit tight and hold onto your investments rather than frequently buying and selling.

It’s impossible to know, without the benefit of hindsight, whether you’re selling one of your top stocks or funds at its peak price, or if in doing so you’re potentially missing out on future gains – so the best thing to do is usually to sit tight and let the tendency of the stock market to rise over time do its thing.

“Knowing when to sell a share can be one of the most difficult decisions an investor can face,” said Richard Hunter, head of markets at investing platform Interactive Investor (ii).

After all, when you first bought the stock, you hopefully did thorough research on the company and its prospects, and had conviction that it was set for success in the long run.

“The position becomes less clear as human psychology kicks in,” said Hunter. “If the share price has declined, there is a natural reticence to hold on to the shares rather than sell and admit defeat, even if prospects have obviously deteriorated.

“On the other hand, if the shares have risen as had been hoped, there is a fear of missing out on further gains if the investor crystallises the profit.”

Selling a stock can sometimes be sensible when there are good reasons and you do it in an informed and considered way rather than impulse or in an attempt to time the market.

Profit-taking (selling a winner)

The first reason to sell might be that the stock has performed well and you want to bank some of the profits.

“One strategy which some investors use is known in the parlance as ‘top-slicing,’” said ii’s Hunter. “Imagine that an investment of £10,000 had fortunately come good and doubled to £20,000. By selling £10,000 worth of shares, the investor would be breaking even. The remaining £10,000 would then leave skin in the game as well as representing pure profit.”

How much profit you take is of course up to you – you don’t have to sell your entire allocation, or even half of it. Remember, though, that a profit (or loss) is only on paper until you sell.

Consider also the timing of selling a stock. If the shares are held outside an ISA, selling at a profit could make you liable for capital gains tax.

Loss-limiting (selling a loser)

On the other hand, a stock that is underperforming is a very tempting target to sell, especially if you’ve lost faith in the company’s ability to turn things around.

You’ll have noticed that this is the opposite of profit-taking, but despite appearing contradictory, both approaches “make perfect sense” according to Hunter.

“While it is ‘never wrong to take a profit’, traders will point to ‘running your winners and cutting your losers,’” he said.

Be sure to check whether your initial thesis for buying the stock is no longer intact before you sell, though. Some investors might view a share price decline in a stock they still believe in as evidence that the market has overlooked something; value investors might even consider the decline an opportunity to buy more of the stock on the cheap.

Portfolio rebalancing

It’s generally considered good practice to reset your portfolio at certain intervals – maybe quarterly or twice-yearly.

When you do so, assuming that you reallocate your investments so that each carries the same weight as it did when you last rebalanced, you will sell some of your top-performing stocks, as these will now constitute a larger percentage of your portfolio than they did before.

Risk profiling

Similarly, you might sell a stock because your own risk appetite has changed since you bought it.

Perhaps you bought a high-growth stock 10 years ago when your priority was portfolio growth. You’re now 10 years closer to retirement and wealth preservation is likely to be a higher priority for you than capital growth, so you may feel the right decision is to sell this stock and use the profits to invest in a more defensive alternative, or one that offers a higher dividend yield.

“Consider the reasons you bought the shares in the first place,” said Hunter. “Are they still intact? Does the holding still fit into your investment objectives?”

Ultimately, he added, there is no definitive answer to whether and when it’s right to sell a stock, and the decision will vary from person to person.

“As long as the investor is comfortable with the rationale, there is no right or wrong time to sell,” he said.

Alphabet, the parent company of tech giant Google, is one of the largest companies in the world.

It is a front-runner in artificial intelligence (AI) and part of the so-called ‘Magnificent 7’ stock group. But, if you go to buy Alphabet shares, you’ll notice you have a choice to make.

Alphabet has two stock listings: (NASDAQ:GOOGL) and (NASDAQ:GOOG). The two tickers refer to separate share classes for Alphabet.

GOOGL refers to Class A shares or common stock, which carry shareholder voting rights – each share you hold grants you one vote whenever a shareholder vote takes place.

GOOG refers to Class C shares. These confer the same amount of ownership over Alphabet’s equity, but they don’t give you any voting rights.

Because both share classes represent the same level of equity in Alphabet, their prices are similar. However, GOOG tends to trade at a slight discount compared to GOOGL because it doesn’t give you any voting power.

For example, on 18 September GOOGL closed at $349.54 while GOOG closed at $344.41.

While each share class trades separately, they still represent equity in a single company and as such Alphabet’s market capitalisation (market cap) is calculated as the sum of both share classes.

You may sometimes see the two share classes split – for example, a list of S&P 500 stocks or the holdings in a tracker fund will usually list each share class separately.

As of 18 September the iShares Core S&P 500 UCITS ETF (LON:CSP1) lists Alphabet Class A as its fifth-largest holding with 3.1% of the fund, while Alphabet Class C is the seventh-largest with 2.5% of the fund. In reality, though, Alphabet is the third-largest company in the S&P 500 and accounts for a combined 5.6% of the ETF.

Which class of Alphabet stock should you buy?

The answer depends on what you’re hoping to get out of buying Alphabet shares.

If you want to be able to exercise shareholder voting rights then Alphabet’s Class A stock (GOOGL) is the one to buy.

But if you aren’t too fussed about voting – and it’s worth noting that, as Alphabet has a market cap over $4 trillion, your vote is likely to be a miniscule fraction of the total – then GOOG is slightly cheaper, meaning you pay fractionally less for a very similar level of financial return (it has a dividend yield of 0.26% compared to GOOGL’s 0.25% as of 18 September).

In reality, the difference is very small, and capital gains are likely to be similar for both stock classes over the long term (GOOGL gained 148% in the five years to 18 September, compared to GOOG’s 143%), so don’t fret too much over deciding which to buy.

Depending on the investing platform you use, the decision may be made for you as some platforms only offer a single class of Alphabet stock.

Is there a third class of Alphabet stock?

There is a third class of Alphabet stock – Class B. Unlike Class A and Class C shares (GOOGL and GOOG) Class B shares are not traded publicly, meaning you won’t be able to buy them.

Alphabet’s Class B shares are held by company insiders, mostly its senior leadership. They convey ten votes per share – meaning that senior executives hold the majority of control over the decisions the company takes whilst still being able to raise capital in the stock market.

Recent falls in Indian stocks have created opportunities to invest in some long-term growth stories at attractive prices.

India has been one of the world's fastest-growing major economies in recent years and this rapid economic growth is changing how its 1.4 billion people spend and save. As household incomes rise and more people move into the middle class, demand is growing for everything from convenient ways to shop and eat to insurance and branded consumer goods.

These long-term shifts are creating opportunities for Indian stocks that can capture a growing share of consumer spending, particularly those with strong brands, wide customer reach and plenty of room to grow.

At JPMorgan India Growth & Income, we focus on finding high-quality companies with the potential to benefit over the long term. Here are three examples.

Three Indian stocks for your portfolio

Zomato (Mumbai: ETERNAL) is one of India's leading online food delivery and restaurant discovery platforms, connecting consumers with restaurants and delivery partners across the country. As more Indians move to towns and cities and become comfortable ordering online, the company has grown rapidly, building a large customer base, an extensive restaurant network and more than 400,000 delivery partners.

Zomato's size gives it an important advantage, and its Blinkit business is also tapping into another fast-growing habit, offering rapid delivery of groceries and everyday essentials. Rising incomes, growing smartphone use and increasingly busy urban lifestyles are all helping India's food-delivery market to expand. With an established technology and delivery network, we believe Zomato (which trades under its parent name Eternal) is well placed to capture more of this spending as consumers increasingly prioritise convenience.

SBI Life Insurance (Mumbai: SBILIFE) is one of India's leading life insurance companies, offering a broad range of insurance and savings products. Its close relationship with State Bank of India, one of the country's largest banks, gives it access to an extensive branch and customer network, helping it reach a large pool of potential customers across the country. Insurance remains relatively underused in India, leaving considerable room for the market to grow.

Many Indian households still favour traditional ways of saving, but rising incomes and growing financial awareness are gradually changing these habits. As India’s middle class expands, more consumers are looking to protect their families and plan for retirement. With its strong distribution network and record of growing faster than many of its peers, SBI Life is well placed to capture this rising demand.

Varun Beverages (Mumbai: VBL) is India's largest PepsiCo bottler, manufacturing and distributing brands including Pepsi, 7Up and Mountain Dew. It operates in one of India's fastest-growing consumer categories, yet soft-drink consumption in India remains relatively low compared with other markets, leaving significant room for growth as incomes and spending rise.

Varun Beverages has built an extensive manufacturing and distribution network, helping it reach consumers across India's many cities, towns and rural areas. As the business grows, this scale also helps it produce and distribute drinks more efficiently. Combined with a strong record of execution, we believe Varun Beverages is well placed to continue growing as more Indian consumers spend on branded drinks.

India's recent market weakness shouldn't overshadow its long-term growth potential. As incomes rise and consumer and financial habits evolve, well-positioned companies have an opportunity to grow alongside the country's consumers and turn its economic expansion into attractive returns for shareholders.

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As CEO of Likewise Group (Aim: LIKE), Tony Brewer is playing out the final act in a long-running commercial rivalry. Brewer built UK flooring distributor Headlam into the market leader. But it collapsed into administration on 1 September, and now he is running the company taking its place

Brewer entered the carpet trade in 1977 as a 17-year-old at Midlands Carpet Distributors (MCD). There he learned the ropes under founder Graham Waldron. In 1991, Brewer and Waldron took a 22% stake in the listed conglomerate Headlam. Waldron was CEO at the time. They stripped out its legacy footwear and textile divisions, turning the company into a focused flooring distributor designed to consolidate the UK wholesale floor-coverings market.

At the time, the trade was populated by hundreds of small, family-owned merchants. Most carried modest stock, ran inefficient local delivery routes and lacked buying power with continental mills. Brewer and Waldron saw an opportunity and began buying these operators, preserving local trading names and centralising supplier negotiations.

Between 1991 and the 2008 financial crisis, Headlam became one of the London market's best-performing stocks, generating operating margins near 8% and returns on capital employed comfortably above 20%. When the crisis halted UK housing transactions, the sharp drop in flooring installations sent scores of private distributors to the wall. Headlam absorbed the shock, took the displaced accounts and emerged controlling roughly 30% of the domestic wholesale market.

Brewer was highly regarded by investors and staff alike. Then, in 2016, the board intervened. Disagreements over operational strategy and succession led to a boardroom rupture and Brewer walked out of the business he had spent a quarter of a century creating.

Two years in exile convinced Brewer that Headlam was vulnerable. Under the succeeding management, the market leader had become bureaucratic and indebted, with a sprawling network of regional properties and central administrative overheads. In 2018, Brewer partnered with property investor Paul Bassi to establish Likewise Group, floating the business on Aim to secure development capital. The objective was simple: build a modern distributor that could replicate Headlam's original service model without inheriting its structural deadweight.

Wholesale flooring distribution depends on logistics and relationships. Independent flooring retailers, regional contractors and self-employed carpet fitters cannot afford the capital or warehouse space to hold large inventories. The distributor carries the stock, extends trade credit and provides the delivery infrastructure needed.

Relationships matter just as much. Independent retailers and trade fitters tend to buy from sales representatives they trust to resolve delivery problems and secure stock allocations, rather than from a corporate brand. A decent sales representative will typically handle between 120 and 140 commercial accounts. Brewer used his industry standing to recruit heavily from Headlam's commercial team. Over several years, dozens of sales representatives, regional managers and senior logistics directors moved to Likewise. When they moved, many of their local trade clients followed.

The result was a damaging loss of volume at Headlam. In wholesale distribution, where operating margins rarely exceed mid-single digits, high fixed costs in depot leases and central overheads mean falling volumes can rapidly erode profits and turn to painful losses. As sales slipped, Headlam's overheads overwhelmed operating cash flow, turning predictable earnings into trading losses and adding to the strain on its debt facility until liquidity ran out. Capturing the spoils of Headlam's collapse will not be a simple walkover. The UK wholesale trade is no longer populated by the inefficient merchants of the 1990s. The surviving independent distributors are disciplined, well-managed businesses with clean balance sheets and strong regional customer loyalty. They will contest every square yard of displaced volume.

Likewise Group has plenty of room to grow

Likewise Group has been taking share from Headlam for years. Its national network is smaller but newer, and its sales operation has been built around many of the people who know Headlam's customers. Headlam falling into administration therefore accelerates a process that was already under way.

The business also needs to spend money on warehouses, equipment and stock before it can handle much more trade. That explains why Likewise Group raised £32.5 million in fresh equity in July. Management is using the proceeds to fund freehold logistics facilities needed to handle the additional trade.

Likewise Group now has significant spare capacity. As stranded trade accounts and displaced contractor orders flow into its national network, the additional revenue should carry little extra distribution cost. Moving from current revenue run-rates towards its £300 million capacity ceiling could therefore lift operating margins from the current 2.5% towards 5%, or 6% if the UK housing cycle turns favourable.

At full capacity, that throughput generates between £15 million and £18 million in annual operating profit. Against an enterprise value of about £100 million, the shares trade on less than seven times mature operating profit. The Aim market holds scores of cheap small-cap shares that languish for want of a catalyst. Likewise has one. The irony is that the man who built Headlam is now in the best position to pick up what it has left behind.

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Who says Apple doesn't innovate any more? After the iPhone and iPad, we now have something entirely new: iFlation. When the technology giant launched its latest phone last week, most of the attention focused on the way it folded in half. But there was something else eye-catching about it as well. It costs almost $2,000. A top-of-the-range version will retail at more than $3,000.

That's a lot for a phone and a big increase on earlier versions. When the first iPhone was launched back in 2007, it cost $499. Adjusted for inflation that is about $800 in today's money. So even in real terms, a flashy new Apple device has almost doubled in price over the last two decades. The ability to keep pushing prices higher may help explain why Apple is one of the biggest and most profitable companies in the world.

It is far from alone as there is a broader trend at work here. Lots of high-status, luxury goods keep on getting more and more expensive. Take tickets for the Glastonbury Festival. We learned last week that next year's event would cost £408. That compares with £87 in 2000 or £170 in today's money. Likewise, Chanel's signature handbag has risen fivefold in price over the past two decades. A Rolex Submariner has more than doubled in price in real terms.

These are just samples of a select group of products that don't simply perform a function – such as telling the time or making a phone call – but also signal your status, make you feel good about yourself, and impress your friends and neighbours. There are plenty of cheaper phones on the market that perform perfectly well. Some of them even fold in half. But they don't have the cachet of an Apple. Likewise, you can pick up a perfectly reliable watch in any department store, or even just use your phone, and it will tell you the time. But it doesn't tell the world how successful you are in the same way as a Rolex. The trouble with such high-status goods is that they are getting more and more expensive.

Why? To start with, companies have to keep pushing up the prices of such goods to maintain their exclusivity. By definition, a status good only maintains its position by having some degree of exclusivity. If everyone has one, it is not so classy any more. Price rises are one way to make sure its status is preserved.

Next, although we might not especially notice it in low-growth Europe, the world is getting richer. The number of millionaires in the world has roughly doubled from about 30 million a decade ago to roughly 60 million now, according to the UBS Wealth Report. There are a lot more people with plenty of money to spend, but often only a fixed number of things for them to spend it on. The result is that prices keep going up to match a limited supply with a soaring level of demand. As Asia and South America carry on growing a lot faster than the rest of the developed world, that is only going to get worse. On current trends, the iPhone 20 will cost $5,000 or more by the end of the decade.

Apple will only have themselves to blame

The problem, however, is that the economy is already struggling, with most people finding their living standards squeezed. If high-status goods become less and less affordable, it makes that situation feel worse. Even people who, by any reasonable measure, are making enough money to count themselves part of the affluent middle class may suddenly find they can't afford an Apple phone or a high-class watch. For anyone on a lower income, it becomes impossible to get to Glastonbury.

The divide between a tiny minority that can still afford a few luxury goods and everyone else will just get wider and wider. The result? The latter will feel more and more alienated from a free-market economy that no longer seems to deliver.

For corporations, raising prices is great for the bottom line, if you can get away with it. But if it means you undermine support for free-market capitalism, perhaps that is not such a great trade. At a certain point, iFlation will create a backlash, with the calls for wealth taxes and caps on corporate profits becoming louder all the time. The likes of Apple will only have themselves to blame for pushing prices up too aggressively.

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“We really do earnestly believe AI could kill all humans!”, says Anthropic researcher Evan Hubinger on X. He thinks there is more than a 10% chance we could all be dead “within the next decade”. Talk of AI's apocalyptic potential is in the air. Senior figures at AI labs are said to be terrified by the capabilities of recent models, which could be used to create bioweapons or elude human control and go rogue. The panic hit a new level at the weekend when a group of AI CEOs, including Dario Amodei – Hubinger's boss at Anthropic – publicly backed calls for a slowdown in AI development.

Anthropic: the AI company at the centre of a media storm

Scary stuff. Perhaps Silicon Valley really has been seized by a collective spasm of conscience about the consequences of building AI. Or maybe this is a PR campaign so slick and devious that it would make Alastair Campbell weep. For one thing, the timing is highly suspicious. Anthropic, the AI startup at the centre of the current media storm, is preparing to launch the largest initial public offering (IPO) in history in a matter of weeks.

A basic tenet of critical thinking is to pay attention to vested interests. Dario Amodei is not a neutral commentator. He is trying to secure an IPO valuation of up to $2 trillion. Yet much of the tech media, keen for a dramatic story, uncritically treats the self-serving pronouncements of AI executives as objective statements of fact.

The more conspiratorially minded pointed out that the tweet by Jacob Coxon, the Anthropic researcher whose resignation triggered the latest news cycle, was viewed 140 million times despite the fact that his account had almost no prior activity. While Coxon's concerns are probably genuine, the way his message was picked up and boosted by multiple influential figures appears less than organic.

On the face of it, it's not obvious how dire warnings about existential risk would be beneficial to the AI industry. Big tobacco spent years suppressing information about the dangers of its products. So why are AI executives so keen to talk about how their technology could be used by terrorists or lead to the extinction of swathes of white-collar work?

Is Anthropic doom trolling?

The answer, as Cal Newport, a computer science professor at Georgetown University, argues, is the pervasive use of a marketing technique he calls “doom trolling” (a spin on phone addicts' “doom scrolling”). Fear sells. Outrageous claims about the dangers of large language models (LLMs – the currently favoured AI technology) go viral, generating vast amounts of free media coverage for the company that originated them. Talk of existential risk makes AI products appear hugely powerful and desirable.

This buzz helps to distract from the less exciting reality. Yes, LLMs can do impressive things in highly structured domains such as coding and translation, where clear failure conditions help limit their tendency to go off the rails. In other areas (including journalism), their catastrophic tendency to make up information greatly circumscribes their usefulness.

In short, the LLM is a new software category, but investors are not going to pay trillions of dollars for a newer version of Microsoft Excel. Instead, these tools must be imbued with a dark, apocalyptic glamour. Such doom-mongering is longstanding industry practice. As Parmy Olson notes on Bloomberg, in 2019 OpenAI said it would hold back its GPT-2 model from general release on the grounds that it was too dangerous – this for an LLM that struggled to answer primary-school-level reasoning tasks. Terrifying indeed.

This year the AI doom campaign has been turned up to max. Barely a week goes by without claims (all originating from within the AI companies themselves) that a bot has gone on a rogue hacking spree, CEOs, including Anthropic's Dario Amodei, have backed a slowdown in the development of AI or that a new model can't be released because it creates serious cybersecurity risks (it is then released shortly afterwards anyway). The effect has been to generate precisely the sort of frenzied atmosphere that one would want to surround a trio of high-stakes AI-linked IPOs: SpaceX in June, Anthropic scheduled for October, and OpenAI sometime next year.

Who benefits from AI doom trolling?

The AI industry's calls for regulation carry the whiff of “regulatory capture”. Government red tape is more burdensome for upstarts than it is for big established players. New safety regulations could help AI leaders throttle the competition. There is persistent suspicion that Anthropic's Amodei would like to see regulations that effectively excludes his main competitor – cheaper, open-source, often Chinese AI – from major Western countries. If you can't beat them, ban them.

It is also possible that calls for a slowdown represent an attempt to put a brave face on the fact that the AI arms race is becoming too expensive. OpenAI is on course to spend $45 billion this year alone on training and inference (the cost of running AI), but the performance of new models is running into diminishing returns. That isn't an ideal backdrop in which to successfully list a growth company. Instead of breaking the bad news to investors and tanking the valuation, why not piously tell the media you are choosing to slow down development because of your abundant love for humankind?

Don't fall for the hype

What does all this mean for ordinary investors? For starters, don't fall for the tech hype machine. Steer clear of this year's big flashy IPOs, a crowded trade if ever there were one. Secondly, diversify widely. Continue to look for the sort of underexplored investment themes that we cover in depth. And finally, keep your head. There is no knowing how long the current AI fever will last, nor exactly how wide the damage will be when it breaks, but you can at least regain some tranquillity by tuning out the endless talk of doom. Perhaps AI really will kill us all in some hypothetical future. But for now, it is the AI-marketing hype that represents a clear and present danger to our collective mental health.

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The F&C Investment Trust aims to deliver long-term growth in capital and income for shareholders. It is a FTSE 100 constituent and is the oldest and one of the largest investment firm in the UK, with assets that exceed £7 billion. It invests in listed equities and private equity and has delivered 55 consecutive years of rising dividends. The trust is globally diversified and conservatively managed.

I have managed the firm since mid-2014, working with specialist stock-pickers from Columbia Threadneedle Investments and elsewhere in the market. This gives the trust exposure to different geographies, investment styles and sectors, including firms benefiting from long-term changes in what we spend money on, how we pay and use technology. The following holdings illustrate these themes.

Diverse stocks for long-term growth

Mastercard (NYSE: MA) is at the heart of the long-term move from cash towards card and digital payments. It earns fees on transaction volumes and values without taking credit risk, enabling an asset-light business model and exceptional capital returns. Its scale provides a significant competitive advantage. Consumers want cards that are widely accepted, while retailers want to accept the cards their customers already use, making Mastercard's network difficult for new competitors to replicate. Beyond the ongoing shift away from cash transactions in developed markets, there are opportunities for growth in emerging markets too. Mastercard is also expanding its value-added services, including cybersecurity, data analytics and open-banking services, providing further opportunities for growth.

Infineon Technologies (Frankfurt: IFX) is a leading supplier of the technology underpinning three significant long-term trends: electrification, energy efficiency and AI infrastructure. It has a strong competitive position built over many decades. Sophisticated power management is at the heart of many of the transitions currently underway, including the shift to electric vehicles, renewable energy and modernising the grid, and Infineon is the global leader in power semiconductors, which are essential in this area.

The rapid growth of AI is creating another significant source of demand. The data centres needed to train and run increasingly sophisticated AI models require huge amounts of computing power and electricity, making efficient power management increasingly important. This represents a significant new growth market for Infineon that barely existed a few years ago. While its shares have been volatile, we believe the current valuation does not fully reflect the potential.

Live Nation Entertainment (NYSE: LYV) is the world's largest live entertainment company and has grown revenues by 15% per year on average since the pandemic. The company is benefiting from a structural shift in consumer spending towards experiences over goods, with demand for live experiences, such as concerts, increasing as a result. The combination of ticketing through Ticketmaster, concert promotion through Live Nation and venue ownership and management gives the business a strong position across the live entertainment industry. Consumers can buy their tickets, see their favourite artist and attend a venue all within the same platform. This vertically integrated model creates a powerful competitive advantage, allowing Live Nation to benefit at several different points as demand for live entertainment grows.

The three businesses above operate in very different industries, but each has built a robust competitive position in an area benefiting from a long-term shift in demand. For investors, identifying companies capable of turning these structural changes into sustainable long-term growth can provide opportunities that extend well beyond the short-term market cycle.

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Shares in housebuilder Vistry (LSE: VTY) jumped 18% on 25 August when it was announced that the Kent-based company would receive £350 million as part of the government's £39 billion social and affordable homes programme.

The funding package was significantly higher than the award under the previous programme (£278 million). It was also the largest possible award in the first round of funding allocations (£9.5 billion). Vistry said it will deploy the funds immediately to more than 3,000 affordable homes. Per-home funding is £116,000, up from £79,000.

Vistry delivers around 15% of the UK's social/affordable homes and is one of the best ways for investors to benefit from Labour's drive to get the country building again, but the firm has consistently disappointed investors. After the recent funding package, there could be some light on the horizon. At the current valuation, investors don't seem to be pricing in any growth.

How Vistry became the UK's most shorted company

It's fair to say that Vistry has a chequered history as a public company. Greg Fitzgerald, the former CEO and executive chair, built the firm, which was formerly known as Bovis Homes, through a series of deals, rebranding the group as Vistry in 2020 following its £1.1 billion acquisition of Galliford Try's housing businesses. Fitzgerald aimed to create a builder focused on partnerships with local housing providers and local authorities, rather than sales to private markets, which seemed the right course as politicians began to re-prioritise public-sector housebuilding. To that end, the group bought Countryside Partnerships for £1.3 billion in 2022.

Fitzgerald had the vision, but struggled to realise it. Vistry's vocal shareholders, US hedge funds Abrams Capital and Browning West (more than 20% ownership), haven't helped. The funds came on board with the Countryside merger and have since increased their stakes. In March 2023, it emerged that they wanted to offer Fitzgerald a bonus of up to £60 million if the shares hit £18 within three years. The proposal mimicked the agreement with Persimmon's former boss Jeff Fairburn, who was forced to resign following public outcry over his £75 million long-term bonus package. Vistry's remuneration committee voted it down, but the damage was done.

Since then, the firm has issued six profit warnings. In October, November and on Christmas Eve in 2024, it issued three consecutive warnings that higher-than-expected costs would hit the bottom line. This trend continued in 2026. In March, the shares plunged more than 20% in one day when Vistry announced Fitzgerald would retire and the firm lowered its outlook for the year. Then, in May, Vistry said material cost inflation would hit pre-tax profit by around 10% for the year. In July, these forecasts were scrapped altogether. The firm told investors it would report a pre-tax loss of about £30 million for the first half of 2026 on top of the £40 million reported for the first half of 2025.

This stream of bad news has crushed the shares. Although they have risen 20% since their multi-decade low in June, they're off 80% after peaking in August 2024. Vistry is now the most shorted company listed on the London market.

Is there any silver lining for Vistry shareholders?

Unfortunately for long-suffering shareholders, there could be more bad news to come. Reports suggest Fitzgerald pushed Vistry's land buyers to purchase any land they could get their hands on, some of which can't be used. It's believed that the new CEO, Adam Daniels, is working to undo these errors. Ultimately, sales will help him improve the balance sheet, but there could also be write-downs. Buyers know the company is in a rush to sell and they will push a hard bargain.

So where's the good news in all of this? Well, Vistry is operating in a structurally sound market with increasingly supportive stakeholders across the value chain. The government's £350 million cash pot has removed immediate speculation about a deeply discounted rights issue and private bank funding for social housing is starting to be crowded in. Lloyds and Santander have both announced boosts to funding for the sector this year.

As a new CEO, Daniels has a chance to get to grips with all past problems (the group is also replacing the CFO) and reset expectations. Vistry needs to take control of costs and move forward rather than stumbling over its own mistakes.

Vistry is a deep value play

While the company faces an uphill struggle, brokers are optimistic. Panmure Liberum thinks the company is taking the right steps to reduce leverage (with a year-end target of £100 million of net cash and average daily debt of £650 million in the second half compared with last year's £771 million) and has pencilled in housing completions of 16,330 for fiscal 2026, up from 15,658 as stalled developments from last year reach completion. The broker believes completions will rise further to 17,170 in 2027 and to 20,157 by 2030. Panmure has pre-tax reported profit falling from £196 million to £29 million in fiscal 2026, before rebounding to £173 million in 2027 and then £452 million by 2030.

Peel Hunt has a similar outlook, with a pre-tax profit of around £300 million pencilled in by the end of the decade. If Vistry comes close to these figures, the shares look cheap at current levels. Vistry is trading at an average forward price-to-earnings (P/E) ratio of 5.5 for 2027 based on Peel Hunt's and Panmure's figures. What's more, its tangible book value per share – mostly land and property yet to be sold – is 625p, a full 120% above the current price. With the shares priced at around half the sector average and more than 50% below book value, if Vistry can prove to the market it's back on track, the shares could double.

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The on/off Middle East crisis is on again this week, sending up oil prices in response. Dated Brent – a key benchmark based on North Sea oil – is above $100 for the first time since July at the time of writing.

Every time oil moves in a significant way, it raises the question of how best to play higher prices. One answer to that depends on what kind of move you expect.

Dated Brent – which is the benchmark that you tend to hear most – reflects what is happening to demand for physical oil right now. It is an example of a spot price, meaning the price to complete a commodity transaction immediately. In the case of Dated Brent, the buyer is buying a cargo of oil that will be loaded on a predefined date in the next few days or weeks.

However, traders also pay close attention to futures prices – the price of a contract to buy or sell oil at some point in the future. That date may be in one month, three months, six months or further ahead. There is a long chain of contracts which can stretch out for years, but most activity is in the ones closest to expiry.

As an individual investor, you can't trade physical oil directly. You could trade oil futures, but using an exchange-traded fund (ETF) such as WisdomTree Brent Crude Oil ETF (LSE: BRNT) is simpler. Yet this distinction between spot and futures prices is still important when using an ETF.

How oil ETFs work

While ETFs for gold or other metals often hold physical metal and reflect the spot price, oil ETFs have traditionally worked by buying futures contracts for near-term months. As each contract gets close to expiry, the ETF sells its existing position in that contract and rolls over into another contract a month or two further out.

So the ETF will reflect the trends in near-term oil futures. It will also gain or lose from a less obvious source of return called roll yield. If futures prices for the nearest months are higher than those for more distant months, the ETF will be selling higher and buying lower each time, and will earn a profit from doing so. Conversely, if prices for nearer months are lower than more distant months, the ETF will be selling lower and buying higher, and the roll yield will be negative.

If – as is often the case in a crisis – spot prices spike by much more than futures, a typical oil ETF will not rise by as much as the spot price does. However, the new-ish Onyx Spot Return Crude Oil ETF (LSE: OIL) takes a different approach. It holds very short-term daily Dated Brent futures, which it continuously rolls over. As a result, it is a closer proxy for the spot price. This product launched in June and has beaten traditional ETFs since then (see chart). Whether it keeps doing so depends on whether spot prices remain much higher than futures and on whether the futures roll yield is positive or negative. Regardless, it's interesting to see a new way to trade immediate shocks to physical oil prices that relies less on shifts in futures.

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Airlines have been one of the hardest-hit industries as a result of the war in Iran, and the industry is struggling to recover from a succession of punishing shocks.

The Covid pandemic was a challenging start to the decade for the airline industry, as it all but shut down global travel. Two years later, Russia’s invasion of Ukraine sent oil prices sky-high, pushing up input costs for airlines.

The story has been similar in 2026, with the US/Israeli conflict with Iran prompting the closure of the Strait of Hormuz, through which around a fifth of global oil supplies previously moved, adding further upward pressure onto the cost of jet fuel while pushing global inflation higher.

“High oil prices are turning the coming winter into a stress test for airlines,” said Lale Akoner, global market strategist at investing platform eToro. “Fuel and labour costs are rising, while geopolitical disruption and pressure on household budgets make it difficult to pass them on through higher fares.”

The International Air Transport Association warned in June that global airline profits would halve in 2026 due to higher fuel costs.

Airline stocks have been punished. The NYSE Arca Airline Index, an index of US-listed airlines, fell 11.9% in 2026 through to 10 September, while the STOXX Europe Total Market Airlines Index, which comprises European-listed airlines, fell 12.8% over the same period.

But while it is undoubtedly a challenging period for the sector as a whole, are there opportunities amid the disruption?

What does EasyJet’s acquisition mean for airline stocks?

One of the biggest consequences of the rout in airline stocks appears to be the acquisition of EasyJet (LON:EZJ) by US-based private equity firm Apollo.

EasyJet rejected a sequence of bids from private equity firm Castlelake, calling the bids “opportunistic” given they followed a sharp nosedive in the airline’s share price. EasyJet’s share price had declined by over 30% in the 12 months to the end of May, before Castlelake’s first bid.

Eventually, though, Castlelake’s rival Apollo made a bid that EasyJet’s board felt compelled to accept, and it now looks as though the airline will be acquired.

“EasyJet is now a different kind of investment, with Apollo agreeing to buy the airline for 715p a share,” said Akoner. “The deal, which appears likely to be completed, has largely insulated the shares from the latest fuel shock.

“However investors should be wary as most of the takeover gain has already been captured, leaving limited additional upside before the expected completion in early 2027.”

EasyJet’s takeover highlights the extent to which airlines are under pressure, and that this creates an opportunity that institutional investors are already exploiting.

“We think this difficult backdrop could still produce winners,” said Akoner. “Airlines are already cutting unprofitable routes, and weaker operators may have to go further. Fewer available seats should support ticket prices and allow the most efficient airlines to increase market share.

“For investors, the sector increasingly looks like a contest between companies with genuine cost and balance-sheet advantages and those relying mainly on passenger growth.”

Which airlines could be resilient?

Andrew Hollingworth, founder and portfolio manager at Holland Advisors, is of the view that the worse things get for most airlines, the better they are for Ryanair (DUBLIN:RYA) as it has permanent pricing power.

“Ryanair is the lowest cost producer,” said Hollingworth. “If they put their prices up by three euros, [no other airline] is remotely near them, so everyone’s got to pay. “

Most other airlines, though, only have pricing power when the winds are blowing in their favour.

“If the oil price is moderate or rising, but the economy is good, and demand on their routes is good, and they haven’t got new competitors, they can put their prices up and pass on cost inflation,” said Hollingworth. “But if the economy isn’t so good, but the fuel price is still rising, hard luck. There isn’t enough demand to pass on the cost inflation.”

Like Ryanair, Jet2 (LON:JET2) is also a low cost provider, but it offers more to customers through its scale economy than low prices alone.

“It’s not actually an airline, it’s a package holiday company,” said Hollingworth. “Jet2 gives you good value for money on a package holiday, but it also gives you customer service.”

That gives the company excellent customer loyalty, but Hollingworth doesn’t believe this is fully priced.

“The stock market's got it on a very low P/E ratio because it says ‘it's just another average tour operator like Tui,’ but that's not how the customer sees it,” he said. “The customer sees that they give them value for money, they give them good quality service.”

How to invest in airline stocks

If you think it’s time to buy rather than sell airline stocks, you have a few options (besides buying the shares of companies outright).

There are a number of thematic exchange-traded funds (ETFs) tracking the travel sector that offer exposure, such as the iShares STOXX Europe 600 Travel & Leisure UCITS ETF (DE:EXV9) which is a tracker fund following its namesake index, and the US Global Investors Travel UCITS ETF (LON:TRIP) which is an actively-managed ETF offering exposure to travel and tourism stocks. While both of these are diversified travel and leisure funds, airline stocks like Ryanair feature prominently in both portfolios.

Another option is the VT Holland Advisors Equity Fund, which is managed by Hollingworth. It holds Jet2 as its largest holding (with 8.1% of the portfolio) and Ryanair as the sixth-largest (with 4.4%) as of 28 August. Note this isn’t an airlines-focused fund, but one which aims to invest in compelling business models trading at favourable valuations across a range of sectors.

SpaceX’s initial public offering (IPO) was a landmark moment for many investors, opening up a new galaxy of opportunities.

Its historic June debut saw the space exploration company valued at $1.77 trillion at its IPO and its share price surging by 50% in the first three days of trading. .

SpaceX’s (NASDAQ:SPCX) share price has fallen back since, but the appetite for space investing is only ramping up, with investors having more ways to access the sector than ever before.

Opportunities to invest in space are being fuelled by the ongoing artificial intelligence (AI) boom.

“Old space put humans on the Moon. New space is building the commercial infrastructure of the global economy,” said Mark Boggett, CEO of space tech investment firm Seraphim Space. “The convergence of AI and space tech, together with rising demand for connectivity, defence and sovereign capability, is creating one of the most compelling investment opportunities of the coming decade.”

How SpaceX and Nvidia are joining space and AI

It’s tempting to think of artificial intelligence (AI) and space as two separate themes, but they are increasingly closely linked.

SpaceX, for example, is largely an AI company since it merged with xAI, Elon Musk’s AI company and maker of the Grok LLM suite, earlier this year. SpaceX identified a $28.5 trillion total addressable market in its IPO prospectus, of which $26.5 trillion was attributed to AI – compared to $1.6 trillion for satellite connectivity and $370 billion for space launch services, which have historically been the pillars of SpaceX’s business.

One of the most visible crossovers between the space and AI themes is the concept of the orbital data centre – essentially, a data centre in space. These don’t exist yet, but they may not be far away: Starcloud, a start-up dedicated to making orbital data centres a reality, raised $250 million at a $2.3 billion valuation in August.

Among the list of investors in Starcloud’s latest investment round are tech hardware giants Nvidia and Cisco.

“Orbital data centres have gone from science fair to a funded race in a matter of months, with Nvidia neatly hedging both sides by backing Starcloud and SpaceX's rival Starmind,” said James Lockyer, research analyst at investment bank Peel Hunt said.

Nvidia especially is increasingly central to the space industry’s designs. Colette Kress, the company’s chief financial officer, confirmed at Nvidia’s Q2 earnings call that SpaceX is among a number of leading partners that the firm’s latest generation of chip, Vera CPU, is being shipped to.

Nvidia also holds a stake in SpaceX via an earlier investment into xAI.

“The chip cycle and the space cycle are fusing,” said Lockyer. “Nvidia funding, supplying, and holding equity in SpaceX ties the single most valuable name in AI to the most valuable name in space, and for investors it makes SpaceX a compute story as much as a launch one.”

How to invest in the new space economy

As the space industry develops, investors have greater access than ever before. While SpaceX is the largest company in the space sector and is readily available to buy since its IPO, other stocks such as Rocket Lab (NASDAQ:RKLB) and AST SpaceMobile (NASDAQ:ASTS) offer space exposure too.

Companies like these can be accessed through thematic exchange-traded funds (ETF), such as the WisdomTree Space Economy UCITS ETF (LON:WSPG) or the Seraphim New Space UCITS ETF (LON:SERA), which launched on 2 September.

Seraphim New Space UCITS ETF is based on the Seraphim New Space Index, which identifies and weights companies across various components of the space investment ecosystem. Its representative holdings include SpaceX, as well as companies like space infrastructure company Intuitive Machines (NASDAQ:LUNR) or BlackSky (NYSE:BKSY) which offers “space-based intelligence” by using AI and machine learning to instantly analyse imagery captured from satellites.

The ETF also holds a position in Seraphim Space Investment Trust (LON:SSIT), which gained 56% in 2026 through to 28 August. Unlike the ETF, which will mostly hold publicly-listed companies, Seraphim’s investment trust mostly holds private companies related to the space economy.

Targa Resources owns and operates natural gas pipelines, gas plants, liquefied petroleum gas (LPG) export facilities and crude oil terminals across the US. In mid-August, its shares rose 10% after it announced a 20-year midstream deal with ExxonMobil to build and operate a portfolio of energy infrastructure assets for the oil and gas giant.

Targa's deal is the latest in a series of multibillion-dollar projects recently commissioned by oil giants and governments to help move oil and gas around the world.

Targa Resources (NYSE:TRGP) is a midstream energy group, playing a vital role in the energy sector. These businesses link upstream companies, which drill and extract the raw product, and downstream businesses, which refine and sell it to consumers.

Most oil and gas majors manage this part of the process themselves, but in markets such as the US, where thousands of smaller producers in oil fields need to connect to major refining and storage hubs, midstream firms are a vital part of the chain.

Growth in the pipeline market

The $65 billion Targa is just one such company in the industry. The firm was founded in 2003 and has grown steadily through organic growth and acquisitions. In 2004, it purchased midstream natural-gas operations from oil major ConocoPhillips and in 2005, it acquired an asset from energy supply business Dynegy. In 2007, the company listed as Targa Resources Partners LP, using the money from the initial public offering (IPO) to seal more deals.

Over the following two decades, Targa secured 20 further agreements, encompassing joint ventures, partnerships, asset sales and stake sales in key infrastructure assets.

Today, the group owns and operates assets across New Mexico, Oklahoma, Texas and Louisiana. It is active in the key oil-production regions of the Permian, the Bakken Three Forks Shale, Eagle Ford Shale and Fort Worth Basin.

The Permian has become one of the most important oil-producing regions in ExxonMobil's portfolio. When the group sealed the $60 billion deal to buy Pioneer Natural Resources in May 2024, it doubled its footprint in the region and laid out plans to drive production to two million oil-equivalent barrels per day (boepd) by 2030, up from the 612,000 barrels Exxon produced from the region in 2023.

Production hit a record boepd in the second quarter and is now close to 1.8 million as the group continues to grow at a breathtaking pace.

Exxon's total Permian production consists of between 70% and 75% liquid hydrocarbons (crude oil and natural gas liquids) and 25%-30% natural gas. This needs somewhere to go, and that's where the deal with Targa comes into play.

Exxon has agreed to so-called natural gas liquids (NGL) dedications with Targa, whereby it is legally committed to using the company's midstream assets for transport, processing, or fractionation (a physical and chemical separation process) of NGL production from its key fields in the Permian region.

Following these commitments, Targa has announced three new natural-gas processing plants in the Permian Delaware: Wrangler, Ranger, and Ranger II, with a combined capacity of approximately 825 million cubic feet per day.

The plants are expected to be operational in the first half of 2028, with scope for up to five additional processing plants. It also announced plans to build a new, approximately 70-mile, natural-gas pipeline called Bull Run II, supported by take-or-pay commitments (whereby producers buy a fixed amount of capacity and pay whether they use it or not).

To meet these commitments, Targa has upgraded its expected capital spending for the year from $4.5 billion to $5 billion. The business spent $2.1 billion on growth and maintenance capital in the first half of 2026, up 23% from the same period in 2025.

A new gold rush

Despite substantial efforts by policymakers over the past two decades to wean the world off its addiction to hydrocarbons, there has been no let-up in the relentless march of the oil and gas industry.

Pipelines and midstream assets are an often overlooked part of this market, but the conflict in the Middle East has highlighted their importance to the global economy.

With the Strait of Hormuz closed to shipping, pipelines across the Middle East have become critically important for the region's oil and gas producers.

In the past two months, the United Arab Emirates has announced plans to open a new pipeline alongside its existing Habshan-Fujairah pipeline, doubling its capacity.

Meanwhile, America, Iraq and Qatar have also announced plans to upgrade a pipeline from Iraq to Syria, and Chevron is in talks to build a series of them from Iraq to Syria and Turkey.

According to The Economist, citing information from Global Energy Monitor, an oil data and research firm, 12,300 kilometres of pipelines are currently under construction worldwide, with an additional 20,100 kilometres proposed.

Taken together, these additions represent nearly a 10% increase over the 350,000 kilometres of pipelines currently in operation worldwide.

The most cost-effective way to get oil and gas from production fields (usually located inland or in deep water) to refineries and key export markets is by tanker.

Transporting each barrel of oil on the world's largest seagoing tankers can cost as little as a few dollars a barrel. But when it is impossible to use tankers to transport them, producers have no choice but to turn to other methods such as rail, road or pipelines.

A large-diameter pipeline that can carry around one millions barrels of oil per day costs, on average, about $5 million per kilometre, or $5 billion for a 1,000 kilometre pipeline.

That's assuming the pipeline is laid over relatively flat terrain. If mountains, rivers and lakes get in the way, costs can rise significantly.

The significant upfront capital cost is why midstream companies and pipeline owners turn to take-or-pay agreements.

Under these agreements, customers purchase a minimum amount of transport capacity on the pipeline and pay a fee for this capacity, often indexed to the price of oil over an extended period (frequently a decade or more).

The company has to pay to use this capacity whether or not it has oil to transport. This dramatically reduces the risk inherent in the project for the pipeline-operating company and its lenders.

Pipelines require a lot of capital to start, but the long-term economics are hard to argue with.

Data compiled by The Economist shows that the cost of transporting oil via a pipeline is, on average, around $5 per barrel. The cost rises to $18 per barrel when oil is transported via road or rail.

At the height of the US-Iran conflict earlier this year, some reports emerged of companies in central Africa paying as much as $200 a barrel, with $50 of that covering transport costs alone.

No wonder, then, that there is heavy investment in expanding pipeline networks to cut costs and improve reliability. In East Africa, for example, a 1,500 kilometre pipeline is under construction to transport oil from Uganda to the Tanzanian coast.

Argentina is building a 440 kilometre pipeline to connect its key oil fields in the centre of the country to the Atlantic.

There is a growing opportunity for investors. Because returns from pipelines are relatively stable and predictable, thanks to pre-agreed take-or-pay contracts, private infrastructure funds have flooded into the market.

According to McKenzie, a consultancy, assets under management across private infrastructure funds have rocketed to $1.6 trillion in recent years.

This year, global investment group KKR finished raising money for its largest-ever infrastructure fund with a total value of $19 billion. It's almost certain a large chunk of this will go to pipeline projects. Blackstone and Brookfield are also getting in on the action. KKR, Blackstone and Brookfield have signed a $16 billion deal with Kuwait's oil company for a stake in the country's pipeline network.

Don't be tempted by partnerships

The midstream sector is particularly strong in the United States thanks to a quirk of US tax law.

Midstream firms can be structured as master limited partnerships (MLPs), which are pass-through entities much like real-estate investment trusts (REITs).

MLPs pay no taxes, so they can distribute much more of their cash flow to investors. Investors then pay tax on these distributions. Over the past decade, many former MLPs have transitioned to C-corporations (a standard limited company) following a change introduced by the 2017 Tax Cuts and Jobs Act.

The changes have opened these companies to a wider range of investors, but yields have fallen because dividends are now paid out after corporate tax; in the partnership model the tax liability falls on the investor.

As a rough guide, the Alerian MLP ETF currently yields 7.4% on a trailing 12-month basis, while the Alerian Midstream Energy Dividend UCITS ETF, which has strict limits on MLP exposure, yields just 3.6%.

The Alerian Midstream Energy Dividend UCITS ETF has enforced limits on exposure to MLPs owing to K-1 tax constraints – the reason why these MLPs are unsuitable for all but the most sophisticated investors. A Schedule K-1 Federal Tax Form is issued by US partnerships to report a partner's share of its income, losses, capital gains and dividends.

In short, they are a nightmare for non-US investors. Even smaller domestic US investors generally avoid partnerships to avoid the added administration these tax requirements create. Very sophisticated investors who want exposure to these businesses may use total return swaps or other synthetic instruments instead, rather than becoming entangled in the web of compliance. Don't be tempted by a high yield on a US midstream MLP.

Fortunately, plenty of other options exist for investors to play this theme. Kinder Morgan (NYSE: KMI), the largest natural gas-pipeline operator in the United States (and a former division of Enron) consolidated its various MLPs into a single traditional C-corporation in 2014 in order to lower its cost of capital and appeal to a broader range of local and international investors. Many of the company's peers have since followed suit.

A tailwind from AI

Kinder Morgan reported record net income of $867 million in the second quarter, up 21% from the same period last year.

Around $660 million of new projects coming on stream helped boost the company's top and bottom lines, including Tennessee Gas Pipeline's (TGP) Cumberland Project, designed to serve a new gas-fired power plant in Tennessee.

The company said it had a construction backlog of $9.7 billion at the end of the quarter, with an additional $400 million of projects not included in the official backlog, but sanctioned to proceed.

Natural-gas projects made up 92% of the backlog, and 60% of those projects are designed to support local power generation and distribution. The company believes it will outperform expectations by 5% for the year, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $9 billion and a 12% rise in adjusted earnings per share.

Kinder Morgan, like other US midstream companies, is benefiting from increasing demand for power across the US driven by the AI boom. According to Goldman Sachs Research, domestic power demand from data centres is projected to more than double from 31 gigawatts (GW) to 66 GW by 2027, consuming over 8.5% of total US peak summer electricity.

To keep up, companies are commissioning new natural-gas power plants, which can be brought online in a few years and located next to data centres; pipelines are needed to connect these facilities to production zones.

Kinder Morgan may be the largest natural-gas pipeline operator in the sector, but peer Enbridge (Toronto: ENB) is worth nearly twice as much.

It plans to spend between C$10 billion (£5.3 billion) and C$11 billion this year, with half of that already spent in the first six months. It is constructing the $4 billion Sunrise expansion of its British Columbia pipeline (adding 140 kilometres of new pipeline in addition to upgrading the capacity of the existing pipeline) and spending $1 billion relocating a pipeline in Wisconsin.

Williams Companies (NYSE: WMB), the second-largest pipeline group after Enbridge in market value, has raised its spending guidance for the acquisition of Momentum Midstream. It is now projecting spending between $7.3 billion and $7.9 billion in 2026.

Enterprise Product Partners is spending around half as much, with capital spending earmarked at between $2.9 billion and $3.4 billion, net of asset sale proceeds.

Key projects include two new gas-processing plants in the Permian Basin, illustrating the growing importance of natural-gas processing and transportation.

Enterprise Product Partners is the fastest-growing of the large midstream companies, but it is also still structured as a partnership. It reported a 19% increase in adjusted cash flow from operations in the first half to $2.5 billion, as well as a 28% increase in net income, thanks primarily international demand for US natural-gas liquids and crude oil.

Energy Transfer also set several all-time record volumes, notably in natural-gas liquids transportation volumes, which increased 13%, and exports, which increased 25%. Distributable cash flow rose 32% to $2.6 billion. Enbridge, Williams and Kingdom Morgan are all trading at roughly the same valuation, with a price/ earnings ratio (p/e) in the low 20s and a yield between 3% and 5.5%.

The Alerian Midstream Energy Dividend UCITS ETF (LSE: MMLP) offers exposure to all three companies, plus 16 others, with Kinder Morgan, Williams, Enbridge and Targa comprising around 40% of the fund. Investors also get synthetic exposure to the Alerian MLP index.

The picks-and-shovels plays

Infrastructure provides a steady, predictable return. But if you want something offering a bit more excitement, consider the companies providing the picks and shovels to help build future pipelines. Companies worthy of research include Caterpillar (NYSE: CAT), Tenaris (NYSE: TS), MasTec (NYSE: MTZ) and Primoris Services Corporation (NYSE: PRIM). Caterpillar is a broad-based play on the health of the US economy. The company reported record revenue of $20.5 billion in the second quarter, up 24% year on year – the first time Caterpillar has reported more than $20 billion of revenue in a single quarter.

Meanwhile, the company's order backlog hit a record of $72.1 billion, that's not just related to its diggers. While Caterpillar is widely associated with earth-moving and construction equipment, it also operates the SPM oil and gas brand and manufactures equipment for gas power plants. This energy and transportation division increased sales by 17% year on year. While the stock has dipped recently, it is still trading at 25 times projected 2027 earnings.

Tenaris is one of the more interesting companies in the area. It supplies tubular steel used to make pipelines worldwide. Sales fell 4% in the second quarter, mainly because shipments to customers in the Middle East were postponed owing to the conflict.

Lower deliveries to Kuwait and Iraq were, however, offset by higher sales to Venezuela and Argentina, along with the start of delivery of offshore line pipes to the Sakarya Black Sea development in Europe.

The company reported a $3.6 billion net cash position at the end of June, compared with a $19bn market capitalisation. The stock is on a forward p/e of 13.9.

MasTec and Primoris are two of the largest engineering construction contractors in North America. The latter is more focused on utilities, while the former has a big pipeline and energy business. Still, both recently reported record second-quarter sales and record order backlogs.

MasTec reported a record 18-month backlog of $21.4 billion; of this total, $1.8 billion was allocated to its pipeline segment, while Primoris achieved a record total backlog of $13.9 billion (comprising $7.7 billion in the utilities segment and $6.2 billion in energy).

MasTec recently acquired The Superior Group to expand its services into datacentre infrastructure and trades at the higher valuation of the two (21 times 2027 earnings versus 14 for Primoris). That's because Primoris reported a loss for the second quarter, despite record sales. The losses stemmed from cost overruns on six renewable-energy projects. All of these will be complete by the end of the year, which should draw a line under the situation.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

CVS Group (LSE:CVSG) is an example of how temporary uncertainty can create attractive investment opportunities.

For the past three years, the UK's largest listed veterinary services group has traded under the shadow of the Competition and Markets Authority's (CMA) investigation into the sector.

Investors feared the regulator would impose remedies severe enough to undermine the industry's profitability, pushing the shares down to 13 times earnings – a ten-year low.

Yet during that period, the business continued to compound earnings at an attractive rate. Revenue and profits kept growing, the firm expanded internationally and management kept investing in the business.

With the CMA's process now largely complete, investors have a chance to judge CVS Group on its operating performance rather than regulatory uncertainty.

Since listing in 2007, CVS Group has delivered uninterrupted revenue and Ebitda growth, a record few UK-listed companies can match, and one that helps explain why the shares historically commanded a premium valuation.

Few industries offer the resilience of veterinary care. People may postpone replacing a car or renovating the kitchen when finances come under pressure, but pet owners are unlikely to delay treatment for a sick pet. Demand therefore tends to remain resilient through economic downturns.

The industry's long-term outlook also remains favourable. Advances in veterinary medicine mean treatments once confined to specialist centres – including MRI scans, orthopaedic surgery and oncology – are becoming increasingly commonplace.

Add the millions of puppies and kittens acquired during Covid now reaching the age where healthcare spending accelerates, average spending per pet looks set to continue rising.

CVS Group has spent more than two decades building a business designed to benefit from those trends.

What started as a consolidator of independent veterinary practices has evolved into an integrated healthcare network spanning 500 sites, including general veterinary practices, specialist referral hospitals, diagnostic laboratories and an online pharmacy.

That integrated model creates meaningful competitive advantages. A routine consultation can lead to specialist diagnostics, orthopaedic surgery or oncology treatment without the patient leaving the CVS Group network.

Rather than referring work elsewhere, the company retains a greater share of each pet's lifetime healthcare spending while improving utilisation of its specialist facilities. It also makes the network more attractive to both clients and clinicians, reinforcing the advantages that scale already provides.

How CVS Group is cementing loyalty

Roughly 500,000 owners pay monthly subscriptions via The Healthy Pet Club, covering vaccinations, parasite treatments and routine health checks.

The subscriptions provide recurring revenue, and encourage owners to visit their vet more regularly – increasing customer loyalty while creating opportunities for higher-value diagnostics and treatment.

CVS Group has also invested heavily in recruitment, training and retaining veterinary professionals.

While labour shortages affect much of the sector, the firm's scale enables it to offer clearer career progression and more opportunities for clinical specialisation than independent practices can provide.

That should help support future growth and reinforce its competitive position.

The story does not end in the UK. Australia today resembles the UK veterinary market of 15 years ago – fragmented, independently owned and offering considerable scope for consolidation.

In three years, CVS Group has acquired 57 practices generating £80 million of annual sales, with the same disciplined acquisition strategy that proved successful in the UK.

Since the CMA announced its investigation, the company's valuation has steadily fallen even as the underlying business has continued to grow.

Australia has emerged as a meaningful contributor to earnings, the group has strengthened its market position and sales have continued to rise.

Management used the period to strengthen the business and diversify future sources of growth. CVS appears stronger today than when the regulatory review began, yet the share price continues to reflect much of the uncertainty.

That valuation gap is difficult to justify. Businesses capable of generating resilient cash flows, delivering consistent double-digit earnings growth and reinvesting capital over long periods rarely trade on just 13 times earnings. For much of the past decade, investors were prepared to value CVS Group at more than 20 times.

That premium was not simply a reflection of optimism. CVS Group combined resilient end-market demand with dependable double-digit growth, strong cash generation and repeated opportunities to reinvest capital at attractive returns.

Those characteristics remain largely intact today. If anything, the Australian expansion has broadened the opportunity to deploy capital at attractive returns.

Wage inflation remains a challenge across the veterinary profession and continued investment in clinicians may weigh on margins in the near term. Australia must still demonstrate that it can replicate the success of the UK business over a longer period. A rerating may therefore take time.

However, those risks appear broadly reflected in the current valuation. The CMA investigation depressed CVS's valuation for much of the past three years. It did not stop the business from growing.

If the market begins to focus on the latter rather than the former, today's valuation may prove an attractive entry point.

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During Covid, Halfords (LSE:HFD), briefly benefited from the expectation that everyone would become a cyclist. Many people were making changes to their lives, such as adopting a pet, buying an exercise machine, or taking up a new hobby.

Shares in the firms that served these sectors surged, but once the lockdowns ended, many of these interests dwindled, causing the shares to fall back.

Even today, Halfords’ share price is still down 50% from its record peak in May 2021. But recently it has started to take off again and this time the increase could prove sustainable.

Halfords makes its money from selling accessories and providing repair services for bicycles and cars; it accounts for about half of all bicycles sold in the UK. It operates 370 stores, 496 garages, 21 mobile hubs and 92 commercial depots in the UK and Ireland.

Although overall sales have grown at a solid rate, increasing by around 40% since 2021, this conceals the fact that profitability has been far less consistent, due to higher costs and the overstocking of bicycles.

Normalised earnings per share are now less than half the level reached in 2021.

Halfords brings in a new broom

The good news is that Halfords' problems led to the appointment of new CEO Henry Birch last year. Birch has come up with a turnaround strategy based on three ideas.

In the short term, Halfords has worked hard to boost margins by keeping costs under control. It has also taken steps to improve its digital platform, making it easier for its customers to book services and sign up for regular plans.

However, the most interesting part of the new strategy is that Birch has been trying to shift Halfords' business more towards cars, which now comprise around 80% of sales.

He wants Halfords to focus on car repair and maintenance. One reason for this is that this part of the company has more growth potential than the stores owing to the greater opportunities for upselling (offering customers more and pricier products and services).

Another big advantage is that it is much harder for drivers to delay essential repairs than the purchase of accessories, making the division more resilient to the economic cycle.

Already this strategy seems to be paying off, with last year's pre-tax loss becoming a comfortable profit in the year to April 2026. Like-for-like sales (those from existing business units) are also growing at a healthy rate, while gross margins have improved too; Halfords recently upgraded its profit guidance for the next year.

Despite all this, the stock's valuation remains cheap at 12 times 2028 earnings and barely the value of the company's net assets.

The shares also offer a very solid dividend yield of 4.4%. Furthermore, they have soared 75% since 1 May, and they trade above both their 50-day and 200-day moving averages.

Go long at the current price of 232p at £15 per 1p. Put the stop-loss at 167p, which gives you a stop loss of £975.

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“What should I do if there's a AI crash?” a friend asked me recently. It is a very sensible question – we don't know there will be an AI crash, but having a clear plan to follow when you start to worry is better than waiting and panicking.

However, it's also a very difficult question, because the AI theme is such a huge part of the market: tech is over 35% of the MSCI World index (once you allow for firms such as Amazon and Alphabet assigned to non-tech sectors), while the trillions of AI capital expenditure is also buoying other sectors.

My first suggestion is to look at what wealth preservation trusts such as Capital Gearing (LSE: CGT), Personal Assets Trusts (LSE:PNL)and Ruffer Investment Company (LSE: RICA) hold.

These have diversified portfolios intended to cushion a market downturn, while still achieving growth. You could put some of your portfolio directly into these trusts, or you could look at how they allocate to cash, bonds, gold and other assets such as infrastructure as a template.

Even if you are a growth investor who is comfortable with high volatility to earn higher long-term returns, portfolios like these give you ideas for temporarily reducing risk that may be better than holding cash.

If you prefer open-ended funds, Orbis Global Balanced stands out for an active approach with more of a bottom-up value philosophy than most multi-asset funds.

Hedge against an AI crash with value stocks

If you want to stay entirely in stocks yet still dial down risk, you need to consider what kind of stocks are not caught up in the AI boom and may sell off less or rebound more quickly.

Think about this top down – by region (eg, UK and Europe) or sector (eg, pharmaceuticals and financials). Or you could look for value-focused stockpickers who favour other sectors.

That said, keep in mind that a European industrial that makes power equipment held in a value portfolio may still be a play on data-centre construction.

So it is difficult to anticipate how widely any pain from an AI crash may spread.

The most value-focused global trust is AVI Global (LSE:AGT), while most UK trusts have a value bias.

Among open-ended funds, Ranmore Global Equity has consistent returns from a portfolio that is very different to a typical global fund.

Some niche funds to consider

A third option is to look at very niche strategies whose medium-term returns should hopefully be unrelated to the AI-heavy global index.

Majedie Investments (LSE:MAJE) is now centred around such investments. It's an interesting holding in its own right, while looking at its strategy may help shape your own.

There are many specialist investment trusts and funds such as BH Macro (LSE:BHMG), BioPharma Credit (LSE:BPCR), BlackRock Frontiers (LSE:BRFI), Nippon Active Value Fund (LSE:NAVF) and Rockwood Strategic (LSE:RKW) or Polar Capital Global Insurance.

However, picking such funds is an approach for experienced investors who clearly understand what they are buying.

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Small cap stocks are often overlooked but, for that reason, they can reward patient investors over the long term.

“Small caps offer a rare combination of attractive valuations, growth, and diversification,” said Abby Glennie, co-manager, Aberdeen UK Smaller Companies Growth Trust. “We’ve also gone through market periods globally where the dominant tech themes have driven handfuls of mega caps to lead markets, but perhaps now is the time for market strength to broaden out. Or at least for investor allocations to broaden out from mega caps for risk diversification, as they become increasingly nervous on the artificial intelligence (AI) trade.”

Glennie highlighted that small cap stocks have held up surprisingly well this year in the face of the conflict in the Middle East – which, on paper, could have looked like a major headwind for smaller businesses.

The MSCI World Small Cap Index returned 13.8% in 2026 through to 31 July, outperforming the core MSCI World Index which gained 10.3% in the same period.

“We aren’t seeing risk-off market performance in the way many would expect,” said Glennie. “Part of this driver is that smaller companies are trading at significant discounts to their historical valuation levels.”

What are small cap stocks?

Investment bank Saxo Group defines a small cap stock as one with a market capitalisation (market cap) ranging between $250 million and $2 billion.

Not everyone categorises small caps in this way. The major index provider, MSCI, groups stocks into size categories according to the percentage of the investable market they cover in each individual country, rather than using an absolute figure as a threshold.

“When constructing the MSCI World Small Cap Index, MSCI looks separately at each developed market, such as the US, Japan, UK and Australia,” said Lynn Hutchinson, head of ETF and index solutions at Raymond James. “The large and mid-cap companies might make up around the first 85% of each country's investable stock market.” Small caps then become the rest, and MSCI then combines the small cap stocks from each country into a single, market cap-weighted index.

Generally, though, the $250 million to $2 billion range is a good rule of thumb for thinking about small caps.

With exceptions, their smaller size means small caps are less globalised than larger stocks – they may, for example, be more tapped-in to the domestic economy of their home country than larger cap stocks.

Why invest in small caps?

Small caps can offer diversification, especially in the current environment where momentum investing has concentrated lots of portfolios into the world’s largest stocks.

“Small caps provide exposure to a much broader range of businesses, sectors, and growth drivers,” said Glennie. “Small cap benchmarks and portfolios tend to be very diverse in that way, not dominated by handfuls of stocks or one overarching theme.”

They also offer the potential for higher returns, though this comes with the caveat that you might need to be prepared to ride out periods of volatility.

“In my view, small caps shouldn’t be treated with fear but with healthy curiosity,” said Angeline Ong, senior investment analyst at trading platform IG.

Small caps also offer good value to investors at the moment. The MSCI World Small Cap Index has an average trailing price/earnings (P/E) ratio of 18.4, as of July 2026 – compared to 23.1 for the MSCI World Index, according to data from investment research firm Morningstar.

Are UK small caps good value?

The UK’s small cap sector in particular offers good value. It trades even lower – at just 15.6 times trailing earnings, according to Morningstar.

“We see opportunities across global small caps, but the UK remains especially compelling on valuations,” said Glennie. “UK smaller companies have experienced a prolonged period of investor neglect, and the asset class has been unloved.

“This has left valuations substantially below both their own history and many international peers,” Glennie continued. “At the same time, many UK listed small caps generate revenues overseas, giving investors access to international growth opportunities but at a discounted price awarded for its headline UK listing tag.”

UK stocks are widely undervalued, across the market cap spectrum. But its small caps are weathering the economic storms that 2026 has thrown. The FTSE 250 index (which is made up of mid-cap stocks) gained 10.6% in 2026 through to 25 August, while the FTSE AIM All Share Index (comprising the country’s smallest stocks) gained 6.4%.

“While macroeconomic uncertainty remains, this isn’t holding back the asset class in the way many market participants might fear,” said Glennie. “Many high quality UK small caps continue to deliver strong earnings growth, maintain strong balance sheets, and generate strong cashflows, as well as support shares through ongoing share buybacks.”

The risks of investing in small caps

MSCI highlights the fact that small caps can be more volatile than larger stocks. Additionally, they might be less liquid, which can make trading them more costly.

“If you’ve not done your homework, your due diligence… you could be caught offside and end up nursing quite large losses,” said Ong.

The lack of liquidity, Ong said, could mean you can’t sell a position you want to exit quickly enough just because there aren’t enough buyers on the other side.

“The risk with small caps is you might not have the flexibility if you want to get in and out quickly,” she said.

How to invest in small caps

It’s tempting to try to pick the small cap stocks you want to invest in, particularly as many of these might be businesses you’re familiar with yourself.

But this approach can exacerbate the risks of small cap investing. “We’d suggest [small cap investing] is best approached through a portfolio holding, rather than direct individual equities,” said Glennie. “This is because of the benefit of risk adjusted returns that you get through a managed portfolio, whereas at individual stock levels the risk level is much higher- so that strategy is perhaps only suitable for a certain type of investor.”

Tracker funds replicating some of the major small cap indices include the iShares MSCI World Small Cap UCITS ETF (LON:WLDS) or the Vanguard FTSE Global Small-Cap UCITS ETF (LON:VSML).

Active funds tracking global small caps include the Janus Henderson Horizon Global Smaller Companies Fund or the Invesco Global Smaller Companies Fund.

Investment trusts that focus on small caps include The Global Smaller Companies Trust (LON:GSCT) and Edinburgh Worldwide (LON:EWI).

For a focus on UK smaller companies, you could select Aberdeen UK Smaller Companies Growth (LON:AUSC). Top holdings as of 31 July include investment platform AJ Bell (LON:AJB) and construction firms Morgan Sindall (LON:MGNS) and Galliford Try (LON:GFRD).

If you do want to pick your own small cap stocks, Ong stresses the importance of sticking to companies, or at least sectors, that you understand very well.

“It’s not like buying Microsoft,” she said. “You really need to know what you’re buying.”

Nvidia reported record adjusted quarterly earnings per share (EPS) of $2.22 for the second quarter (Q2) of its 2027 financial year following market close on 26 August – 5.7% above analysts forecasts of $2.1, and 120% higher compared to the same period last year.

Quarterly revenue was $96.2 billion, 4.4% above the $92.2 billion analysts polled by London Stock Exchange Group (LSEG) had forecast and representing a 106% year-on-year increase.

“Nvidia’s (NASDAQ:NVDA) results show that the artificial intelligence (AI) boom is not running out of demand,” said Lale Akoner, global market strategist at investment platform eToro. “The constraint is increasingly the industry’s ability to supply and finance the infrastructure required.”

The results sent Nvidia’s share price surging in after-hours trading. As of 9.45am BST on 27 August the shares had risen around 7.5% from the previous day’s close.

“AI has reached its inflection point,” said Jensen Huang, founder and CEO of Nvidia. “It’s doing useful work. Its tokens are productive and profitable.”

Nvidia’s results in detail

There were more positives for investors throughout Nvidia’s results.

Revenue for the Data Center division – the largest and most closely-watched of Nvidia’s business arms as it contains all of the AI hardware elements – beat expectations at $89 billion, up 117% year-on-year.

Nvidia’s gross margin increased from 72.5% a year ago to 75.0% in the latest quarter.

“Nvidia remains the main toll collector on big tech’s enormous AI budgets, capturing a large share of each new round of infrastructure spending,” said eToro’s Akoner.

Nvidia also issued Q3 revenue guidance of $108 billion (plus or minus 2%) – higher than the $105.1 billion that LSEG’s poll had projected.

“Blackwell Ultra drove the quarter, while Vera Rubin is already entering production,” said Akoner. “This smooth handover suggests the AI hardware upgrade cycle is accelerating without the pause some investors feared.”

How did other stocks respond to Nvidia’s results?

While growing demand for Nvidia’s products is a positive for the AI boom in general, it could be seen as a headwind for the companies that are reliant on buying them.

Alphabet fell 0.4% overnight, while Meta Platforms and Amazon both fell around 0.2%.

These are not large shifts, and could be due to other factors besides Nvidia’s results. But many are starting to question whether the so-called hyperscalers will ever recoup the hundreds of billions of dollars they are pouring into AI infrastructure.

“Once the initial excitement settles, questions are likely to resurface about the durability of this boom in revenues,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “It’s becoming less about whether Nvidia can keep climbing the AI mountain, and more about how long it can sustain this extraordinary pace of ascent and whether the vast sums being poured into AI infrastructure will ultimately deliver the returns needed to justify the colossal investment.’’

Higher costs for memory chips could also become a headwind for Nvidia in due course, according to Akoner.

“Rising memory costs are expected to push gross margins down from 75% to 71%-72%,” she said. “Nvidia’s ability to raise prices should help margins recover, showing considerable pricing power, but it cannot escape supply pressures entirely.”

UK fintech PensionBee (LSE: PBEE) has carved out a successful niche for itself, to become the UK's most recognised pension consolidator with the UK pensions sector undergoing a major transformation over the last ten years.

Following the introduction of the Auto Enrolment scheme in 2012, assets in defined-contribution (DC) schemes have exploded, and the pensions industry has rapidly had to adapt to this new norm. The DC pension market has two main segments: workplace schemes and personal or individual wrappers. The latter is dominated by the self-invested personal pension (SIPP) market and the consolidation of legacy workplace schemes. This market is worth around £600 billion and is growing.

The larger workplace-scheme segment is far bigger and more complex. The government is pushing through regulations to consolidate this market, with a goal of consolidating pots into £25 billion-plus mega funds. Although the market has consolidated significantly over the past ten years, hundreds of schemes remain, some with as few as 100 members, which can add cost and complexity.

Where PensionBee comes into the picture

Auto-enrolment is widely recognised as one of the most successful pension reforms worldwide. Under the current rules, an employer must enrol an employee in a pension scheme if they are a UK resident, work in the UK, are aged over 22 and earn more than £10,000. The minimum contribution is 8% of salary, 5% from employees and 3% from the employer.

Employers can pick one of two approaches: either a contract-based approach, or a trust-based scheme. Under a contract-based scheme, individual contracts are agreed between the scheme member (the company) and the pension provider, usually an insurance company or investment platform. With a trust scheme, the company agrees a relationship with a large pension master trust, such as Nest or the People's Pension.

Auto-enrolment has greatly reduced the burden on employers of setting up pensions for employees. It also helps employees save for the future, as they are, as the name suggests, auto-enrolled in the scheme and contributions scale up with wage growth. But people do switch jobs regularly throughout their career and due to the fragmented nature of the industry, there's no guarantee your next employer will be able to offer access to the same scheme as you had previously.

How PensionBee consolidates retirement pots

PensionBee markets itself primarily as a pension-consolidation platform, but it also provides private-pension schemes, such as those for the self-employed. It does not manage the underlying investments itself, but takes a platform fee and partners with institutional giants such as BlackRock, State Street and HSBC to provide a range of low-cost funds.

PensionBee's real edge is its technology platform. Pension transfers and consolidation can be costly and time-consuming. PensionBee aims to complete electronic transfers within two weeks, although more complex transactions can take longer. The company's focus on technology, marketing and simplicity has really resonated with consumers. It estimates it generates around £100 of net asset inflows for every £1 it spends on marketing. It has a 57% brand-awareness score among consumers, one of the highest among pension brands, and customer retention of 95%.

The last time I covered the company in early 2022, it had just reported £5.8 billion in assets under management. According to its latest half-year results, that figure has grown to £8.6 billion of assets under administration across 327,000 invested customers.

With exposure in both the UK and US, the firm operates across markets representing more than $30 trillion in retirement assets. Currently, the US market is still tiny, with less than $5 million of assets under management. However, the company is in talks with more than 100 intermediaries and has an estimated $1 billion in potential recurring annual inflows over the medium term from this business line. This growth should be relatively inexpensive as it has already spent heavily on the technology it needs. As a result, most of its day-to-day spending is now on marketing, plus select technological improvements. PensionBee should be able to scale quickly and efficiently.

Profitability is in sight for PensionBee

In the first half of its 2026 financial year, the firm reported group adjusted Ebitda of -£1.1 million. The UK market alone generated adjusted Ebitda at £1.5m million in the first half or £7.5 million over the last 12 months.

According to estimates compiled by analysts at Peel Hunt, the company is expected to report adjusted Ebitda of £0.5 million for the full year across all markets. Analysts believe PensionBee will achieve sustainable profitability from 2027 onwards and reach management's 20% adjusted Ebitda margin by 2029.

PensionBee is still a small-scale business in a large market with much bigger and deeper-pocketed competitors. However, the opportunity should not be understated. Peel Hunt believes the firm will report £1.5 million of adjusted Ebitda by 2027 and then £8.08 million by 2028, as the group finally reaches an inflexion point in its growth. Sales are expected to rise from £43 million for 2025 to £83 million by 2028, according to Berenberg, as assets under management rise to near £13 billion. Canaccord Genuity has similar figures.

If the company hits these targets, it could achieve a return on invested capital of 34.5% by 2028. If there's one number that illustrates just how profitable PensionBee could be at scale, it's this. The next few years could transform its fortunes.

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