FSGS - February 2025 Active Management Insights: Increased Global Opportunities In Small Caps
2025-02-05 06:30:00 ET
Summary
- Managers see U.S. banks and financials as likely to benefit from the new U.S. administration’s expected looser regulatory stance, which they believe will lead to an uptick in mergers and acquisitions. There is much greater uncertainty among managers on how potential U.S. tariffs could impact various sectors and regions.
- The ongoing demand for AI and the need for infrastructure to support it is causing managers to add to opportunities in the utilities sector. Interest in the energy sector is also on the rise.
- Managers see mixed opportunities in emerging markets and a broadening opportunity set for small caps across global markets.
Broad global trends
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- There is general agreement among investors that financial deregulation and decreased antitrust intervention will boost M&A (merger and acquisition) activity. U.S. banks and financials are expected to benefit, as well as smaller cap stocks that are likely to be acquisition targets.
- Managers also anticipate that the second Trump administration will extend tax cuts and reduce corporate taxes, expecting these changes to support greater consumer spending and business activity. That said, investors are less certain about the magnitude and impact of tariffs . While most expect a more protectionist trade stance, there continues to be a great deal of uncertainty regarding the magnitude of tariffs applied across industries and trading partners. Globally, managers are favoring companies that benefit from U.S. onshoring and reducing exposure to exporters to the U.S., while being mindful of over-responding to rhetoric.
- In addition to tariffs, tighter immigration policy is contributing to concern about a resurgence in inflation, as a reduction in the low-cost workforce has the potential to drive labor costs higher.