Goldman says asset-heavy companies will keep beating the market

Goldman Sachs says that one of the market’s hottest trades is entering a new phase—and investors might not be ready to take advantage.

In a note, Goldman Analyst Guillaume Jaisson examined the HALO trade, a term coined by Ritholtz Wealth Management CEO Josh Brown that’s short for “heavy assets, low obsolescence,” and which describes capital intensive companies that own a lot of physical assets. In a July 7 note to investors, he laid out the opportunity he sees as the HALO trade enters its next phase of growth.

“Tactical positioning risks exist after a strong rally and the increasing correlation of HALO with the Momentum factor,” Jaisson wrote. “However, longer-term allocations remain heavily skewed away from Value, suggesting investors remain under-positioned for a world in which physical assets, infrastructure and industrial capacity regain strategic importance.”

Goldman has been bullish on the HALO trade for much of this year, as conditions shift from asset-light businesses like software makers, to asset-heavy companies in areas like infrastructure, manufacturing, and defense. It’s a trade that’s held up through bouts of volatility brought on by events like the Iran war.

“Outperformance has been strong, and the shock ultimately reinforced our view,” Jaisson said. “The HALO pair trade, expressed as long Capital Intensive (GSSTCAPI) vs short Capital Light (GSSTCAPL) companies, is up around 20% year to date.”

The analyst acknowledged the selloff at the start of the Iran war, sparked by investors who wanted to minimize exposure to companies exposed to global trade. However, capital intensive stocks at the heart of the HALO trade have since surpassed their pre-war levels and out-performed their capital-light peers.

Now his team sees a new phase of growth approaching, one that could spark even stronger momentum for these companies in the near term.

“Capital Intensive stocks have significantly outperformed Capital Light stocks, driving a substantial convergence in valuations,” he added. “Going forward, we expect returns to be increasingly driven by earnings.”

Jaisson noted that his team is now more confident in certain sectors such as energy security and industrial sovereignty. He added that Goldman’s stock analysts are primarily in agreement, as they maintain Buy ratings on half the stocks in his team’s Capital Intensive basket.

Goldman flagged a handful of sectors and stocks that are part of the HALO trade. They include: infrastructure (Enel, E.ON), Basic materials Materials (Shell, BP), Aerospace & Defense (Airbus, Rheinmetall) manufacturing and consumer platforms (Volvo, BMW) and the physical layer of technology (ASML Holding, ASM International).