Deglobalisation & reshoring

AI demand is also being compounded by the onshoring of manufacturing and the wider electrification of transport, buildings and industry.

Rockwell is the beneficiary of two secular tailwinds, reshoring and AI automation.

Several tailwinds support the longer-term trajectory: reshoring of industrial production to North America, an aging installed base of machinery driving maintenance demand, a shortage of skilled technical labor pushing customers to lean more heavily on outside partners, and the broad shift toward automation and Industry 4.0 — all of which play directly into Applied's areas of focus.

Dinged by transformative 2021 FLIR acquisition, expectations and valuation reset, balance sheet is clean, and the company is positively exposed to rising defense spending, reshoring and physical AI.

Additionally, the ongoing trend of supply chain reshoring acts as another secular tailwind.

We see significant embedded growth potential from in-place rents that generally sit approximately 20% below market levels, as well as secular tailwinds including e-commerce expansion, supply chain logistics, “just-in-time” inventory strategies, and nearshoring/onshoring trends.

Energy, automation, AI infrastructure, defense and reshoring are now driving a sustained rebuild.

Utilities have also benefitted greatly from exposure to the electrification of the global economy, a continuing theme tied to accelerating demand from AI-focused data centres, electrified transportation and industrial manufacturing reshoring.

Hammond is a long-term beneficiary from electrification and the reshoring of manufacturing facilities and is in the process of expanding in the US, Mexico and India.

Incremental increase in M&A activity, improving domestic manufacturing trends supported by reshoring and infrastructure investment, and a more favorable regulatory and tariff backdrop should provide longer term tailwinds for the asset class.

For now, the global growth outlook is improved, and we expect secular growth drivers such as electrification, security of supply, deglobalisation and increased defence spending to be reinforced by the war.

This advantage is now compounded by reshoring (or, as we call it, part of Globalization 2.0) and by the technology sector's newly voracious appetite for power.

After 25 years of flat US electricity demand, we believe AI, reshoring, and electrification are driving a step-change in demand for electrical equipment, and we expect Forgent's addressable market to grow from $29 billion in 2025 to $75 billion by 2030.

However, we see cautiously optimistic signals of broader cyclical recovery in select areas of industrials, health care and consumer- oriented businesses that were largely left behind during the recent period of narrow AI and reshoring enthusiasm.

Management reiterated its view that the business can grow its earnings at a mid-to-high teens rate or better through at least the end of the decade, supported by secular trends including grid modernization, electrification, the energy transition, industrial reshoring, and communications infrastructure upgrades.

We see a quality compounder with a global infrastructure backbone, structural tailwinds from supply chain reshoring and aviation recovery, and a balance sheet that has just been visibly strengthened by management with capital discipline.

Most rely on structural, long-term growth factors rather than short-term cyclical changes, such as the Fund’s focus on the global trend toward supply chain resilience and nearshoring in industrial real estate, immature self-storage, or residential real estate in undersupplied cities.