Key takeaways:
- AI-driven capital spending is powering U.S. economic growth.
A historic surge in AI and tech‑infrastructure investment—especially cloud and data centers—is boosting productivity and contributing meaningfully to real GDP. - Attractive investment opportunities extend beyond tech.
Strong balance sheets, innovation, and scale are key differentiators, with compelling prospects in healthcare, financial services, industrials, and data‑center power and cooling technologies. - Dividend‑growing companies may add resilience and stability.
Firms with consistent dividend growth often demonstrate durable business models and lower volatility, helping the Fund balance exposure to long‑term themes like AI while cushioning against market uncertainty.
How is the surge in AI-driven capital expenditures affecting the U.S. economy, and how are you approaching AI investment in the Fund?
The U.S. economy is benefiting from a historic capital expenditure boom. AI is a primary driver, with technology infrastructure spending now accounting for a meaningful portion of U.S. real GDP growth. Robust demand for cloud services and data center capacity shows no signs of slowing. We are also seeing benefits from tax policy that is encouraging capital expenditures beyond AI-related projects. This broad-based investment activity has driven corporate productivity gains, which could support future economic growth.
Within the AI theme, our investment focus is on both enablers and adopters. Enablers include semiconductor, cloud, and software companies, as well as enterprise platforms developing AI and automation solutions. Adopters are companies across all sectors that have committed to this new technology and are investing aggressively to enhance their business lines.
Beyond the technology sector, where else are you finding attractive opportunities?
In general, we believe the current environment underscores the advantages of scale, innovation, and access to capital. Transformation driven by AI is expensive, requiring strong balance sheets and industry leadership to fund the necessary investments and harness the data for effective applications. Conversely, we believe companies lacking strong balance sheets or AI investment capabilities risk falling behind and losing market share.
We continue to identify attractive pockets of innovation across sectors. In healthcare, we’ve seen positive clinical trial data, new product launches, and a strong pace of FDA drug approvals. Financial services companies are innovating with new trading platforms and hedging strategies. In Industrials, companies are using research and development to reduce raw material costs for customers and enhance the reliability and operating capacity of their equipment. Tangentially to AI, the need for power and cooling technology for data centers continues to present compelling opportunities.
What risks are you navigating in the large-cap space?
While this environment presents opportunities, navigating both elevated valuations and market concentration requires a selective, adaptive approach. Market concentration in the U.S. is at a level we haven’t seen in recent history. But when we look at the earnings growth and sustainability of the companies with the largest market capitalizations, it’s not surprising because they are leading the technology transformation.
Given AI infrastructure’s importance to the economy, we’re monitoring whether companies achieve appropriate returns on investment and execute on their order book to fulfill revenue backlogs. And while valuations have expanded in the theme, demand has continued to surprise to the upside, so earnings growth supports the multiples for now, in our view. That said, if earnings trajectories change and the AI investment cycle plateaus, investors need to be prepared to adjust.
What are the advantages of investing in companies that consistently grow their dividends?
The Growth and Income Fund is designed to help investors balance exposure to secular growth themes like AI with the goal of consistent income generation. Dividend growers tend to be resilient through market cycles and have historically weathered recessions and crises better than most. For example, during the 2008 financial crisis, while many companies slashed payouts or went bust, most so-called “Dividend Aristocrats” (i.e., S&P 500 firms with 25+ years of rising dividends) managed to maintain or even increase their dividends.
Dividend growers exhibit robust business models and conservative financial policies that typically allow them to uphold shareholder payments even in times of economic turmoil. This resilience can translate into stock performance, potentially providing a smoother ride for investors. We also find that dividend growers are generally more focused on long-term strategy and growth in a sustained way, which aligns with our investment time frame and strategy.
What role can the Fund play in an investor’s portfolio?
With its emphasis on dividend growers benefiting from secular growth trends, the Fund offers investors large-cap equity exposure that seeks to provide dampened volatility through a portfolio of high-quality companies.
Our focus is on companies that have a history of dividend growth, financial stability, and high free cash flow, as well as intelligent capital allocation to fund growth and pay dividends over time. We believe these companies tend to participate in market gains while being potentially resilient on the downside, which can help investors cushion against market uncertainty.