The world of investing is entering uncharted territory. After decades of benefiting from globalisation, the combination of pandemic-related supply chain shocks, geopolitical tensions, and the Russia-Ukraine war is forcing investors to rethink long-standing assumptions about growth, efficiency, and risk.
Yet, according to Robert Lancastle, senior fund manager at JO Hambro, this environment may be creating opportunities for a new generation of market leaders and long overlooked, locally anchored businesses that could form a fresh “Magnificent Seven.”
Lancastle explained that for decades, the most reliable way to generate returns was by globalising production and sales. Companies could sell their products abroad while manufacturing them where labour was cheapest, amplifying profits in a relatively predictable global order.
“Since the global financial crisis, one of the best ways of winning was to globalise a product you already had. Not just sell it locally, but sell it to the other side of the world,” he said.
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He added that producing goods overseas was a natural complement to this strategy, as cost efficiencies were plentiful. “The way to boost profits was not to produce locally, but to manufacture goods on the other side of the world where it was cheaper. This strategy made sense for a time, especially in a world dominated by a uni-polar structure. Everyone got on very nicely.”
However, that model is now showing its vulnerabilities. The pandemic exposed over-reliance on certain manufacturing hubs, and the war in Ukraine revealed Europe’s dependence on Russian energy. Semiconductor production is heavily concentrated in Taiwan, leaving the world vulnerable to supply shocks.
“The reality is that has now got overstretched. We’re too reliant on a single country for making the world’s supply of leading-edge semiconductor chips – Taiwan,” Lancastle said.
In response, governments are increasingly prioritising resilience in domestic systems. That includes bringing back local manufacturing, strengthening defence capabilities, and diversifying energy sources.
“What that means is governments and policymakers are increasingly saying, right, we need resilience in the system. We need to bring back home our manufacturing. We need to look after our own defence capabilities. We need many sources of energy supply,” he explained.
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Lancastle believes these shifts create opportunities for sectors that were previously overlooked. Long-standing heavy industry and infrastructure businesses, he says, are now in a position to benefit from renewed investment. “These dormant giants are starting to wake up, that have been overlooked for 15 years in those areas,” he said.
When asked whether a new Magnificent Seven could emerge from this shift, Lancastle emphasised investing in domestic, localised businesses that are insulated from tariffs and geopolitical disruptions.
“So you’re going to want to look at things that are more domestic in their nature, more localised in their nature, so they don’t suffer the disruption from tariffs. But even if tariffs disappear, the risk remains that someone says, “I can’t manufacture that for you anymore, because my government’s telling me I can’t export it to you.””
He highlighted sectors with inherent local characteristics: utilities, materials, defence, and energy infrastructure. Heavy products like cement or aggregates, for example, are costly to transport and naturally tied to local markets.
“We have growing energy needs for things like AI, and the materials businesses, and you don’t want to ship things very far. EU defence, and energy infrastructure are capital-intensive sectors, often cyclical, but these are opportunity sectors,” he said.
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Despite being largely overlooked by mainstream growth investors, these sectors are beginning to show real momentum. Capital expenditures have been increasing, supported by government investment, while customers are paying for improvements, creating both growth and pricing power.
“In sectors like cement, EU defence, and utilities, we’ve seen two clear trends over the last two to three years. First, activity and capital spending are rising. Second, importantly, their customers are paying for it. This means not only is growth increasing, but these companies also have stronger pricing power, which further supports long-term growth,” he said.
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Lancastle emphasised the example of cement companies in Europe, which historically generated around 5% returns on capital. Now, some are moving into the double digits, while growth rates have climbed into the mid to high single digits. “This is before the German infrastructure bill even kicks in, and in the future we will see the fruits of the stimulus that has been put in, in the likes of Europe and the US,” he said.
Lancastle cited Spain as a case study of localised growth. After years of economic setbacks, including the property crash and Covid-related disruption to tourism, the country is now experiencing a strong recovery. “We now are three quite substantial years into a real boom in Spanish tourism,” he said.
He highlighted select Spanish banks and airport infrastructure projects as examples of sectors poised to benefit from sustained growth over the next five to ten years.
For investors accustomed to the tailwinds of globalisation, Lancastle’s message is clear: the next decade may reward those who identify high-quality, locally anchored businesses before they capture widespread attention. Utilities, materials, energy infrastructure, defence, and select domestic banks could be the seeds of the next “Magnificent Seven,” companies with the scale, pricing power, and local security to thrive as global reliance diminishes.
“The environment that we saw from the global financial crisis of 2007–2009 until 2022 had its place,” Lancastle said. “But since then… These dormant giants are starting to wake up that have been overlooked for 15 years in those kind of areas.”
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