The next decade will look very different from the last. Deglobalisation, demographic shifts, and a revival of industrial policy are reshaping the global economy, and with it the foundations of equity market returns. We look for structural change that the market hasn’t yet priced in, and back companies where that change is both material and overlooked. It could be a shift in industry dynamics, a regulatory inflection point, a step change in demand, or a case of productivity being unlocked – but it must be meaningful and misunderstood. Valuation is crucial, and opportunity arises when the change we see is not priced in.
We focus on “forgotten equities”: capital-intensive, predominantly UK and European companies with strong cash flows, mispriced risk premia, and undervalued assets. That evolution reflects the changing face of global growth and where we think the next decade’s returns will come from.
Forgotten equities worth watching
Two basic truths of banking that are often forgotten are, firstly, that the industry tends to grow at least in line with nominal GDP. And secondly, economies of scale are especially powerful in banking, as incumbents earn higher returns and gain market share over time, either organically or via consolidation.
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After 15 years of extreme stress for the industry, we believe this norm is reasserting itself. While many banks posted strong returns in recent quarters, those returns remain understated owing to interest-rate hedges. As these hedges unwind in the coming years and banks are exposed to higher rates, we expect continued positive momentum. In combination with balance-sheet growth outpacing cost inflation and share buybacks at low valuations, the sector’s potential earnings growth is compelling. This underpins our conviction in UK and Irish banks, such as NatWest Group (LSE: NWG), Lloyds Banking Group (LSE: LLOY) and AIB Group (Dublin: A5G), where we believe valuations still fail to reflect these tailwinds.
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The building materials sector is another area where the market remains anchored to the past. For years, rising house prices masked stagnating volumes, with materials companies missing out. But now Europe is prioritising housebuilding, refurbishment and infrastructure investment, while deglobalisation, the energy transition and digitisation are driving demand for resilient onshore supply chains. Tight industry supply, years of underinvestment and growing political will to stimulate construction mean volume growth could return and lead to expanding margins. Many of these firms have already demonstrated pricing power in a weak-volume environment. If demand normalises, the upside could be substantial.
We believe Saint-Gobain (Paris: SGO), a leading European building-materials company, is priced for a return to the stagnant levels of construction seen before Covid. But with new drivers of demand, inflation falling, and interest rates set to follow, structural growth and a cyclical recovery are increasingly plausible. In addition, leading positions in areas such as glazing, insulation and energy-efficient materials allow for gains in market share.
Infineon Technologies (Frankfurt: IFX), a German semiconductor firm supplying the power chips crucial for electric vehicles (EVs), industrial automation and AI infrastructure, has weathered the downturn in the sector better than peers and looks well placed to benefit as demand rebounds. Its valuation remains modest compared with US rivals, yet its growth prospects are arguably stronger. As AI becomes embedded in everyday infrastructure, demand for Infineon’s components is set to rise sharply.
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