Investors seeking value in a volatile market are piling into a new trade: HALO, a basket of “boring” businesses that are hard to replace despite technological and economic disruptions. Here’s our take on what it means for markets and your money.
What exactly is HALO?
HALO stands for “Heavy Assets, Low Obsolescence” stocks. These are businesses that have been considered “boring” by investors for their lack of change over the years. They include companies holding real assets, building everything from logistics networks to roads and bridges.
These “boring” businesses have turned out to be exciting stocks in the era of artificial intelligence. AI is forcing a historic build-out in infrastructure, including data centres and energy grids, while increasingly capable AI agents are disrupting software business models, automating white-collar tasks. Against this backdrop, heavy-asset businesses look less fungible.
You can see this phenomenon playing out in the chart below, which focuses on Europe. “Capital-intensive” stocks (i.e. businesses that require lots of investment upfront) have clearly done better than their “capital-light” counterparts over the last 15 months or so.
Source: FactSet, Datastream, Bloomberg, Goldman Sachs Global Investment Research.
What it (really) means
HALO may be a new acronym, but it represents an old idea: the rotation from “growth” (rapidly expanding, often innovative companies) to “value” stocks (more stable, profitable businesses that tend to return more cash to shareholders). This rotation typically happens when investors seek shelter from inflated valuations and shifting economic tides.
HALO also reflects the shift towards industries in the global economy. Trillions of state capital is being poured into heavy industries as national and economic security move up the policy agenda, especially in strategic areas like energy and semiconductors. This effectively means governments globally are underwriting long-term capital inflows into heavy-asset sectors.
What are the hottest HALO trades?
In our view, there are several sectors (and some countries) that stand out for their strong HALO characteristics. Read to the end to curate your own HALO trade on Syfe!
- Mining: The physical backbone of AI (data centres, power grids, etc) runs on copper, iron, and steel. Mining companies sit at the nexus of these materials’ supply chains. These are assets defined by scarcity. Commodities are hard to find. Mines take years to be approved and decades to build.
- Utilities: From power grids to telecom towers and toll roads, utilities are the unglamorous infrastructure that everything else runs on. These assets take lots of time and capital to construct, play an essential role in the economy, and produce regular revenue streams (often passed on to shareholders in the form of dividends).
- Defence: Industry leaders in defence hold engineering know-how and regulatory relationships that no new entrant can replicate quickly. They are in for a boon as geopolitical risks ramp up, prompting governments globally to spend more on defence.
- Industrials and Machinery: To build these things, you need machines. Industrial manufacturers (of trucks, turbines, and other heavy equipment) are direct beneficiaries of the boom in capital expenditure.
- Europe & Japan: After decades of underinvestment in industry, Europe is directing capital into energy, defence, and infrastructure at a pace not seen in a generation. Japan, for years mocked for keeping its heavy, “inefficient” industries alive, now possesses a rare industrial base that much of the world is scrambling to rebuild, with highly specialised capabilities in materials and manufacturing.
Should I go HALO now?
Before answering this question, consider the trade-offs.
The opportunity – you might (still) be early: Despite the recent surge, investors remain largely under-allocated to this theme. Over the past decade or so, fund flows into “growth” funds have been relentless (see the example of Europe in the chart below). There could be more room to go for HALO as “value” funds close that gap.
Source: Goldman Sachs Research.
The risk – AI surprise: AI is developing at breakneck speed. Further evolution could create new beneficiaries. New AI models could bring capital-light businesses back in favour, and some HALO stocks could turn out to be less safe than they look. Morgan Stanley points to the disruption of railroads by aviation and trucking as proof that true permanence is rare in history.
Long story short: On balance, HALO is not quite a magical bunker in a risk-prone market, as characterised by some commentators. But the concept does capture the market’s zeitgeist in the age of AI disruption. It can be used as a targeted tool to shore up your portfolio’s resilience. Most importantly, it can help you stay invested, which is the key to building long-term wealth.
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