Geopolitics

In our Beta report, we introduce a new framework for thinking about long-term investing in a multipolar world: The Garrison State. Investors need to shed their outdated view that geopolitical risks are... a risk. History teaches us that pressure makes diamonds. And geopolitical pressure makes Garrison States, which tend to outperform precisely because by definition, the bevy of risks that surrounds them is existential. 

Global investors should keep an open mind regarding global trade and whether "Cold War II" is taking shape. Today's international context is different from that of the original Cold War, but economic integration has declined and could well continue to decline if the great powers do not manage their security competition better in coming years.

Despite macro headwinds, the OBBBA clearly favors Industrials, Financials, and Consumer Discretionary equity sectors. A carefully constructed, factor-aware basket in these sectors is well positioned to outperform in a fiscal-driven, uncertain environment. 

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.