April 17, 2025
US equities are in risk-off mode. Last week’s rally on the first round of conciliatory developments between the US and ex-China trading partners has dissipated as investors shift to discounting the US/China trade conflict. Restrictions on semiconductor exports have already crimped NVDA and TSMC while continued selling in Mag7 shares has been representative of a lack of interest in accumulating Growth stocks near-term.
With clear rotation away from Growth themes, we’re in a leadership transition period as we know investors don’t generally sit in defensive positions over the long-term. At the sector level, Financial stocks have outperformed along with lower vol. sectors. Commodities prices have pulled back from cycle highs while Discretionary stocks remain on the sidelines as Tariffs put upwards pressure on prices and margins.
A mix of contracting margins, sticky interest rates and global supply chain disaggregation sets the table well for infrastructure stocks to outperform and our charts reflect that.
Infrastructure stocks are a mix of mid and downstream energy companies, utilities, and Industrials companies typically financed by big institutional investors and, lately, by the emergence of Business Development Corporations which are corporate entities run by big institutions like Apollo, KKR and Blackstone that function as investment pools for infrastructure and other public/private investment opportunities. BDC’s tap into the long-term accumulation of private wealth to offer private credit for public projects.
With favorable conditions and new ways to link projects to investor capital the infrastructure space has a promising setup. The chart below shows some of our most liquid Infrastructure ETF’s have been outperforming in 2025. Global infrastructure funds have outperformed domestic counterparts by > 10% based on the performance of our Infrastructure ETF proxies.
Infrastructure outperformance in early 2025 has been powered by the safe haven characteristics of traditional utilities stocks. The chart of Iberdrola (below) is an example of strong YTD outperformance. We expect Utilities to remain bid while equities are under pressure on trade concerns.
However, if trade disaggregation transitions from threats to facts of life, investors will confront a less efficient world where regional infrastructure build out is a necessity. We think those scenarios open the door for the re-emergence of some 2023-2024 winners. CEG and TRGP (charts below) are both stocks that have been discounted in 2025, but are seeing prices stabilize in the very near-term. We think continued development of alternative energy sources is likely to underwrite a sustained bid for nuclear energy projects and we expect energy storage and transport to remain a going concern as the world re-organizes supply chains.
Conclusion
We remain vigilant for signs that Growth themes will re-awaken, but in their absence Value and Income are preferred factors that support the Infrastructure theme. If de-globalization and inflation continue as themes for 2025, these stocks are set up to outperform.
