Gloomy and More Uncertain. That was the title of one of the International Monetary Fund’s updates this year for the World Economic Outlook, as it took stock of the macroeconomic and geopolitical environment.

TDAM's Alternative Investments team recaps key takeaways from real estate, mortgage, infrastructure, and private debt markets.

We look at the primary drivers of the trajectory of the energy transition – technology, economics, energy security, policies and regulations, and several disruptive known unknowns – and highlight some of the investment implications for the sectors we view as most tied to this multidecade path – energy, utilities and materials.

Global supply chains are being overhauled to reduce vulnerabilities and to restrict Chinese imports of “dual-use” products that can be used for both commercial and military purposes. In Part I of this two part series we show why the initial focus is on semiconductors and energy, and where it might go from there (AI, quantum computing, and other advanced tech). We also demonstrate the challenges for Chinese equities and U.S.-based multinational corporations, which have been the two biggest beneficiaries of globalization.

In this second part of our two-part series, we demonstrate that deglobalization implies trend increases in capex and the labor share, as well as a higher weighted average cost of capital (WACC). This constitutes a secular headwind for margins and free cash flow (FCF), especially for tech and manufacturing. With companies facing greater macro volatility and an elevated WACC, we expect lower average multiples. This will prove especially challenging for longer duration assets, such as venture capital and speculative tech companies that are years away from generating FCF on a sustainable basis.

We look at the importance of understanding how company management is compensated when analyzing a stock, particularly as it relates to the Quality Capital Reinvestment Strategies.