Download the PDF Here: Playing the Long Game in a Short-Term World
In this Outlook
• The global economy is facing heightened disruption from geopolitical conflict, energy shocks, and rapid technological change, increasing uncertainty for investors.
• The U.S. remains relatively strong, but its outlook depends on how prolonged the Middle East conflict
and energy disruptions become.
• ARS focuses on a long-term, disciplined investment process that avoids crowded trades and targets companies benefiting from future capital flows.
• Key themes include reindustrialization, energy and electrification, digitalization (AI), national security, and healthcare, with selective exposure to gold, financials, and dividend-paying stocks.
"The single greatest edge an investor can have is a long-term orientation.“
- Seth Klarman, CEO Baupost
The world is undergoing one of the most disruptive periods in history from both a geopolitical, economic, and technological perspective. Such was the context before the world faced new inflationary pressures on energy, food, and basic necessities stemming from the closure of the Strait of Hormuz and damage to energy infrastructure in the Middle East. Complicating the outlook for investors is the fact that today’s AI-led technological advancements offer the promise of a better future with undefined risks. As China and the United States battle for global supremacy, the United States is simultaneously confronting challenges from Russia, North Korea, and Iran. These conflicts are challenging the post-WWII world order. From a monetary perspective, the fiscal regimes of governments leave little
room for additional deficit spending and come at a time when nations are already struggling to address many domestic priorities including affordability, inflation, sustainable growth, and demographic/immigration issues.
The United States economy has been incredibly resilient, and Iran will be the latest test of that strength. If resolved in the next month or so, the U.S. economy should continue to grow notwithstanding increasing costs of living; but a prolonged conflict could tip the economy into a recession. As the President is discovering, Iran is not Venezuela and finding an offramp will be much more challenging. In this outlook, we will discuss the ARS investment process and how it provided the foundation for our firm’s long-term track record, how our approach varies from others, and we share thoughts on the investment implications of the current environment.
THE ARS EDGE – A TIME-TESTED AND REPEATABLE INVESTMENT PROCESS
“Rarely are opportunities presented to you in a perfect way. In a nice little box with a yellow bow on top. 'Here, open it, it is perfect. You'll love it.' Opportunities–the good ones–are messy, confusing, and hard to recognize. They're risky. They challenge you.”
– Susan Wojcicki, former CEO of YouTube
Investment Results Years in the Making
Chart 1. ARS Focused All Cap Strategy
The investment business is a highly competitive one, with thousands of firms staffed with incredibly smart and talented people all trying to recognize opportunities that others do not or cannot. Investment success requires a comprehensive investment strategy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology. It also requires the ability to balance the science of securities valuation with the art that is born out of the judgment earned from experience. While some approaches work in the short term, a successful long-term process requires managers to operate an investment process that is repeatable over time.
As one can see from Chart 1, the ARS team has delivered long-term performance in the Focused All Cap strategy, beating its benchmark by employing a time-tested investment process for decades. While we are pleased with our 2025 and 2026 year-to-date performance, it is the 26-year track record the firm is most proud of, as it supports our belief in our method and that our process is repeatable, having been executed by multiple teams over the years.
WHAT IS THE ARS PROCESS?
Chart 2. THE ARS INVESTMENT PROCESS
There are five factors that we feel offer ARS an advantage.
First, the core investment philosophy defines our focus. Our philosophy is to buy the most assets, cash flow, and earnings for the fewest dollars among leading companies that stand to be the beneficiaries of global capital flows. This philosophy has its roots in Graham & Dodd valuation analysis augmented by a belief that market inefficiencies create significant opportunities for those who identify the companies that will be the biggest beneficiaries.
Second, we employ an investment process developed over 50 years ago by Arnold Schmeidler that combines our team’s macroeconomic and fundamental research views shown in Chart 2 to craft differentiated investment strategies. We seek to identify secular themes driving capital flows over a 3–5-year horizon, while targeting businesses with attractive valuations over the next 12 to 18 months. This long-term view is one of the characteristics we believe separates ARS from most other managers.
Third, ARS utilizes a different toolbox than many institutional investors, as we are not constrained by sector and security position restrictions, benchmark weightings, or style focus that often serves to limit potential returns while adding risk. While most investors focus on either the macro environment or fundamental research, we believe that combining both the top-down (macro) view with bottom-up (fundamental) research best balances risk and reward for our investors.
Fourth, the strategy is managed by an investment team with average industry experience of over 30 years, which means we have been through a variety of market cycles and dislocations. Exercising good judgment comes from both knowledge and experience, and the best experience often comes from past mistakes. It is the learnings from those past mistakes that allowed the team to effectively navigate the highly unusual challenges presented over the past decades: from the tech bubble bursting, to the 9/11 attack, to the war on terror, to the Great Financial Crisis, to the pandemic, to wars in Ukraine and Gaza, and to the advent of artificial intelligence.
Fifth, the process is focused on getting our best, highest-conviction ideas into the portfolio and not just holding names that are in favor. Interestingly, ARS maintained an underweight position in the Magnificent 7 for much of the past year, even choosing to forego ownership of two members altogether, as the broader market rushed to increase exposure. Our positioning was partly a function of selectivity; we avoided certain Mag 7 names in favor of more attractive, fundamental opportunities elsewhere. Specifically, we identified companies trading at reasonable valuations that were better positioned to benefit from the same secular growth trends with a higher margin of safety.
The ARS investment process is designed to stay ahead of the crowd by using our forward-looking macroeconomic views to identify the beneficiaries of future capital flows and avoid those sectors, industries, and companies that will be negatively impacted going forward. Securities trade in an auction market where popularity tends to result in overvaluation, limiting potential returns. As legendary investor Seth Klarman of Baupost has said, “the only way to invest well long-term is to be differentiated from the crowd.” We fully agree with Mr. Klarman’s perspective.
THE ARS PROCESS IN PRACTICE: INVESTING IN UNCERTAIN TIMES
Coming into the year, there were two popular narratives: a broadening of the U.S. market and the “Sell America, Go Global” trade. With respect to the market broadening, the recent increase in inflation expectations and the rise in interest rates will mean that the broadening will be narrower, focusing on those companies with more clearly defined prospects. Stimulus programs in Japan and Europe were reversing years of underperformance relative to the U.S., and trade policy was redirecting investment activity. We were also concerned about the ability of foreign nations to deliver on the promise of better growth given weak government finances and deep structural issues facing those economies. Based on current conditions, we are less enthusiastic about global investment opportunities as opposed to those existing the United States. The U.S. remains the strongest, most resilient, and diverse major economy in the world, and this position is further enhanced by our nation’s energy independence as
the world is facing an energy crisis.
At the start of the year, investors were focused on tariffs, Fed independence, issues in private credit, and the impact of AI on jobs and the overall economy. Since the Israeli and U.S. attacks on Iran, the global economy has a new worry as the war is roiling global energy markets driving the price of oil and natural gas up and adding significant volatility. At the time of this writing, Iran has restricted shipping through the Strait of Hormuz. This corridor supplies 20% of global oil and 25% of natural gas demand, with European and Asian nations being the most heavily impacted. The outlook for the global economy will be determined in large part by the duration of the closure, and whether the war expands to a wider regional conflict or works toward a resolution. The economic outlook is also being affected by damage to critical parts of the global energy infrastructure which was not the case in past energy crises. The U.S., Russia, and Canada are among the energy producers that are benefitting in the short term. We continue to monitor this very fluid situation in the Gulf, and at this time do not anticipate any material changes to our portfolio positioning unless the conflict extends for months or escalates considerably. Portfolios are currently positioned to benefit from the opportunities we had previously anticipated.
In periods of heightened uncertainty, ARS intensifies its focus on areas of required spending. While our secular themes have not changed in several years, the valuations of the businesses have changed considerably, and we have adjusted position sizes both up and down as a result. The five main themes for portfolio positioning are: reindustrialization, electrification and energy, digitalization, national security and improving healthcare outcomes. These are themes that the team has been focused on over several years, and below we will briefly describe their origins and our current thinking.
Reindustrialization: The reindustrialization theme was driven by multiple factors, including the pandemic and the worsening geopolitical backdrop, which led to the recognition that supply-chains previously designed for lowest cost and fastest delivery were not suitable for the evolving world. Nations realized that critical materials, components, and products must be sourced locally. The U.S. instituted policies under past administrations to drive investment to the U.S., a trend we continue to see occurring especially considering, among other things, the recent war in Iran and the closing of the Strait of Hormuz. The need for supply-chain resilience is even greater today, given the rise of China as a powerful adversary and competitor. The portfolios are represented through this theme by technology, materials, industrial, and energy (fossil fuels and renewables) companies as the U.S. is undergoing one of the top five greatest capital spending cycles in history. Healthcare and pharmaceutical companies are also included in this theme as the pandemic reminded us of the U.S. vulnerability.
Electrification and Energy: A core focus going back to the early 2000s was the terrible state of U.S. and global infrastructure and the urgent need for massive spend to bring it into a state of good repair. Among the areas of greatest need for the United States are transportation, water, and power. ARS has long felt that we reached the point of “required spend” that could no longer be postponed as much of the post-WWII infrastructure was at the end of its useful life. Moreover, the damage from climate change has put increased pressure on the electrical grid, at the same time that the enormous power demand for artificial intelligence puts unprecedented strain on the system. The International Energy Agency (IEA) forecasts that over the next 5 years we will add on average 50% more electricity per year than the average additions over the past decade. Fixing the grid requires upgrading equipment, transformers, and transmission lines. To put the challenge in perspective, 60% of the 60-80 million transformers in service are beyond their design life, and the backorder for new transformers is upwards of 3 years. Companies benefiting include industrial and materials leaders such as Quanta Services, Eaton, GE Vernova, Vertiv, and Freeport McMoran. Given the forecast for future needs, this is a multi-year investment opportunity. Keep in mind that the current energy sector weighting in the S&P 500 is only 3.7%, while many ARS portfolios are currently double that exposure. Decades ago, the energy sector accounted for over 20% of the S&P 500’s total weight. While we are not suggesting a return to that level, most institutional portfolios were underexposed to energy leading up to the war – particularly given the surge in energy demand driven by AI infrastructure.
Digitalization: Back in 2016, ARS began to focus on what Steve Case described as the Third Wave of the Internet, where we were entering the period of the “Internet of Everything”. The focus of the first wave (1985-1995) was on the buildout of the internet and was followed by the second wave (1996-2016) which brought us the mobility and the applications we use daily. 2007 was a critical year as Apple launched the iPhone, Google search took off, and data management improved dramatically. At the time, investors were starting to believe that data was the new oil; following that logic, we believed the need for data storage and memory companies were being underappreciated by investors. As data creation accelerated and the memory industry consolidated—a move we expected to reduce cyclicality—we identified favorable, multi-year supply and demand dynamics within the AI value chain. It has been a core emphasis since that time but in Q3 of 2024, ARS increased exposure across strategies in the memory area which has been a positive development for client portfolios. Recently we have been taking profits for risk-management purposes as the mad rush to all things AI led to considerable short-term overvaluation in some holdings, while still maintaining our core positions.
National Security: Since the early 1990s and the Gulf War, ARS has been actively investing in the defense sector with greater emphasis at various times. With the rise of China as a military power the view that Russia wanted to return to past glory, and other adversaries wanted to damage the West, ARS concerns for armed conflict were always elevated, and we believe particularly so when compared to many other investors. Two key considerations drove our focus. First was the realization that the multiple conflicts from the Gulf Wars to the War on Terror to current conflicts had exhausted significant elements of our military readiness and that the U.S. needed to replace and modernize our defense complex. Second was that the war in Ukraine demonstrated the impact of advanced technologies on modern warfare as drones are changing the battlefield dynamics. Today, the Administration is proposing a 50% increase in defense spending to $1.5 trillion, and the rest of the world is aggressively spending as well.
Healthcare: One of the most interesting and immediate opportunities for AI to have an impact is the healthcare sector where there is an opportunity to lower costs dramatically, improve outcomes, and increase labor productivity. We continue to focus on quality large cap pharmaceutical and biotech companies which can benefit from technological breakthroughs.
Other Areas of Emphasis: Three additional areas of portfolio exposure have been the inclusion of gold through Newmont Mining and Freeport McMoran as concerns about currency devaluation and inflation increase the desire of central banks and investors to diversify away from U.S. dollars. After a significant rally in recent years from just under $2000 an ounce prior to the pandemic to over $5300, gold has been consolidating recently. We believe this period of price discovery is healthy and expect gold to resume its upward trajectory as geopolitical and fiscal pressures persist. Another developing area of focus is on financials as we see some of the more diversified alternative managers and big banks as winners in the coming period from the market dislocations occurring in
private credit today. Lastly, ARS continues to emphasize quality dividend payers with strong balance sheets, lower debt levels, strong capital spending plans, and reasonable growth expectations. We are realists about the many issues facing the world today. We are monitoring the impact of the increase in energy prices on inflation and interest rates, and the subsequent effect on earnings and valuations. Despite today’s challenges, we believe that taking the long view and owning the beneficiaries of capital flows will allow clients to navigate what we expect to be choppy waters for the near future. In the meantime, the U.S. economy and its corporations are performing quite well on an absolute and relative basis in the face of one of the most unusual periods in recent history.
*This period represents a partial year performance (1/21/93 – 12/31/93) and the return is not annualized.
Performance data for both gross and net of fees reflect the reduction of transaction costs. Net of fees reflects the deduction of advisory fees. The investment advisory fees are described in Part 2A of the Form ADV. Performance results reflect the reinvestment of dividends and income. Past performance is not indicative of future results. Index information is provided for illustrative purposes only. Indices are unmanaged, do not incur expenses and are not available for direct investment.
The information and opinions in this report were prepared by ARS Investment Partners, LLC (“ARS”). Information, opinions and estimates contained in this report reflect a judgment at its original date and are subject to change. This report may contain forward-looking statements and projections that are based on our current beliefs and assumptions and on information currently available that we believe to be reasonable. However, such statements necessarily involve risks, uncertainties and assumptions, and prospective investors may not put undue reliance on any of these statements. ARS and its employees shall have no obligation to update or amend any information contained herein. The contents of this report do not constitute an offer or solicitation of any transaction in any securities referred to herein or investment advice to any person and ARS will not treat recipients as its customers by virtue of their receiving this report. ARS or its employees have or may have a long or short position or holding in the securities, options on securities, or other related investments mentioned herein.
This publication is being furnished to you for informational purposes and only on condition that it will not form a primary basis for any investment decision. These materials are based upon information generally available to the public from sources believed to be reliable. No representation is given with respect to their accuracy or completeness, and they may change without notice. ARS on its own behalf disclaims any and all liability relating to these materials, including, without limitation, any express or implied recommendations or warranties for statements or errors contained in, or omission from, these materials. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances. This report may not be sold or redistributed in whole or part without the prior written consent of ARS Investment Partners, LLC.
Past performance is not indicative of future results.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.
Definition of the Firm – ARS Investment Partners, LLC (“ARS”) was originally founded as A.R. Schmeidler & Co., Inc. in 1971 and is majority-owned by Artemis US Corporation. Artemis US Corporation is 100% owned by Artemis Investment Management (2021) Corporation, a financial services firm headquartered in Toronto, Ontario, Canada. Mr. Miles Nadal is the controlling shareholder of Artemis Investment Management Corporation. ARS is a registered investment adviser under the Investment Advisers Act of 1940. ARS claims compliance with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with the GIPS standards. ARS has been independently verified for the periods 1/1/2000 through 12/31/24. The verification report(s) is/are available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm's policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report. Benchmark returns are not covered by the report of independent verifiers.
Benchmark Definitions –The S&P 500® includes 500 leading companies and covers approximately 80% of available market capitalization.
Composite Definitions – ARS Focused All Cap includes all fee-paying, discretionary institutional portfolios managed by ARS in a Focused All Cap strategy with an absolute return-oriented focus having a minimum initial portfolio size of $5 million (amount lowered from $10 million on 7/1/2010). The Focused All Cap strategy requires that equity, equity-like securities, and cash represent a target of 90% of the portfolio value. If a portfolio does not have at least 90% of its value in these assets, the portfolio will be removed from the composite for the entire period and will be included in the composite again if its allocation is aligned with the above parameters for one full period. The composite was created in January 2007. Effective 7/1/2010, the composite was redefined to include taxable accounts which had previously been excluded. Effective 1/1/17, a model fee of 1.05% was used to calculate net returns. Inception Date is 1/21/93. Management believes that the returns prior to 2000 are accurate, but due to a lack of firmwide client data, GIPS compliance cannot be claimed prior to 1/1/2000.
Investment Management Fees – The investment management fees that apply to the portfolio composites are as follows: Equity Accounts which include the ARS Focused All Cap – 1.25% per annum of the first $1 million, 1.00% per annum of the next $20 million, and to be discussed thereafter. The management fees for certain clients may differ from this schedule because those clients’ fees are grandfathered or because of relationships with the applicant and related accounts. For institutional accounts, certain asset or fee minimums may apply.
Internal Dispersion – Internal dispersion is calculated using the asset-weighted standard deviation of annual gross returns of all portfolios in the composite for the entire year. Dispersion is not presented for periods less than one year or when there were five or fewer portfolios in the composite for the entire year. The Annualized 3-Year Standard Deviation is calculated using gross returns and not presented for composites with less than a 36-month return. Also, the standard deviation is not presented and is not required, for periods prior to 2011
Significant Cash Flows – To qualify as a large cash inflow, the deposit must exceed 25% of the total account value as of the end of the prior month. The account will rejoin thecomposite the month after the funds have been invested. A significant cash outflow of 25% or more will result in the removal of a portfolio from the composite for the month of the flow. The portfolio will be returned to the composite in the month following the outflow. A portfolio will be removed from the composite prior to the month of the actual cashflow, if upon notification from the client, it is determined that it will take more than a month to raise the cash needed to prepare for the outflow.
Basis of Presentation – Rates of return presented are computed using a time-weighted rate of return methodology that adjusts for external cash flows. Total rate of return calculations include realized and unrealized gains and losses, plus income, and cash and cash equivalents held. Gross performance returns are presented after transaction costs and before investment management fees and all operating costs. Starting 01/01/17 net performance returns are calculated using a model fee on a monthly basis. Prior to 2017, actual fees were used to calculate net returns. Model fees for the composites are selected using the highest possible rate for the fee schedule of that strategy. The model fee for the Focused All Cap Composite is calculated using the highest possible fee rate that can be achieved for accounts with the required $5M minimum. Operating costs include custodian and administrative fees. Additional information regarding policies for valuing investments, calculating performance, and preparing GIPS Reports is available upon request by emailing info@arsinvest.com. Performance results for periods of less than a year are not annualized.
Performance returns are in U.S. Dollars. Periodic returns are geometrically linked. The composite rates of return have been calculated within ARS. A complete list and description of the composites managed by ARS is available upon request by email to info@arsinvest.com.
Performance information for all of ARS’ investment strategies is available upon request by email to info@arsinvest.com or at www.arsinvest.com.
The information in this document is believed to be correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by ARS its officers, employees or agents. The information contained herein is current as of the date hereof but may become outdated or subsequently may change. ARS does not undertake any obligation to update the information contained herein in light of later circumstances or events. This document contains general information only and is not intended to be relied upon as a forecast, research, investment advice, or a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Nothing in this presentation constitutes financial, legal, or tax advice.
The historical index performance results are provided exclusively for comparison purposes only. It is not possible to invest directly in an index. It should not be assumed that any
account holdings will correspond directly to any comparative index reflected herein.
The information contained herein is not warranted to be accurate, complete, or timely. Other data provided may be based upon information received from third parties which is believed to be accurate, but no representation is made that the information provided is accurate and complete. Please be sure to refer to your custodial account statement(s) as the true and accurate record of your portfolio holdings and transactions.
GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content
contained herein.
All data is subject to change.
Not FDIC-Insured. Not Bank-Guaranteed. May Lose Value.
GIPS Verification Report
ARS Investment Partners, LLC
We have verified whether ARS Investment Partners, LLC (the “Firm”) has, for the periods from January 1, 2000 through December 31, 2024, established policies and procedures for complying with the Global Investment Performance Standards (GIPS®) related to composite and pooled fund maintenance and the calculation, presentation, and distribution of performance that are designed in compliance with the GIPS standards, as well as whether these policies and procedures have been implemented on a firm-wide basis. GIPS® is a registered trademark of CFA Institute.
CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
The Firm’s management is responsible for its claim of compliance with the GIPS standards and the design and implementation of its policies and procedures. Our responsibilities are to be independent from the Firm and to express an opinion based on our verification. We conducted this verification in accordance with the required verification procedures of the GIPS standards, which includes testing performance on a sample
basis. We also conducted such other procedures as we considered necessary in the circumstances.
In our opinion, for the periods from January 1, 2000 through December 31, 2024, the Firm’s policies and procedures for complying with the GIPS standards related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance,
have been, in all material respects:
• Designed in compliance with the GIPS standards, and
• Implemented on a firm-wide basis.
This report does not relate to or provide assurance on any specific performance report of the Firm or on the operating effectiveness of the Firm’s controls or policies and procedures for complying with the GIPS standards.
ACA Group, Performance Services Division
April 17, 2025