Global Perspectives: Embracing research as stock market dispersion grows

Lara Castleton: Hello and thank you for joining this episode of Global Perspectives, a Janus Henderson podcast created to share insights from our investment professionals and the implications they have for investors. I’m your host for the day, Lara Castleton.

The start of 2025 has been quite the roller coaster, with uncertainty around policy, inflation, and the economic backdrop. Most financial professionals my team works with have enjoyed an overweight to U.S. large-cap equities, but in the first two months of this year, their leadership has lagged and stock dispersion among global indices has increased. While a limited sample size, this volatility raises the question of whether the previous emphasis on beta strategies might be shifting towards a focus on alpha.

To discuss the potential path forward for equity investors, I’m thrilled to be here with Chris Benway, Director of Research at Janus Henderson. Chris, welcome to the show.

Chris Benway: Thank you for having me.

Castleton: So, I want to get started first – this is your first time here – to get a sense of your backdrop, and if you don’t mind teasing out a little bit of the research franchise at Janus Henderson.

Benway: Sure. So, prior to Janus Henderson, I was working as a research analyst out in California. And my wife was born and raised here in Colorado, and we knew we wanted to come back. And Janus Henderson was, you know, a key investment firm that I really wanted to join. So simultaneously and coincidentally, we found out that we were going to have twin girls. And then there was also a Research Analyst posting within the industrials team at Janus Henderson. And so, fortunately, that worked out, we were able to move to Colorado. I joined Janus seven years ago as an industrials analyst, then moved on to be industrial sector team lead and have been in the Director Research role for about a year now.

In regards to our team profile, within Americas Equities we have 36 analysts, and those 36 analysts support seven sector teams, and those sector teams support our multiple equity research products here in Denver.

Castleton: So, seven sectors. It does seem like you purposely delineate from the traditional sector definitions that one might see by MSCI or other indices.

Benway: Correct. Yeah, we consolidate some and then we also make it unique to generate synergies of the research teams, you know, within energy, within industrials and other areas as well.

Castleton: Great. So, as I mentioned, in this market backdrop, stock dispersion, we have seen that pick up. What is stock dispersion, just at a base level, and then why is that important?

Benway: Defining stock dispersion, it’s essentially the spread of individual stock returns within an index or portfolio. And this is really important, especially for a firm such as Janus Henderson that focuses on active management and deep fundamental research, in that when stocks … you know, the top quartile are returning more than the bottom quartile, and therefore the correlation is less, that allows us to really express our fundamental views and our capabilities. And so, in an environment where stock dispersion is increasing, that really allows us to express our stock selection capabilities.

Castleton: And what do you think is behind that recent trend of increased stock dispersion? And I guess nobody can predict what’s going to happen, but do you expect it to continue?

Benway: So, I would say there’s multiple factors. The one underlying factor that I would point to is just a normalization of interest rates. So, post COVID, we saw rates sub 1% and 0% often. And what that incentivizes people to do is just get exposure to the equity market because they’re getting zero in their savings accounts. Now that we’ve had, you know, an increase, the cost of capital makes investors actually now consider different rates of return across the asset classes. And so, I think a normalization of rates and a normalization of the environment really kind of results in the stock dispersion increasing.

Castleton: And this is obviously a global phenomenon. Your team, the Research Team, covers the global landscape. So, rates obviously higher here in the U.S., but that is globally the case as well. Are you seeing dispersion pick up outside U.S. as well?

Benway: That’s true. Yes, that’s correct.

Castleton: OK. So then in this backdrop today, which is changing by the second – we’re recording this early March, who knows what’s going to happen over the next coming weeks. But in this backdrop, as fundamental stock-pickers, which is the the franchise here at Janus Henderson, what are some of the big macro or overlying things that you’re trying to focus on today?

Benway: Sure. So, our analyst team is definitely focusing on tariff policy and interest rate changes. But then I would say some unique aspects that we’re really focusing on are what companies or competitive advantages are increasing in times of uncertainty. And so an example of that would be Netflix, where they currently have 300 million subscribers. They’ve been able to scale up, and their scale allows them to invest in content. It allows them to increase their content library, and that therefore allows them to get more subscribers. And so, there’s a really kind of flywheel network effect there that a company like Netflix is taking advantage of, and we’re seeing that advantage expand over time. And what that leads to is higher rates of return over longer periods of time. And so, areas where companies are expanding their advantages is one we’re really focusing on.

Castleton: In speaking with, in the previous episode, Brian Recht, who’s on some of our growth strategies here … [speaking about] competitive advantage. And the growth of that seems to be a pretty sustainable investment theme when there is a lot of macroeconomic volatility.

Benway: Correct, and that’s something, you know, for our analysts who are really focusing on the businesses, really trying to tease out what are the differentiation aspects of different companies and why those will be sustainable over time. That’s an area we’re focused on.

I would also say maybe another area, and taking this from Jeff Bezos, is in five or 10 years, what won’t change, what will consumers still want? And so, in that framework, I would say a company like Chipotle, customers are always going to want fresh food, they’re always going to want it quickly, and they’re going to want at a reasonable price. And so, you know, Chipotle has been able to do that in spades.

Castleton: Some great examples there. Maybe we can double-click on those and go into specific themes, covering a few here. Starting with AI, it obviously has taken the world by storm. How do you just go about selecting winners within the AI space, and how does that trickle through to even other sectors outside of technology?

Benway: So, there’s multiple ways to attack, or address, AI. One is you can invest directly in companies that are pushing AI forward. You know, semiconductors is a great, great example of that. Another one is, you know, companies have segments within their business that maybe aren’t obvious, but that can grow over time. And then a third one is companies that are directly using AI to enhance their business and their return profile and so on.

That last piece, on that latter piece, I would say one example is a company like DoorDash. So, DoorDash has incredible network effects. You know, essentially the food delivery market is now a duopoly. And what DoorDash is able to do is, they’re investing in AI. So consumers, when they pull up the app, you know, have items, restaurants preloaded for them based on their demographic profile, based on their previous orders. And so, they’re able to really make that process much more efficient. What DoorDash is also doing for the restaurants is they’re investing in agents and essentially chatbots. So, half the orders when people call on the phone never get answered. And so, this agent could potentially answer that call, log that order, take that order, and then execute that for the restaurant. And so those are a couple ways that DoorDash is focusing on AI.

Castleton: And so, by [having] seven sector teams, one being focused on technology, I’m sure that team is very much integrating with a lot of the other sector leads on some of the insights, because AI does seem to be a thing that’s trickling into every aspect of stock investing.

Benway: It’s a great point, and one that I wanted to emphasize earlier is how important collaboration is, you know, across a team, especially in this current time. I would say every single sector team is interacting with our tech team because it is so pervasive, even in areas like mining and industrials and healthcare.

You know, another great example on healthcare is intuitive surgical. So, they make robots that do surgeries, and what these … how intuitive surgical is using AI is, they’re able to record all of the performance that a surgeon does and compare that to the best-in-class surgeon on how successful they were, you know, minimal mistakes. And that surgeon can learn from gathering all that data and that AI initiative. And so, we’re really seeing it across the industry spectrum.

Castleton: A lot of exciting stories there. Maybe transitioning, you mentioned industrials, that’s kind of been behind the scenes of AI and excitement there. Talk about some of the opportunities you’re uncovering in the industrial space.

Benway: So, I would say, some of the key sector themes, and on the AI topic, something we’re seeing is in the electricity space and the power demand space. And so interestingly, over the past few decades, power demand has grown just above 0%. It’s been about flat to to up 1%. And the reason is that we’ve had LED lights, we’ve had efficient appliances. And so, we really haven’t seen power demand growth. Now you’re seeing, with core data center growth, with AI data center, with EV and other electrification initiatives, power demand is now growing much higher than 1%, and as a result of that, that’s really driving more investment in transmission, more investment in distribution within the power space, and creating very interesting investment opportunities.

Castleton: Really big tailwinds behind the industrial sector in general, but why does your process … maybe walk through your process, how it’s led to uncovering opportunities, versus somebody I work with who wanted to just own the passive industrials ETF, for example, how does your process kind of help shore up investment opportunities?

Benway: First, we know our companies intimately well, and we really focus on being kind of business analysts first. And so that’s understanding, you know, what are the rates of the turn of the business, what is the competitive advantage or the competitive dynamics? And importantly, how those will change or remain the same over time. And the way we do that is really just becoming intimately familiar with the company, understanding the management team, understanding the management’s incentives … what is the addressable market opportunity, and how quickly can they penetrate that. And so that is all kind of the overarching framework that our research really looks to uncover through a wide variety of angles.

Castleton: Great. Which is a good backdrop with stock dispersion, winners versus laggards. Having that process and being intimately familiar with the management seems to set us apart there.

Let’s take that to a final example then, teasing out financials because that’s obviously been a hot topic ever since the election last year. So, what’s your process uncovering within that sector in general?

Benway: Yes, what we’re really focusing on in the secular themes or the broader themes is, deregulation is something that’s really crucial. And so, you know, all the way back to Sarbanes-Oxley, we’ve had the stress tests and the capital buffers, and a lot of these were a little onerous on the banks and the financials in general. And so, we’re starting to see signs that some of these onerous regulations might be eased a little bit, which will help with investment opportunities, will help with loan growth and will help with potential M&A within the sector. And so, we’re seeing deregulation as a potential driver going forward.

We’re also seeing, actually, we look at the credit card data, and the credit card data is actually showing that consumer spending is decent. You know, is relatively healthy and actually picked up into 4Q and into January. And so, we’re closely monitoring the credit card profile as well.

Castleton: Thank you for that. I feel like we could talk for hours on end on all the other sector opportunities, but thank you for giving us a highlight there. So happy to have you at the firm and learn more about you. I’m glad you found a home at Janus Henderson, which, personally, I’m from Denver, so it’s a great spot to be and raise a family and for you.

I hope you all enjoyed the conversation. Whatever markets have in store for us going forward, it seems clear that the alpha generation is here, and active management has the potential to shine for years to come.

For more insights from Janus Henderson, you can download other episodes of Global Perspectives wherever you get your podcasts or visit janushenderson.com. I’ve been your host for the day, Laura Castleton. Thanks. See you next time.

Alpha compares risk-adjusted performance relative to an index. Positive alpha means outperformance on a risk-adjusted basis.

Correlation measures the degree to which two variables move in relation to each other. A value of 1.0 implies movement in parallel, -1.0 implies movement in opposite directions, and 0.0 implies no relationship

Monetary Policy refers to the policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money.

MSCI World Index℠ reflects the equity market performance of global developed markets.

Volatility measures risk using the dispersion of returns for a given investment.