- Manish Kabra of Société Générale urges focus on physical assets amid global reshoring trends.
- Kabra highlights rising defense spending and strategic metal reserves as key investment drivers.
- He suggests investing in utilities, materials, and industrials for exposure to the theme.
Tech stocks have regained favor among investors over the last month, after a sell-off brought the sector's valuations down to historically cheap levels, but Manish Kabra is sticking with physical assets.
Société Générale's chief US equity strategist likes the picks, shovels, and hard materials of the world. In an interview with Business Insider last week, Kabra argued that the best investment opportunities right now are in commodities like metals and in stocks tied to demand for hard assets.
He said the view stems from a few trends.
The first is the global trend of reshoring and reindustrialization, especially in the US and Europe, as countries move to secure their supply chains amid volatile trade policy and rising geopolitical tensions. Tied in with this is the ongoing AI buildout, as data-center demand continues to rise globally, he said.
Second is the rise in defense spending around the world, and the need for materials and metals.
"Currently 8% of corporate demand is coming from defense spending," Kabra said. "Within the Department of War, the two biggest commodities they buy are aluminum and copper."
And third, countries are increasingly building up strategic metal reserves, he said.
"Like how every country was focused and is focused on strategic reserves for oil, I think it's the strategic reserves for metals that's starting now," he said.
He pointed to the US adding copper and silver to its critical metals list, as well as to the European Union's announcement of its Critical Raw Materials Act.
Kabra's outlook echoes the proponents of the so-called HALO trade — short for "heavy assets, low obsolescence" — which has caught traction in recent months after asset-light companies in industries like software saw their shares rocked by threats of AI disruption. The thinking is that hard assets and firms that operate them will perform better, as companies need materials to develop AI, and these materials are not vulnerable to AI disruption in the same way as some tech firms.
How to invest
Kabra shared a few ways investors can gain exposure to physical assets.
One is directly through market sectors like utilities, materials, and industrials, as they're all tied to the growing need for resources like metals and power.
But others ways to gain heightened exposure to these assets is through certain broad stock indexes, he said. Two that Kabra named are the S&P 500 equal-weighted index and the UK's FTSE 100. The former has a 32% weighting to these sectors combined — much higher than the S&P 500 cap-weighted index — and the FTSE 100 has a 40% weighting.
Certain currencies also give indirect exposure, Kabra said, due to the resources in their respective countries. For example, the Australian dollar offers exposure to metals demand; the Canadian dollar and Norwegian Krona give exposure to energy; and the New Zealand dollar provides exposure to food.
Finally, Kabra said he likes metals themselves, like gold and copper. Societe Generale's ideal portfolio structure is 50% stocks, 15% commodities, 25% bonds, and 10% cash.
Examples of funds that offer stock-market exposure to the ideas above include the Invesco S&P 500® Equal Weight ETF (RSP), Vanguard Materials ETF (VAW), Fidelity MSCI Industrials Index ETF (FIDU), iShares U.S. Utilities ETF (IDU), SPDR Gold Shares (GLD), and United States Copper Index Fund (CPER).
The post SocGen's stock chief breaks down why physical assets are his highest conviction trade right now, and shares 4 ways to invest appeared first on Business Insider
