Finding resilient growth amid tariffs and AI volatility

The recent de-rating of AI and technology stocks, combined with uncertainty driven by the new Trump administration, has rapidly altered the landscape for US and global equity investors. Market leadership has shifted, with international generally outperforming US equities, and the Magnificent 7 have lagged the broader US market so far this year.

As the exuberance we’ve seen over the past few years fades, companies with durable business models are, once again, becoming increasingly attractive. Focusing on quality companies with predictable earnings growth can provide investors with stability, which is particularly relevant in three key areas today:

1. Insulate from tariff risks
   Services industries, such as those that provide information-based solutions or domestic services, are inherently shielded from the wider impacts of tariffs given they are not dependent on imported goods. Select luxury goods companies that serve less price sensitive demographics could also be less vulnerable to tariffs. Additionally, we avoid or minimize exposure to more capital intensive, cyclical industries such as oil & gas, autos, airlines and telecom.
2. Balance exposure to AI with disruption risk
   Certain areas of AI, such as early-stage business models or businesses where aggressive growth and valuation assumptions are predicated on future expectations, can be highly unpredictable. Instead, we focus on companies that can leverage AI solutions as productivity or profit enhancing tools to further entrench their moats, without significant capital expenditure outlays. We also favor companies that sell AI as an added product to existing IT services.
3. Softening macro backdrop
   As uncertainty weighs on investor and consumer confidence, we continue to focus on resilient and durable companies whose earnings can materialize at a higher rate in a variety of macro environments. We believe a Quality Growth construction approach leaves investors prepared for a wide range of scenarios.