This week's interesting finds

Biography book club

If you plan to be beachside, poolside, inside or on the road this summer, it’s the perfect time to explore the Investment Team’s recommended biography reading list. Whether you’re looking to be inspired, gain insights or simply looking for a great real-life story, you’ll be sure to find it here.

This week in charts

Rising cost of servicing U.S. public debt

Growth vs. value

Large cap vs. small cap

Earnings, valuation and ROE

Domestic sales exposure

Cost of goods sold (% of sales)

Japan – Share buybacks

Japan – ROE and EPS

Payment-in-kind income (% of Cliffwater Direct Lending Index)

High-grade bonds – average coupon

High-grade bonds – coupons paid

The Global A.I. Divide

Artificial intelligence has created a new digital divide, fracturing the world between nations with the computing power for building cutting-edge A.I. systems and those without. The split is influencing geopolitics and global economics, creating new dependencies and prompting a desperate rush to not be excluded from a technology race that could reorder economies, drive scientific discovery and change the way that people live and work.

The biggest beneficiaries by far are the United States, China and the European Union. Those regions host more than half of the world’s most powerful data centers, which are used for developing the most complex A.I. systems, according to data compiled by Oxford University researchers. Only 32 countries, or about 16 percent of nations, have these large facilities filled with microchips and computers, giving them what is known in industry parlance as “compute power.”

Nations with little or no A.I. compute power are running into limits in scientific work, in the growth of young companies and in talent retention. Some officials have become alarmed by how the need for computing resources has made them beholden to foreign corporations and governments.

A.I. computing power is so precious that the components in data centers, such as microchips, have become a crucial part of foreign and trade policies for China and the United States, which are jockeying for influence in the Persian Gulf, in Southeast Asia and elsewhere. At the same time, some countries are beginning to pour public funds into A.I. infrastructure, aiming for more control over their technological futures.

There has long been a tech gap between rich and developing countries. Over the past decade, cheap smartphones, expanding internet coverage and flourishing app-based businesses led some experts to conclude that the divide was diminishing. Last year, 68 percent of the world’s population used the internet, up from 33 percent in 2012, according to the International Telecommunication Union, a United Nations agency.

But in April, the U.N. warned that the digital gap would widen without action on A.I. Just 100 companies, mostly in the United States and China, were behind 40 percent of global investment in the technology, the U.N. said. The biggest tech companies, it added, were “gaining control over the technology’s future.”

The gap stems partly from a component everyone wants: a microchip known as a graphics processing unit, or GPU. The chips require multibillion-dollar factories to produce. Packed into data centers by the thousands and mostly made by Nvidia, GPUs provide the computing power for creating and delivering cutting-edge A.I. models.

Obtaining these pieces of silicon is difficult. As demand has increased, prices for the chips have soared, and everyone wants to be at the front of the line for orders. Adding to the challenges, these chips then need to be corralled into giant data centers that guzzle up dizzying amounts of power and water.

Many wealthy nations have access to the chips in data centers, but other countries are being left behind, according to interviews with more than two dozen tech executives and experts across 20 countries. Renting computing power from faraway data centers is common but can lead to challenges, including high costs, slower connection speeds, compliance with different laws, and vulnerability to the whims of American and Chinese companies.

The uneven distribution of A.I. computing power has split the world into two camps: nations that rely on China and those that depend on the United States.

The two countries not only control the most data centers but are set to build more than others by far. And they have wielded their tech advantage to exert influence. The Biden and Trump administrations have used trade restrictions to control which countries can buy powerful A.I. chips, allowing the United States to pick winners. China has used state-backed loans to encourage sales of its companies’ networking equipment and data centers.

The effects are evident in Southeast Asia and the Middle East.

Globally, the United States has the lead, with American companies building 63 A.I computing hubs outside the country’s borders, compared with 19 by China, according to the Oxford data. All but three of the data centers operated by Chinese firms outside their home country use chips from Nvidia, despite efforts by China to produce competing chips. Chinese firms were able to buy Nvidia chips before U.S. government restrictions.

Alarmed by the concentration of A.I. power, many countries and regions are trying to close the gap. They are providing access to land and cheaper energy, fast-tracking development permits and using public funds and other resources to acquire chips and construct data centers. The goal is to create “sovereign A.I.” available to local businesses and institutions.

In India, the government is subsidizing compute power and the creation of an A.I. model proficient in the country’s languages. In Africa, governments are discussing collaborating on regional compute hubs. Brazil has pledged $4 billion on A.I. projects.

Even in Europe, there is growing concern that American companies control most of the data centers. In February, the European Union outlined plans to invest 200 billion euros for A.I. projects, including new data centers across the 27-nation bloc.

Still, closing the divide is likely to require help from the United States or China.

This week’s fun find

How Do Muppets Go Outside? Find Out How Kermit and Gang Took to the Real World

Movie enthusiast and YouTuber Alex Boucher is “on a mission to watch every movie.” He dissects some of the film industry’s best-kept secrets and techniques. From practical effects to dog acting to how Spiderman’s web-swinging changed over time, he analyzes how movies are made and creates mini-documentaries about cult classics and box office hits alike. His most recent video traverses the universe of Jim Henson’s The Muppet Movie (1979) and its seven filmic follow-ups, posing the question, “How do Muppets go outside?”

Controlled by humans, the iconic puppets have been voiced by actors like Dave Goelz (Gonzo), Frank Oz (Miss Piggy, Animal, and Fozzie Bear), Richard Hunt (Scooter and Statler), among many others, and of course, Kermit the Frog is guided by Jim Henson himself. Puppet shows are typically performed in a box so that the puppeteers can hide beneath the set, but what happens when they head out into the real world, lower extremities and all?

This week's interesting finds

This week in charts

Corporate bond ownership

Global Corporate Bond market, by issuance currency

Sector inflows and outflows

Large cap inflows

Europe-focused equity fund flows

Europe-focused equity fund inflows by year

Growth expectations - S&P 500 Index vs. S&P/TSX Composite Index

FTSE250 Index vs. MSCI World Index

Dividend yield by region

U.K. mergers & acquisitions

Private equity sits on US$1 trillion amid uncertainties, M&A stalls, PwC says

Private equity firms are holding about US$1 trillion in unsold assets, PricewaterhouseCoopers (PwC) said on Wednesday — capital that, in a typical market environment, would have been returned to investors.

High interest rates in the United States, President Donald Trump’s on-again, off-again approach to tariff policy, and geopolitical uncertainties have eroded company valuations and contributed to firms holding onto portfolio firms far longer than expected.

The capital tie-up is playing a role in the slowdown in dealmaking. Mergers and acquisitions, a key barometer of global economic health, have stalled this year.

Despite entering 2025 with high hopes for an M&A rally under Trump, deal volume and value have remained largely flat year-over-year, with 4,535 deals totaling $567 billion through May, PwC said. 

Private equity firms, which deploy LP capital into businesses across industries, currently have $3 trillion invested in 30,000 companies, according to PwC, with 30% held for longer than five years.

That is above the traditional timeline by which funds expect to have a profit on their investments.

So, now, PE firms need to be creative to squeeze profit from assets - often bought at peak prices, said Liz Crego, PwC’s industry markets leader. That includes selling a small portion of a business that can be more valuable as a separate entity, she said.

A more uncertain market has also led to a decline in cross-border deals to 16.9% of total activity, down from 18.7% in 2021. China-related deals, in particular, face heightened scrutiny and strategic reevaluation, PwC said.

Cautiously optimistic

The initial public offering (IPO) market has shown signs of life, with 31 traditional IPOs raising $11 billion through May. While April saw a pause due to tariff shocks, activity resumed in May and June, with fintechs like Chime, valued at $18.4 billion at its Nasdaq debut, leading the charge. 

Special purpose acquisition companies (SPACs) are also making a modest comeback, with over 50 of those publicly traded shell companies created to raise capital through IPOs.

To unlock the $1 trillion held by PEs, the recession cloud over the U.S. would have to recede, Washington would need to provide clarity over tariffs and interest rates must decline, Smigel said.

Nevertheless, PwC expects M&A activity to improve in the coming quarters, with pressure from the LP funds looking for returns and as assets are repriced.

This week’s fun finds

Several EdgePoint partners from Québec came to visit and brought presents – locally made hot sauces from Britannia Mills. They were très épicées, but more importantly they were also délicieuses.

• Chaude Boucane (Hot Smoke) – a smoky sauce

• La Déraillée (The Derailed) – flavourful and creamy, with a hint of mustard

• La Grande Faucheuse (The Grim Reaper) – featured on Hot Ones, it’s Britannia Mills’ hottest sauce. The main ingredient are the Carolina reapers that give it its name. Not the hottest we tasted, but the hint of maple syrup saves us from the heat

How to Get Rid of Sunburn Fast, According to Dermatologists

So you got too much sun and didn’t apply (or reapply) your SPF. Now you’re wondering how to get rid of sunburn fast so you can get some relief for the lobster red, irritated skin. As diligent as we all are about wearing sunscreen, sunburns do happen, even to the best of us. Though you can’t get instant relief from a sunburn, there are plenty of ways to help your skin heal as painlessly and quickly as possible, according to our experts, board-certified dermatologists Flora Kim, MD, and Amy Ross, MD, and honestly, that counts for something.

This week's interesting finds

This week in charts

S&P 500 Index valuations vs. their historical average

U.S. vs. global equity price returns

U.S. stock market value relative to GDP

U.S. value stocks vs. growth stocks

Japanese share buybacks

EV/EBITDA since 2005

European equities cash deployment

Corporate bond spreads

U.S. bond and equity correlation

U.S. Aggregate bond index duration vs. High Yield corporate bond duration

Automotive sales by region

As Companies Abandon Climate Pledges, Is There a Silver Lining?

Peter Ford has seen the promise—and the pitfalls—of corporate climate pledges up close. The 40-year-old Briton recently spent five years at Hennes & Mauritz AB trying to cut emissions from the Swedish fashion giant’s vast supply chain, from Cambodian sewing lines to Vietnamese dye houses. He met with hundreds of suppliers, pushed for energy efficiency upgrades and urged the elimination of coal boilers. And to its credit, H&M invested about $200 million a year in these efforts and recently reported a 24% cut in its supply chain emissions.

But Ford isn’t celebrating. “As an industry, it’s not working out yet,” he says bluntly. Apparel emissions are still growing—and could expand an additional 30% this decade, according to McKinsey & Co. While a few brands are doing a lot of work, Ford says, most of the industry “would much rather sit there and wait for things to happen.” That mismatch isn’t unique to fashion. From airlines to banks to retailers, the story is the same: Over the past few decades, more than 4,000 companies have made big climate pledges, but results are scant, and emissions continue to rise.

Worse, we’re now seeing a retreat. In the past year companies around the world have been canceling their climate commitments, some only a few years old. BP Plc is pulling back on renewables and drilling more oil. Coca-Cola Co. and PepsiCo Inc. abandoned or weakened promises they made in 2021 to slash their use of new plastics. Big banks such as Wells Fargo & Co. and HSBC Holdings Plc walked back various plans to reduce their emissions. Walmart Inc. admits it’s behind on its climate targets, while FedEx Corp. says it will likely miss its goal to go electric on half of its delivery truck purchases by 2025. This corporate retrenchment has been particularly acute in the US, where the Trump administration has been busy rolling back climate regulations and withdrawing from international treaties such as the Paris Agreement.

It’s a troubling trend for anyone who prefers life on a hospitable planet. We’re currently on pace to add about 3C (5.5F) of warming this century, which is expected to throw the planet into turmoil with diminished food supplies, wiped-out marine life, brutal heat waves and crippling droughts. But even with those grim prospects, some experts argue that this corporate backpedaling might come with a silver lining. That’s because it could force investors, lawmakers, academics and the broader public to reckon with the fact that voluntary corporate action was never going to stave off climate disaster. This could bring sharper attention to corporate political activities, where even self-proclaimed responsible businesses obstruct regulations needed to phase out fossil fuels and boost clean alternatives.

For years companies have suggested their pursuit of sustainability would naturally follow their quest for profits. Walmart framed its eco-pivot in 2005 as a way to reduce waste, cut costs and promote goodwill. PepsiCo’s then-chief executive officer, Indra Nooyi, put it more elegantly a few years later, when she said using less water and energy isn’t corporate benevolence but rather a way to lower your bills and fatten your margins.

There’s an element of truth to this: Some climate-friendly endeavors, including swapping out lightbulbs and putting up solar panels, quickly pay for themselves and enhance the bottom line. But most projects required to achieve deep decarbonization, such as decommissioning coal boilers or using cleaner fuels, cost gobs of money, and no one knows when or if they’ll ever be cheaper than their dirtier alternatives. As long as these measures remain voluntary, they won’t happen at anywhere near the scale or pace that’s needed. And companies will be free to renege on their promises.

Unfortunately, most companies have talked a big game on climate while working to block or water down the very policies that could drive real progress. Take the US airline industry. Despite skyrocketing emissions, most carriers have vowed to eliminate their planet-warming pollution by 2050. A key part of the plan is to use vastly more sustainable aviation fuel. But this currently accounts for about 0.3% of their total fuel use. Airlines are quick to point out that cleaner fuels cost about two or three times more than conventional jet fuel, and they can’t boost these purchases without putting themselves at a disadvantage to others that keep using cheaper, dirtier fuels.

This, of course, highlights the need for regulation to make sure first movers aren’t punished in the market. In Europe, regulators have stepped in, mandating 2% cleaner fuel now and 6% by 2030. But US carriers vigorously oppose rules like these, including a recent California proposal that would have regulated jet fuel for flights in the state. After airlines questioned the state’s authority to set such rules, California backed off and instead joined the companies to cheer a toothless “voluntary and nonbinding” agreement to increase the use of cleaner fuels.

When asked about these glaring misalignments, companies frequently argue that they rely on trade groups to advocate on a wide range of issues, such as taxation and trade, and that they don’t always agree on every position. This claim doesn’t pass muster with Bill Weihl, who says he used to make the same argument back when he ran sustainability efforts for Facebook. “It’s a weak excuse,” says Weihl, who has since launched ClimateVoice, a nonprofit that pushes companies to support climate policies. “They’re choosing to kick the can down the road so they can get lower taxes and deregulation.”

When it comes to policy positions, who’s putting their money where their mouth is? Advocates point to packaged-goods maker Unilever Plc as one of the rare companies moving in the right direction by regularly examining the climate work of trade groups to which it belongs. In its most recent review, from April, Unilever found that eight of 26 groups were misaligned with its views on climate policy—including the Confederation of Indian Industry, which has pushed for lower petrol taxes and more energy from gasified coal. Importantly, the report also spells out the steps Unilever plans to take to address this misalignment, including potentially leaving groups that continue to obstruct climate action. Any company claiming to be serious about climate should follow Unilever’s lead with this kind of rigorous examination and public reporting.

Clearly regulations are the most effective way to shift this mindset and force companies to pour money into much-needed climate projects. Businesses, however, have gone mute as President Donald Trump wades into their industries to annihilate various climate rules, which will pour billions of extra tons of planet-warming gases into the atmosphere. But there are other ways to pressure a company into speaking up and doing the right thing, including rallying its often large numbers of employees who feel strongly about leaving a livable planet for their children.

This week’s fun find

Mysteriously Perfect Sphere Spotted in Space by Astronomers

Our Milky Way galaxy is home to some extremely weird things, but a new discovery has astronomers truly baffled.

In data collected by a powerful radio telescope, astronomers have found what appears to be a perfectly spherical bubble. We know more or less what it is – it's the ball of expanding material ejected by an exploding star, a supernova remnant – but how it came to be is more of a puzzle.

This week's interesting finds

This week in charts

Foreign investment in U.S. fixed income assets

Momentum crowding still at extremes

Sector contribution to 2025 EPS growth estimates

Forward price-to-earnings ratios by geography

MSCI U.S. price-to-earnings decline during past recessions

MSCI Japan Index price-to-book relative to MSCI World Index

Share of domestic equity ownership and valuations

Share of U.S. firms using AI by sector

Housing vs. rental affordability

Big investors shift away from US markets

The US president’s erratic trade policy has shaken global markets in recent months, sparking a sharp sell-off in the US dollar and leaving Wall Street stocks lagging far behind European rivals this year.

Trump’s landmark tax bill, which is forecast to add $2.4tn to Washington’s debt over the next decade, has also increased pressure on US Treasuries.

The move away from US assets has pushed up European markets at the expense of their US counterparts and has been signalled by surveys of big institutional investors’ allocation decisions. A poll of fund managers published by Bank of America last month showed the biggest underweight in the US dollar in nearly two decades.

As institutional investors review the extent of their holdings in the US, Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, said recently it would reduce its exposure to the country — currently 40 per cent of its portfolio. It plans to increase investment in the UK, France and Germany. 

US stocks have recouped the losses that followed Trump’s announcement of the duties on April 2. But the S&P 500 remains less than 2 per cent up this year, compared with 9 per cent for the Stoxx Europe 600 index.

The dollar is close to a three-year low — down 9 per cent this year — even though Trump has retreated on many of the tariffs he initially announced.

Investors say that the global dominance of the US economy and the depth of its capital markets mean it will remain the premier destination for global investment.

However, many are questioning whether more than a decade and a half of inflows and outperformance — which pushed the US share of global equity market value to around two-thirds by the start of this year — is headed into reverse.

Some investors question whether smaller, more fragmented markets in Europe and Asia offer a meaningful alternative.

This week’s fun find

World’s First Mass-Produced Flying Car Prototype Unveiled

Eager teens reaching driving age in the next few years may be able to take their inaugural spin in a car … in the sky. The world’s first mass-produced flying automobile prototype has been unveiled, and we’re ready for a ride.

Created by Slovakia-based company Klein Vision, the AirCar production prototype made its public debut May 8, after making its insider debut at the 2025 Living Legends of Aviation Awards Ceremony in Beverly Hills late last month. At the event, Morgan Freeman and John Travolta presented the car’s inventor, Stefan Klein, with a Special Recognition Award for Engineering Excellence.

This week's interesting finds

17th annual Cymbria Investor Day

This year the Investment Team talked about the importance of identifying change in the businesses they invest in. The discussion includes analysis of past opportunities and the ways they believe they can continue to find new ones in the future. 

Click here to watch the video. 

This week in charts

U.S. data center gas demand

Historical asset bubbles

U.S. government & corporate debt

Days working from home, per week, by country

S&P 500 Index median stock short interest

U.S. equity index price-to-earnings valuations

S&P 500 Index forward price-to-earnings valuations

S&P 500 Index defensive sector allocation

U.S. value stocks vs. international value stocks

U.S. manufacturing employment

UK confirms powers to force pension funds to back British assets

Rachel Reeves has confirmed she will create a “backstop” power to force large pension funds to back British assets, as she vowed to unleash more than £50bn of investment in domestic infrastructure, housing and fast-growing businesses.

The chancellor hopes creating pension “megafunds” with more than £25bn in assets, coupled with a voluntary accord with industry to boost allocations to private assets, will reverse long-term falls in investment in the UK.

It is the first time the Treasury has publicly confirmed it will legislate to create a backstop power to mandate pension funds on their investment strategy — a move condemned by the Conservatives.

Reeves’ allies say she believes the power will not be needed and that reforms in the new pensions legislation — plus a “Mansion House accord” with the industry — would deliver the desired results.

At the heart of the reforms is a requirement for all multi-employer defined contribution pension schemes and local government pension scheme pools to operate at a “megafund level”, similar to those in Australia and Canada.

The Treasury argues that the megafunds, managing at least £25bn in assets, will drive more than £50bn of investment in big UK infrastructure and other British assets. This will then drive higher returns for savers, most of whom are covered by DC schemes.

However, after pushback from some industry participants to plans presented last autumn, the Treasury said schemes worth more than £10bn that are unable to reach the minimum size requirement by 2030 will be allowed to continue operating, as long as they can demonstrate a clear plan to reach £25bn by 2035.

The UK has about 60 multi-employer DC pension schemes, with combined assets forecast to reach £800bn in five years.

Meanwhile, under a Mansion House accord signed this month, 17 of the UK’s largest pension providers have pledged to invest at least 5 per cent of their default funds in private British assets by the end of the decade.

The Treasury said the Mansion House pact would release £25bn for UK investment by 2030, while a similar amount would come from local investment targets from local government pension schemes.

Reeves’ aim is to reverse a sharp decline in domestic investment from UK pensions funds, which the Treasury said had fallen from more than 50 per cent of DC assets in 2012 to roughly 20 per cent in 2023.

Blanc said this month that forcing funds to buy UK assets would not be “the right thing”, adding: “It’s like using a sledgehammer to crack a nut.”

Shadow chancellor Mel Stride said: “By pressing ahead with their plans to mandate pension-fund investments, Labour is crossing the Rubicon into directing the public’s savings. This is an extraordinary over-reach.”

This week’s fun find

Take a Nostalgic Dive Through a Visual Cassette Tape Archive

The cassette tape, invented in 1963, entered the market with a lukewarm reception as it competed with reel-to-reel and 8-track technologies. The suitability for recorded music along with its portability eventually put it on top of its competitors, and sound quality continued to improve in the 1970s. By the following decade, the cassette was a favorite among consumers, overtaking vinyl and continuing to dominate until the 1990s, when CDs superseded the technology.