Shannon Simmons:

Hello everyone. I'm Shannan Simmons, PineBridge’s Global Head of Consultant Relations and Head of Business Development for the Americas. I'm delighted you joined today's discussion featuring Rob Hinchliffe, Equities Portfolio Manager and Head of Global Sector Cluster Research, and Ken Ruskin, Director of Research and Industrials Analysis. We're thrilled to have you both here again to talk about what's happening in your markets and within industrials and manufacturing in particular. Welcome Rob and Ken, and thanks so much for being here today.

Rob Hinchliffe:

Thanks for having us.

Ken Ruskin:

Yeah, thanks, Shannon.

Shannan Simmons:

There have been major market shifts as of late. For example, the re-emergence of trade wars, escalating geopolitical tensions and other macro events, making investment visibility even murkier than usual for 2025. How are you and the team positioning as a result?

Rob Hinchliffe:

Shannon, maybe I'll grab that one first. We've seen volatile markets for the last several years, and that certainly has continued into 2025. The most direct way to answer your question is that we don't really position the portfolio from a macro perspective. Trying to get the direction or characteristics of markets right is very difficult to do and to get right on a consistent basis. Our goal is to beat the benchmark using the tools that we have which help with stock selection. We try to keep all of the risks very small on a relative basis. That said, the strategy clearly incorporates views from a bottom-up perspective, and Ken can help answer the question from that angle.

Ken Ruskin:

Yeah, thanks, Rob. So the outlook for Industrials is also murky in the very short term, but we invest over the medium to long term.

So it's good to get a sense of what Industrials have been through over the past few years to understand where we are headed. The volatility Rob mentioned had its impact on Industrials, for sure. Industrials have just gone through their longest downturn in decades, as measured by the PMI survey, which was in decline for over two years, for most of this time, underlying economic activity, interestingly, was quite strong. The industrial weakness was due to de-stocking, meaning selling down of inventories after the Covid supply chain shocks. That de-stocking is now over and PMIs have just in the past two months turned back to positive. So looking longer term, Industrials are poised to benefit from three strong tailwinds, nearshoring, automation and green spending, and we're positive on Industrials long term.

Shannan Simmons:

With all of these forces underway, do we anticipate more of the same volatility for markets?

Rob Hinchliffe:

Shannon, I'll start off with the answer to this question too. We don't spend a lot of time trying to figure that out, again, because our portfolio exposures are very similar to the benchmark. We have minimized tilts that might otherwise cause the portfolio to whipsaw as the market rotates. That said, we spend quite a bit of time speaking with companies and combining those talks with what we heard on the fourth quarter earnings calls. There's clearly quite a bit of uncertainty about how tariffs and other policies will be implemented. This uncertainty can cause changes in corporate decision making and how they communicate with investors, which ultimately can lead to volatility on the stock level basis. From our perspective, we believe this creates opportunity; we manage global focus with a medium to long term perspective, and expect to use opportunities created by short term market concerns to upgrade our portfolio.

Ken Ruskin:

And just picking up from there, Rob, on the industrial side, from a bottom-up perspective, the end of de-stocking is a significant event that should reduce volatility for industrial companies. For about four years post Covid, we didn't know what true end market demand was because orders reflected supply chain dynamics of stocking and de-stocking rather than end demand.

Now we're finally past that. The big concern now is government policy uncertainty and its impact on economic activity. We have heard consistently from industrial companies that capex spending by their customers has been on pause since around the middle of 2024 as companies awaited the election results. The hope had been that post-election, this uncertainty would lift and we get that end market rebound.

However, the recent tariff news has sent uncertainty levels above where they were in 2024, which should put a temporary pause on industrial spending. Looking longer term, though, most industrial companies that we talk to say they can pass along whatever tariffs occur and maintain their profits, and once they know the quote-unquote “rules of the game,” the industrial rebound should take shape. We just have to get past this couple of months of tariff-related questions and uncertainty.

Shannan Simmons:

Thank you both. Now turning to AI, there have been many developments relating to it. One notable development is the launch of DeepSeek, which has been making waves in both the AI and broader tech communities. Given your positive outlook on AI trends and the tech industry, has the news about DeepSeek influenced your perspective in any way?

Rob Hinchliffe:

Shannan, no, not really. DeepSeek’s recent launch is really impressive. It reinforces our positive outlook on AI adoption trends. While model costs were already declining, DeepSeek accelerated the move down the cost curve, which we believe will drive greater consumption. This will accelerate AI adoption timelines, which further boost overall compute demand. We continue to see significant opportunities in model scaling, particularly in post training and inference time compute, which drives strong demand for compute infrastructure. We've heard this reiterated by a number of companies that touch AI from a variety of angles. Overall, we remain bullish on AI's long term potential, though, clearly it can be volatile along the way.

Ken Ruskin:

And I'll jump in there, just from the Industrials perspective, Shannon, the first impact of AI on Industrials is on data centers and the electric grid. AI proliferation will mean more demand for data centers, which require significant electrical and thermal equipment that industrial companies provide. All that electrical equipment will also strain the electric grid. Each year of data center additions is equivalent to adding two New York Cities to the grid, and this is after decades of under investment.

So, we're finding opportunities for accelerating growth in industrial companies with exposure to data centers and the grid. AI's productivity benefit will also help enable two important tailwinds that will continue to benefit industrial companies, namely increased automation and therefore increased near shoring that's enabled by it. These longer term benefits will become increasingly clear once the short term disruption from tariff uncertainty is in the rearview mirror and we are overweight Industrials.

Shannan Simmons:

Thanks, guys. In the past, we've talked about your team's approach to research. Given our discussion on volatility, can you remind us how your proprietary Lifecycle Categorization Research process seeks to mitigate risk and build value?

Rob Hinchliffe:

That's right. In our view, the traditional way of thinking of stocks by grouping them by sector doesn't, at least to us, offer a consistent way of evaluating companies. There's such a wide range of different types of companies in each sector, you simply can't evaluate all, let's say consumer discretionary companies the same. Think Toyota and Tesla, very different companies, but both consumer discretionary. We use our lifecycle framework to group companies by their maturity and cyclicality, and we have different evaluation criteria for each of our six different lifecycle categories.

This consistent framework helps us to evaluate companies based on their characteristics and identify differences of opinion between our view of the company and the market's view. And from a risk perspective, we construct the portfolio so that stock selection is both the primary driver of relative returns and the majority of risk versus the benchmark. This philosophy leads to a well behaved portfolio that allows us to focus on the long term investment thesis we have for each investment.

Shannon Simmons:

Thanks Rob and thank you Ken for your time today, for the interesting discussion and perspectives, and thanks to our listeners. We hope you enjoyed the conversation, and invite you to stay tuned for our next episode, where we'll explore the latest developments across the healthcare sector. Until then, for more of our market and Investing Insights, please visit our website at PineBridge.com. Until next time, thanks for listening.

ENDS