What is your outlook on U.S large-cap stocks?

We are constructive on the equity market outlook. Economic indicators remain strong, with unemployment levels below historical averages, real wage growth positive, and consumer sentiment recently at the highest levels in close to a year. With inflation decreasing against this positive backdrop, the Fed’s soft-landing scenario appears increasingly likely. We believe this economic resilience, coupled with the Fed’s accommodative stance, is supporting a broader set of growth opportunities.

What are your views on the AI investment theme?

We believe the secular growth trend around AI remains firmly intact. Capital spending on AI infrastructure continues to increase, and we are seeing rising consumer adoption and demand for AI products and services. This AI strength should benefit companies in a number of sectors, from semiconductor chipmakers and data centers to companies powering the data centers and consumer-facing companies that engineer AI applications.

What other notable trends are shaping
the investment landscape today?

We believe the ongoing trend of deglobalization has the potential to be a core driver of U.S. economic growth. Populism and the move against globalization began before COVID-19, but the pandemic accelerated deglobalization as complex, integrated global supply chains failed. From generic drugs manufactured in India, to personal protective equipment from China, to apparel and footwear from Vietnam, many goods became difficult to acquire during the pandemic. This need to reinforce supply chains has driven a movement to reshore operations domestically.

Where do you see opportunities
as the market broadens?

It’s important to note that our approach is very stock-specific, but we are finding compelling opportunities in the industrials sector. This sector is benefiting from accelerated U.S. capital spending due to deglobalization and the growth of Generative AI (Gen AI).

For example, we own a company that is a large global producer of industrial gasses. These gasses are necessary across several industries – from oxygen for hospitals, to nitrogen for food freezing, to electronic gasses enabling semiconductor manufacturing. As deglobalization and nearshoring accelerate, we believe industrial gas demand will increase.

Another industrial company we own in the portfolio is benefitting from rising electricity demand driven by growth of Gen AI. As AI models become more robust, there is growing demand for data centers to house the infrastructure training and running of these models. These power-hungry data centers benefit the industrial company we own, which offers a broad range of power management products and services catering to AI’s continued growth.

What role can the Forty Fund play
in an investor’s portfolio?

While the economy and capital markets will surely have ups and downs, we believe we can grow invested capital over the long term by owning the most resilient and high-quality U.S. companies. We seek companies that are gaining market share and operating in end markets that we feel are poised for faster growth than the overall economy. We also look for those innovative wide-moat companies with sustainable competitive advantages that can defend profitability against competitors and grow market share globally over a multi-year period.

As the U.S. equity market broadens, a research-driven, fundamental approach to picking winners and losers is more important than ever. Stock selection is the primary driver of returns in the Fund, and we leverage our three decades of experience in high-conviction investing to identify and invest in 30 to 40 of our best large-cap growth ideas where we believe we have a differentiated view from the market.

Importantly, innovation is a well-established and dominant investment theme, with innovators and impacts across all industries and sectors. Our focus on companies that are driving innovation and change through disruptive technologies, products, and/or business models offers investors an opportunity to capitalize on that theme via a high-conviction, concentrated portfolio.