The role of active management
An experienced active manager, in our view, may be well positioned to aim for a further layer of mitigation by avoiding stocks that may be over-levered or too focused on divident payouts, particularly in light of rising interest rates. Investors also need to be mindful of hidden exposures that can influence the volatility profile of listed infrastructure companies. For instance, some listed infrastructure companies are inherently linked to certain commodities or are more sensitive to the economic cycle.
Finally, with the transition to low carbon now gathering momentum, we think gauging the defensive nature of a stock also involves having an accurate picture of a company’s ability and willingness to prepare for a net-zero future. As discussed in a previous article, many of the companies that own these enduring assets are well positioned to take advantage of the energy transition. But even some of the companies that, on the face of it, appear laggards in preparing for a net-zero future may well turn out to be able to progress much faster than anticipated by the market over the medium term. Again, an active manager with insights gained through deep fundamental research of the company and sector may be better placed to make that assessment and take a forward-looking view, particularly when this research is combined with robust engagement with the board and management.
Equity Market Outlook
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