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19 Dec 2025 - Capitalizing on volatility in sustainable equities - a strategic approach to uncertainty
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Capitalizing on volatility in sustainable equities - a strategic approach to uncertainty Janus Henderson Investors December 2025 (7-minute read) While we apply a bottom-up stock picking process it is important to have a macro view overlay to guide us on portfolio construction. The rate of change, whether it is societal, geopolitical, or technological continues to increase exponentially and this argues for active management over passive. There are three key macro topics that we are watching particularly closely as we move towards 2026. The first is everyone's favorite topic of artificial intelligence (AI). The second is the overall health of the economy and what we expect to see from the Trump administration. And last but not least is private credit. Why AI is not a bubbleFirst on AI, no, it is not a bubble. Yes, there will be some misallocation of capital and an ensuing market downturn sometime in the next five years just as we have seen with every new technology going back hundreds of years. We acknowledge the non-zero probability that large language models (LLMs) prove to be a dead end to true artificial general intelligence (AGI); however, we are also comforted by our meetings with companies that are citing use cases that are already driving significant costs savings. We do not think AI is currently in a bubble, because ultimately it comes down to supply and demand. Unlike the commercial internet where you just dug a hole and laid some fiber, AI compute is infinitely more physically challenging to incrementally produce. To provide perspective, to produce a one-gigawatt (GW) data center that will run LLMs, it requires six football fields of land along with over 200,000 tons of equipment such as cables, heating, ventilation and air conditioning (HVAC), transformers, etc.1 There are legitimate questions around if we even have enough electricity and skilled tradespeople to address a fraction of the tens of GWs of data centers that have been announced. On the demand side, anecdotes suggest a waiting list of 20 different customers for each newly installed Nvidia graphics processing unit (GPU) at a data center. We will continue to pay close attention to companies addressing key bottlenecks (such as Nvidia, Prysmian, Schneider, ) that are acting as a governor on the adoption of AI. Further, we will continue to remain vigilant to AI exposed companies where valuations may be implying too optimistic of a scenario while also taking advantage of any irrational selloffs in AI exposed names. We feel that we are still early in the AI capital expenditure (capex) cycle and there is still significant outperformance to be had by investing in this space. Running the economy hot: fiscal and monetary support aheadOn the topic of the U.S. and global economy, while there are certainly some wobbles in the consumer spending and confidence (particularly the bottom 80%) we expect significant fiscal and monetary support taking hold over the next five months. Indications are that Trump is going to run the economy hot through the mid-term election a year from now. We should expect significant tax refunds both for individuals and corporations in the first few months of next year due to the One Big Beautiful Bill (OBBB). We should also expect other initiatives from the Trump administration focused on bringing down costs in housing and healthcare along with the possibility of some form of helicopter money (US$2,000 has been floated as a giveaway to those making US$100,000 or less). Finally, we expect the U.S. Federal Reserve and U.S. Treasury to work in coordination and independently in bringing down interest rates and Treasury bill price volatility. All of this should be supportive of the economy and asset prices. For the stock market, in the short term, liquidity is one of the biggest drivers of performance and we should expect other countries to get involved as well. We are starting to see signs that China will implement further initiatives to support the local property market while Japan is proposing the most Federal spending since the pandemic. All of this is probably inflationary and one of the best defenses is to own finite assets like equities. We have a bias toward investing in companies that help to drive efficiencies in society and are thus deflationary. In our view, these companies should do well in an inflationary environment. With all of that said, next year is a mid-term election year which has historically brought about greater equity market volatility. The average peak-to-trough decline within the S&P 500 during an election year has been almost 20% going back to 1962. The good news is that these declines represent great buying opportunities as the 1-year return following these market troughs has averaged 31%. We again look forward to taking advantage of this volatility. Exhibit 1: S&P 500 price return 12-month period following a mid-term election
Source: Strategas, as at 25 November 2025. Why we're steering clear of leverage in an uncertain credit landscapeRegarding the last topic of private credit, this may not be a story specific to 2026, but it is worth noting given the events around the First Brands and TriColor scandals this year. Having gone through a couple of credit cycles in our careers, we have started to get a sense of déjà vu. What is different this time is that it appears that more of the risk has moved to cashflow-driven direct lending private credit and away from the banks (although banks may not be immune as roughly 10% of their U.S. loans are now to non-bank financial institutions). Unfortunately, given not all private credit is transparent, this means that the market will have much less early warning if something is wrong. Private credit is of course not all created equal. Some private credit and private equity houses have historically boasted about their high sharpe ratios and low volatility in underlying asset prices. But in certain instances, this was a function of and not having to worry about marked-to-market valuations. Some private credit houses have also enlisted other questionable strategies such as payment in kind (PIK) and maturity extensions. Banks have never had that privilege and thus we started to see warning signs on credit in 2006 and 2007. What we find concerning in pockets of private credit, along with the above tactics, is the potential conflict of interest as it is estimated that between 70% and 80% private credit loans have the same private equity sponsor. We are starting to see credit risk increase with a recent example of Renovo, a private equity backed home improvement contractor that went bankrupt and reported only US$50,000 in assets versus US$150 million in private credit loans. In 2026 there will be a need to look beneath the bonnet at the robustness of private credit processes, particularly in the diverse direct lending arena. In a scenario where there is a downturn in credit, investors will be well served by avoiding excessive balance sheet leverage and owning companies with mission critical products and services that tend to be more immune to economic downturns. Conclusion: Be prepared to benefit from disruptionIn an environment defined by accelerating change and heightened uncertainty, we believe there will be a clear need for disciplined bottom-up stock selection, combined with a thoughtful macro-overlay. This should be focused on identifying companies that are both resilient and aligned with long-term structural trends. By actively navigating opportunities in AI, remaining vigilant on economic policy shifts, and avoiding any hidden risks in private credit, our aim will be to capitalize on volatility rather than be constrained by it. History shows that periods of disruption create some of the most compelling investment opportunities - and investors should be prepared to seize them. |
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Funds operated by this manager: Janus Henderson Australian Fixed Interest Fund , Janus Henderson Conservative Fixed Interest Fund , Janus Henderson Diversified Credit Fund , Janus Henderson Global Natural Resources Fund , Janus Henderson Tactical Income Fund , Janus Henderson Australian Fixed Interest Fund - Institutional , Janus Henderson Conservative Fixed Interest Fund - Institutional , Janus Henderson Cash Fund - Institutional , Janus Henderson Global Multi-Strategy Fund , Janus Henderson Global Sustainable Equity Fund , Janus Henderson Sustainable Credit Fund Disclaimer: This article reflects the views of the author(s) at the date of publication and does not necessarily represent those of FundMonitors.com. It is provided for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Market data, views, and forward-looking statements were current as at 1 October 2025 and may change without notice. Past performance is not indicative of future results. Readers should consider their own objectives and obtain professional advice before making investment decisions. 1Citrini, 'Stargate: A Citrini Field Trip', (7 November 2025). Active investing: An investment management approach where a fund manager actively aims to outperform or beat a specific index or benchmark through research, analysis, and the investment choices they make. The opposite of passive investing. Artificial General Intelligence (AGI): A form of AI with the ability to understand, learn, and apply knowledge in a way that is indistinguishable from a human. Artificial Intelligence (AI): The simulation of human intelligence in machines that are programmed to think and learn. Balance sheet leverage: The use of borrowed funds in addition to equity to finance the purchase of assets. Bottom-Up stock picking: An investment strategy that focuses on analyzing individual stocks and their fundamentals rather than considering broader economic or market factors. Capital expenditure: Money invested to acquire or upgrade fixed assets such as buildings, machinery, equipment, or vehicles in order to maintain or improve operations and foster future growth. Helicopter money: A type of monetary policy that involves printing large sums of money and distributing it to the public to stimulate the economy. Inflation: The rate at which the prices of goods and services are rising in an economy. The consumer price index (CPI) and retail price index (RPI) are two common measures; the opposite of deflation. Large Language Models (LLMs): A type of AI model that is trained to understand and generate human language text. Liquidity/Liquid assets: Liquidity is a measure of how easily an asset can be bought or sold in the market. Assets that can be easily traded in the market in high volumes (without causing a major price move) are referred to as 'liquid'. Midterm Election: An election that occurs in the middle of a president's term, often leading to changes in the composition of Congress. The One Big Beautiful Bill (OBBB) is a major U.S. federal statute enacted on 4 July 2025. The bill represents the centerpiece of President Donald Trump's second-term legislative agenda and includes sweeping changes across tax policy, social programs, and federal spending priorities. Passive investing: An investment approach that involves tracking a particular market or index. It is called passive because it seeks to mirror an index, either fully or partially replicating it, rather than actively picking or choosing stocks to hold. The primary benefit of passive investing is exposure to a particular market with generally lower fees than you might find on an actively-managed fund, the opposite of active investing. Payment in Kind (PIK): A type of financing where interest payments are made in the form of additional debt rather than cash. Pretend and Extend: A strategy used in credit markets where lenders extend the terms of a loan to delay recognising a problem loan as non-performing. Private credit: Non-bank lending provided by private institutions, often involving loans to small and medium-sized businesses. Sharpe ratio: This measures a portfolio's risk-adjusted performance for the purpose of measuring how far a portfolio's return can be attributed to fund manager skill as opposed to excessive risk taking. A high Sharpe ratio indicates a better risk-adjusted return. Treasuries/US Treasury securities: Debt obligations issued by the US government. With government bonds, the investor is a creditor of the government. Treasury bills and US government bonds are guaranteed by the full faith and credit of the US government. They are generally considered to be free of credit risk and typically carry lower yields than other securities. Valuation metrics: Metrics used to gauge a company's performance, financial health, and expectations for future earnings, e.g. P/E ratio and ROE. Volatility: The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility, the higher the risk of the investment. All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information. |
18 Dec 2025 - Performance Report: Insync Global Quality Equity Fund
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18 Dec 2025 - Performance Report: Cyan C3G Fund
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18 Dec 2025 - AI's debt binge draws European telco parallels
17 Dec 2025 - Performance Report: Argonaut Natural Resources Fund
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17 Dec 2025 - Performance Report: Glenmore Australian Equities Fund
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17 Dec 2025 - 10k Words | December 2025
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10k Words Equitable Investors December 2025 (2-minute read) There is a chasm in the return drivers of Australian equities v. US equities in CY2025. Large cap (ASX 200) EPS has been soft (and there has been few new ASX listings to spur growth on). US growth has had an AI kicker. But on the flip-side. tech giant Oracle's AI spending plans have resulted in a surge in its credit default swaps. Fund manager cash weightings are at lows, as "quality" as an investment factor has been shunned. "Growth" stocks have dominated in the US over the past 20 years BUT if you step your timeline out a bit, back to May 2020, it took ~25 years for growth stocks just to get back to neutral with the market. Inflation and interest rate expectations continue to drive sentiment. Hedge funds have been loading up on government debt. Finally an analysis comparing like-for-like private equity returns v public equity returns demystifies PE. Sources of returns - CY2025 to December 5, 2025 
Source: JP Morgan Asset Management ASX 200 12m forward EPS decline v index price rise 
Source: MST Marquee, L1 Capital The value of IPOs year-to-date CY2025 v year-ago by region 
Source: LSEG, WSJ Analysts' revenue expectations for AI exposures in the top 3000 US companies 
Source: Goldman Sachs Global Investment Research Oracle credit default swaps spike 
Source: Bloomberg Global Fund Manager Survey - average cash level (%) at ~15 year low 
Source: Bank of America Performance of iShares USA Quality ETF / SPDR S&P 500 ETF 
Source: Koyfin iShares Russell 1000 Growth ETF / SPDR S&P 500 ETF - 20 years 
Source: Koyfin iShares Russell 1000 Growth ETF / SPDR S&P 500 ETF - since May 26, 2000 
Source: Koyfin Global inflation heatmap 
Source: JP Morgan Asset Management Implied Australian cash rate expectations 
Source: Bloomberg, @Scutty Hedge fund exposure to sovereign debt ($US trillion) 
Source: Financial Times, BIS US private equity direct alphas, relative to subindustry matched Small-Cap US public equities 
Source: "Has Private Equity Outperformed Public Equity?", The Journal Private Markets Investing, Fall 2025 Funds operated by this manager: Equitable Investors Dragonfly Fund Disclaimer Past performance is not a reliable indicator of future performance. Fund returns are quoted net of all fees, expenses and accrued performance fees. Delivery of this report to a recipient should not be relied on as a representation that there has been no change since the preparation date in the affairs or financial condition of the Fund or the Trustee; or that the information contained in this report remains accurate or complete at any time after the preparation date. Equitable Investors Pty Ltd (EI) does not guarantee or make any representation or warranty as to the accuracy or completeness of the information in this report. To the extent permitted by law, EI disclaims all liability that may otherwise arise due to any information in this report being inaccurate or information being omitted. This report does not take into account the particular investment objectives, financial situation and needs of potential investors. Before making a decision to invest in the Fund the recipient should obtain professional advice. This report does not purport to contain all the information that the recipient may require to evaluate a possible investment in the Fund. The recipient should conduct their own independent analysis of the Fund and refer to the current Information Memorandum, which is available from EI. |
16 Dec 2025 - Performance Report: Insync Global Capital Aware Fund
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16 Dec 2025 - Performance Report: Bennelong Twenty20 Australian Equities Fund
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16 Dec 2025 - What investors should expect when investing in infrastructure: yield
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What investors should expect when investing in infrastructure: yield Magellan Asset Management December 2025 (10-minute read) |
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Dependable earnings growth is a core characteristic of the high-quality listed infrastructure companies in which we invest. Throughout past cycles we have seen consistent, solid returns. Given the earnings profile, operating models and potential for inflation protection that underpin these companies' assets, we expect this to continue. Moreover, we see sustained annual returns of CPI plus 5.0% over the investment cycle ahead for this asset class. This expected return, of approximately 7.0%-8.0% annually, can be broken down into three key components: yield, inflation protection and capital growth. Yield is one of these building blocks and is unpacked in more detail below. High-quality listed infrastructure companies provide consistent yield In looking at historical data, high-quality infrastructure companies in our portfolio1 delivered an average dividend yield of close to 4.0% over the past decade. We've also seen that this yield moves in a tight range, through both up and down economic cycles. For example, in 2020, with the covid shock to the economy, and sizeable interest rate cuts, the average dividend yield for our portfolio1 held in a range of 3.5%-4.5%. Subsequently, in 2022-2023, when there was an inflation surge and sharp rises in interest rates, the average yield was maintained in this range. We see similar patterns in economic cycles further back in time. For example, in the global economic upswing in 2015-2016, which saw commodity prices rally, our portfolio again recorded an average dividend yield in the 3.5%-4.0% range. In looking at historical data, high-quality infrastructure companies in our portfolio1 delivered an average dividend yield of close to 4.0% over the past decade. We've also seen that this yield moves in a tight range, through both up and down economic cycles. For example, in 2020, with the covid shock to the economy, and sizeable interest rate cuts, the average dividend yield for our portfolio1 held in a range of 3.5%-4.5%.
Source: Bloomberg. Magellan. The numerical information above is based on a representative portfolio. The representative portfolio is an account in the Global Core Infrastructure AUD Hedged Composite that closely reflects the portfolio management style of the strategy. Subsequently, in 2022-2023, when there was an inflation surge and sharp rises in interest rates, the average yield was maintained in this range. We see similar patterns in economic cycles further back in time. For example, in the global economic upswing in 2015-2016, which saw commodity prices rally, our portfolio again recorded an average dividend yield in the 3.5%-4.0% range. These examples highlight the stability of divided income yields to investors. The yield returned is consistent and largely unaffected by market cycles. Even in significant upswings and downdrafts, the yield does not deviate much from the long-term average of 4.0%. This is important, as it highlights the role of high-quality listed infrastructure as a diversifier in an investor's portfolio. Stable businesses support stable dividends Infrastructure companies can deliver consistent dividends because of the nature of their underlying assets. Fundamentally, infrastructure businesses provide essential services, which support predictable demand and income (for example, water services, or electricity). Earnings are typically secured in a regulated or non-competitive structure. For example, the Magellan Global Listed Infrastructure strategy invest in companies with the bulk of earnings (75% or more) sourced from high-quality infrastructure businesses that are predominantly natural monopolies or concession-driven businesses. Demand for the services these assets provide is typically stable. At the same time, many of these businesses have a regulated component to their earnings, which varies in its breadth but provides another parameter for certainty on earnings. This includes the regulated revenue allowance for utilities, regulated toll increases for toll road operators and regulated aero revenues for airports. As a result, these companies have a relatively stable cash flow profile. To see what this looks like in practice, let's look at a few sub-sector examples. Toll roads illustrate this well, offering captive traffic flows and consistent revenue and earnings growth and reflecting operating leverage in their business model. The 407ETR toll road in Canada, owned by Ferrovial, is another example, shown in the chart below. This road, like other high-quality toll road assets, captures the bulk of growth in traffic in its catchment. With the competing free road typically full at peak travel times, the toll road provides users with shorter transit times, with the added benefit that the concession allows for peak pricing and for different tolls for different segments based on demand.
Regulated utilities show a similar dynamic, with their earnings linked to the growth of their regulated asset base. These companies invest in new projects, with spending approved by their regulator, to meet growing power demand, improve asset resilience, or upgrade existing infrastructure. These companies then typically earn an agreed rate of return on this asset base - of around 9.0%-10% for US integrated power companies like Xcel Energy and WEC Energy. High-quality airports (such as European airports including Aena) operate in regimes that entitle the operating company to earn predictable returns. This includes an entitlement to earn a fair rate of return on invested capital for aviation activities and provisions for minimum annual guarantees for commercial activities, such as retail. Looking at these examples, we can see that well-defined infrastructure companies have the advantage of high barriers to entry, pricing power and a regulated operating environment. These conditions allow these companies to have stable revenue linked to their asset base rather than to the business cycle. Under this distinct model, infrastructure companies can then pay predictable distributions to investors. Secular trends drive yield generation This is a snapshot of the translation of predictable demand and high-quality businesses into dividend yield at a point in time. Over time, there are clear catalysts for these companies to continue to generate yield, providing for durable returns to investors over an investment cycle. In simple terms, steady growth in earnings over time can support higher dividends. The dividend yield can therefore comfortably hold ground for these companies, at around 4.0%. Major secular trends in the market at any given time can be linked directly to the ability of infrastructure companies to generate predictable earnings over the long term. The rise of AI and ongoing demand for renewable energy generation are two such major trends. AI is expected to push electricity demand higher for years to come. That gives integrated utilities room to invest more, expand their asset base, and earn more on that capital. These allowable returns ultimately underpin dividends to investors. The resilience of renewable energy investment, reflecting improving cost competitiveness, also translates into greater capital investment for integrated utilities and transmission and distribution companies. As these are regulated utilities, we see robust growth in capex again driving solid earnings growth over the longer term. Historically, this earnings growth has translated into dividend growth for investors (for example, with US regulated utilities typically recording 5.0-7.0% EPS growth, and similar dividend growth), which also helps to sustain dividend yield over time. This is shown in the chart below for regulated utility Xcel Energy. The company demonstrates consistent dividend yield and dividend growth in the range of 5.0-7.0%, which is in line with its earnings growth over the last decade.
Source: Magellan analysis of company data In addition, infrastructure businesses are highly cash generative, which supports dividend yield generation for investors over time. This is especially the case for transport infrastructure assets, which have often high levels of free cash flow. Management of these businesses can use the excess cash to maintain stable dividend yields to investors through special dividends and share repurchases, even in times of unfavourable stock price performance. Durable yield and diversification benefits We believe infrastructure investors can expect consistency in income over time, with some key drivers in place for self-sustainment. At around 3.5-4.5%, we view this to be an attractive income return and would highlight our expectations of limited deviations (up or down) from this dividend yield range. In fact, reflecting its business model and the nature of income streams, infrastructure is not typically seen by investors as the high-growth part of the portfolio. Rather, it plays the role of the consistent, slower-growing diversifier that can provide compounding and real capital growth over time. Infrastructure has also demonstrated outperformance in certain market environments. We believe that high-quality listed infrastructure can be expected to provide a dividend yield of ~4.0%. This represents approximately 50%-60% of the CPI plus 5.0% return (7.0%-8.0% return) we would expect for the infrastructure asset class and underscores our confidence in achieving this outcome over the medium to long term. By Magellan Investment Team 1 Magellan Core Infrastructure Strategy (hedged and in AUD). |
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Funds operated by this manager: Magellan Global Fund (Open Class Units) ASX:MGOC , Magellan Infrastructure Fund , Magellan Global Opportunities Fund No.2 , Magellan Infrastructure Fund (Unhedged) , Magellan Global Fund (Hedged) , Magellan Core Infrastructure Fund , Magellan Global Opportunities Fund Active ETF (ASX:OPPT) Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 trading as Magellan Investment Partners ('Magellan Investment Partners') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan Investment Partners financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellaninvestmentpartners.com Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan Investment Partners financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. No guarantee is made that such information is accurate, complete or timely and no warranty is given regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan Investment Partners or the third party responsible for making those statements (as relevant). Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan Investment Partners will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third-party trademarks contained herein are the property of their respective owners and Magellan Investment Partners claims no ownership in, nor any affiliation with, such trademarks. Any third-party trademarks contained herein are the property of their respective owners, are used for information purposes and only to identify the company names or brands of their respective owners, and no affiliation, sponsorship or endorsement should be inferred from such use. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan Investment Partners. (080825-#W17) |
