Strategy & Insights

Over the past month, the sectoral theme of note has been the rotation out of cyclicals and into defensives. This has been most evident in the performance of Health Care (up over 9% in November) versus Tech (down 4.4%). While we continue to like staying overweight Health Care, we also want to pay tribute to other sectors that show a favourable revenue profile but are still undervalued.

Q3 2025 earnings have been broadly resilient, with 87% of S&P 500 companies beating earnings per share (EPS) estimates as of October 31. But beneath the strong headline numbers, earnings breadth is narrowing. Markets are increasingly rewarding companies and sectors that meet two critical tests: 1) Turning AI/capex investments into credible gains; 2) Operating in sectors with structural quality (cash flow resilience, healthy balance sheets)

One of the more prominent reasons for why the U.S. Health Care sector has underperformed this year has been top-down policy uncertainty (i.e., tariffs) and what that could potentially mean for margins. But in early October, the Trump administration announced that it had come to an agreement with a large pharmaceutical/​biotech firm (Pfizer) that has flipped sentiment by an appreciable degree.