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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and sponsored by Canada Life. For today’s Soundbites, we’re talking about themes driving U.S. equities with Jyotsana Wadera, senior investment director with Putnam Investments. We talked about policy factors, names she likes, and we started by asking why diversification still matters within U.S. equities.

Jyotsana Wadera: When correlations spike, you can assume that beta diversification has mostly disappeared, and the focus on diversification should be on a company-by-company level, right? That means have companies that have diversified balance sheets, cash flow durability, growth drivers, different segments of exposure. We want to have a mix of companies. We want to have structural growers. Those are absolutely the AI names. Of course, health care [and] innovation within health care. But there’s also steady growers, right? Those companies with true moats and competitive advantages like an American Tower, Vulcan Materials, these are pick-and-shovel companies that grow steadily through a variety of market environments. Having exposure to different types of companies, not just those exposed to AI, but those that have a negative correlation to what’s dominant in the U.S. markets today. You’ve got to do it by a company-by-company level. And I would say now more than ever, active management matters.

Policy implications

JW: It’s fair to say that fiscal, regulatory, trade policies all impact U.S. equities. But the way a tariff impacts Retailer A is going to be very different from the way tariffs will impact Retailer B. Retailer A may get all of their imports from outside of the U.S., whereas Retailer B may already be manufacturing in the U.S. So, the impact of that tariff is going to be materially different between those two companies. Same thing with the regulatory environment. So, I think you have to be very careful before putting a blanket statement on how any regulatory policy or trade policy impacts broad U.S. equities. It’s going to matter sector by sector and it is going to matter company by company.

Equity expectations

JW: Generally, the market expectation is low-teens to mid-teens. This is coming off three very strong years for U.S. equities. But you’re also seeing a lot of momentum by strong earnings and growth in some of the biggest names in the U.S. equity markets. And that can be really strong for performance.

Names she likes

JW: Maybe what I’ll talk about first is Broadcom. It doesn’t specifically classify as a Mag Seven [company], but nowadays, some folks talk about a Mag Eight, and Broadcom would definitely fall into that. It is an AI-driven infrastructure play. They have strong growth. They doubled their revenue year over year to $8.2 billion. We see a robust free cash flow. And knowing that they will generate revenue gives us a lot of confidence going into 2026 and 2027.

I highlighted American Tower, prior. It is one of the largest tower companies, if not the largest tower company in the United States, has properties in Europe and Latin America, and when you use your cell phone outside of your Wi-Fi zone, you’re going to probably hit an American Tower tower somewhere in the country. They will continue to generate revenue. Regardless who’s in power and what happens to trade policy, it’s unlikely that we’re using any of our technological devices any less.

Maybe I’ll lean into a name outside of AI: Caterpillar. Now, Caterpillar has typically been considered a cyclical name within the industrial sector, but today has unusually strong secular tailwinds coming from infrastructure. So increased infrastructure development within the U.S., energy transition, and of course, there is part of their business that is going to be exposed to AI data centre powering. They sell heavy equipment, construction, mining, but they have increasingly a bigger and bigger part of their business in power systems. The power and energy segment — that’s generators, gas engines, grid support for the U.S. — is now a major driver of earnings. That business was up over 37% year over year.

And finally, what’s the bottom line on opportunities in U.S. equities.

JW: The bottom line is, I continue to see very meaningful upside to U.S. equities, particularly with earnings growth and, of course, AI-driven investment. But now more than ever, advisors need to be selective. There is a lot of concentration but we are seeing breadth in the market. There were industrial companies that massively outperformed the Mag Seven. So, AI remains a dominant growth engine but be selective and be diversified. Active management is critical and will matter going forward. We’ve already seen it definitely impact U.S. markets towards the second half of 2025. We expect volatility to remain through 2026. So, I think you definitely want to be active. And then I will continue to highlight the benefits of having this U.S. equity portfolio for your clients, where you probably have a lot of Canadian equity exposure. This is a very nice diversification option for Canadian investors.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Jyotsana Wadera of Putnam Investments. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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