Recent market dynamics offer a timely reminder of one of investing’s oldest principles – diversification matters.
Heightened geopolitical tensions and ongoing conflict have added fresh uncertainty to global markets, prompting investors to look beyond the narrow group of sectors that dominated returns in recent years.
So do the long established industries and old economy stocks hold opportunities for investors?
This article isn’t personal advice. Remember, investments rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice. Past performance isn’t a guide to the future.
What are HALO stocks?
For several years, a small group of US technology giants drove market performance while more traditional sectors were overlooked. But recent developments show how quickly leadership can change. Energy companies, in particular, have benefited from stronger oil and gas prices as supply concerns and global tensions push commodity markets higher.
This shift highlights an important lesson for investors – no single sector leads forever. When portfolios become heavily concentrated in one theme, they can be more vulnerable when conditions change. The current environment is a reminder that exposure to a broader range of sectors can help balance portfolios through different market conditions.
Much of the world’s attention has focused on US tech giants and the digital revolution in recent years. But more recent market trends offer a reminder of the resilience of traditional, ‘old economy’ sectors. Utilities, industrials, energy, and consumer staples may not often dominate headlines, but they are still important for diversified portfolios.
We call these kinds of investments HALO – short for heavy assets, low obsolescence. These are businesses built on durable infrastructure, long-standing customer relationships, and products or services unlikely to become obsolete quickly.
In Europe and the UK, many firms in these sectors fit this profile, highlighting the potential value of steady, asset-heavy businesses amid rapid technological change and periods of heightened geopolitical tension.
Why old economy companies still matter
Interest in old economy businesses is growing as technology, particularly artificial intelligence (AI), continues to reshape industries. The key question for investors is – which companies will remain resilient no matter how fast innovation accelerates?
Companies built around physical infrastructure or long-term customer loyalty could be less vulnerable to disruption than those relying on the latest software or platform.
Many of these businesses are large and capital-intensive or provide essential goods or services. This means demand can be more stable, and pricing power (the ability to raise prices without impacting demand) could maintain profitability even in volatile markets.
Periods of geopolitical uncertainty can reinforce this resilience. Energy companies have benefited from higher commodity prices. Meanwhile, utilities and consumer staples tend to see steadier demand even when economic confidence weakens.
While these sectors may not experience the rapid share price rises of tech firms, they also tend to be less exposed to sudden declines. This can matter more in regions like Europe as its markets are exposed more to traditional industries. Markets like the UK in particular have greater representation in defensive sectors like energy, utilities and consumer goods, which can sometimes provide stability when global markets become more volatile.
Recent performance of these sectors underscores the importance of diversification. Energy, industrials, consumer staples, and utilities have performed well amid global uncertainty.
Market rotations like these are not unusual. When one theme dominates, portfolios can become concentrated in certain sectors, increasing risk. By maintaining some investments in old economy companies, investors can balance the high-growth potential of the new economy with the stability of established sectors.
AI still needs infrastructure
The rise of AI doesn’t diminish the importance of old economy sectors. Large-scale technology deployment requires physical support. Data centres need electricity, specialised components must be manufactured, and logistics networks must operate efficiently.
Industrials, construction firms, and energy companies are integral to this infrastructure, providing the “picks and shovels” behind the new digital economy. Even in a tech-driven world, old economy companies are essential.
Rethinking what quality means
Traditionally, ‘quality’ investing focused on asset-light firms with high margins and strong returns on capital – traits often associated with tech. But the most resilient companies may be those with tangible assets, durable market positions, and loyal customer bases.
Recognising these traits allows investors to balance potentially high-growth investments with stability, helping to balance risk across an investment portfolio.
Whether or not ‘HALO’ becomes a lasting investment theme, it highlights an important lesson. Market leadership changes, and no single sector dominates forever.
For investors, maintaining exposure across sectors, geographies, and different economic models remains essential. By blending the old with the new, portfolios can be better positioned to weather market cycles and periods of geopolitical uncertainty, while still capturing opportunities in different economic environments.
3 fund ideas
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest and make sure any new investment forms part of a diversified portfolio.
The BlackRock and BNY Mellon funds invest in a relatively small number of companies, which means each one can make a significant contribution to returns, although it increases risk. Their charges are taken from capital, which can boost the income paid but reduce the potential for growth.
For more details on each fund and its risks, use the links to their factsheets and key investor information.
BlackRock Continental European Income
This fund is currently focused on three key sectors – financials, industrials, and utilities. Together these sectors make up around three quarters of the fund. They contain a range of businesses including insurer KBC Group, aerospace company Safran, and Assa Abloy, which manufactures products like digital locks, security doors and automated entrances.
Overall, the fund aims to provide investors with an attractive income alongside growth. As with any income fund, investors who don’t need the income now can choose to have it reinvested to boost growth potential. The managers mainly invest in larger, more established European businesses, but have the flexibility to invest in higher-risk small and medium-sized businesses as well.
The fund lends some of its investments to others in exchange for a fee in a process known as stock lending, which can add risk.
Legal & General UK 100 Index
This fund invests in the 100 largest companies in the UK. It invests more in traditional industries than some other funds and markets, including financials, consumer staples, defence, and energy. The fund’s largest investments currently include HSBC, Shell, Rolls Royce and BP.
The fund aims to track the performance of the FTSE 100 Index. It aims to invest in every company, and in proportion with each company’s weight in the index. This is known as full replication and should help the fund track its benchmark closely.
BNY Mellon US Equity Income
This fund aims to maximise investors’ returns by growing both the income it pays and the capital value. It’s currently focused on sectors including in financials, industrials and energy. On the other hand, it invests much less in the technology sector than the broader stock market – 11.8% vs 33.4%. As with any fund, the amount invested in each sector will change over time.
Within these sectors, the fund’s largest investments currently include natural gas company Exxon Mobil, insurer Assurant, and defence business L3Harris Technologies. It also includes the likes of pharmaceutical business Johnson & Johnson, which provides essential healthcare and personal goods products.
The fund has the flexibility to use derivatives which increases risk.
Annual percentage growth
28/02/2021 To 28/02/2022 | 28/02/2022 To 28/02/2023 | 28/02/2023 To 29/02/2024 | 29/02/2024 To 28/02/2025 | 28/02/2025 To 28/02/2026 | |
|---|---|---|---|---|---|
BlackRock Continental European Income | 4.31 | 12.52 | 5.79 | 11.00 | 22.68 |
IA Europe Excluding UK | 4.67 | 10.04 | 7.98 | 7.11 | 19.59 |
Legal & General UK 100 Index | 16.64 | 10.74 | 0.76 | 18.97 | 28.08 |
FTSE 100 | 19.22 | 9.60 | 0.81 | 19.76 | 28.05 |
BNY Mellon US Equity Income | 26.95 | 15.09 | 5.46 | 17.73 | 13.34 |
IA North America | 14.02 | 1.18 | 20.67 | 15.22 | 7.87 |