A thematic universe with alpha potential

The Draghi report and the Competitiveness Compass set a clear priority: build companies large enough to fund the R&D and capital expenditure that technology-intensive industries now require. Six strategic sectors are directly concerned: aerospace and defence, energy and grids, telecoms, banks, semiconductors and critical materials. In each, fragmentation undermines European competitiveness.

Geopolitical tensions have again exposed Europe’s dependence on external energy, supply chains and defence capabilities. Strategic autonomy requires faster electrification, secure infrastructure and a defence strategy that does not rely solely on the US. AI is raising the minimum scale needed to compete, and China’s state-supported industrial capacity puts growing pressure on European companies.

Merger review is shifting from a narrow focus on short-term competitive harm to a broader assessment of scale, investment, innovation and resilience. There is no blanket exemption for European champions, but companies now have a stronger basis to show that consolidation delivers strategic benefits, provided they are credible, merger-specific and sufficient to offset competitive harm.

Healthcare is among the sectors least correlated with the AI trade, bringing genuine diversification versus Technology at a time when geopolitical disruption and higher commodity prices penalise cyclicals. European pharma also retains significant catch-up potential versus US peers, with sector valuations recently slipping below their historical average.

Not new, but powerful: the median age keeps rising in Europe and in the US, and health intensity rises steeply with age. Combined with the growing prevalence of obesity and chronic disease, this underpins a structural increase in health spending and supports earnings growth across the sector regardless of the cycle.

The innovation race produces both winners and losers: some former leaders have de-rated sharply, while Medtech was hit hardest by cost inflation, tariffs and China headwinds, leaving valuations not far off all-time lows. With a large share of revenues generated in the US, trade policy remains a key risk, which argues for a diversified rather than concentrated exposure.

The luxury market is evolving rapidly, with experiences significantly outperforming tangible goods in recent consumer surveys. This trend reflects a structural and cultural shift from ownership toward lived experiences. Within experiential luxury, most segments remain resilient, including hospitality, private aviation, yachting, and cruises.

US luxury spending is rising across apparel, hard luxury and beauty: American luxury brands grew about 10 to 15% year-on-year in Q1, at constant exchange rates. Shoppers under 35 are increasing their luxury spending about 4 points faster than older generations, and upper-middle-income households twice as fast as the wealthiest. The customer base is broadening.

Quarterly growth turned positive in Q4 2025 after two years of decline. Online luxury sales rose 25 to 35% year-on-year in Q1 2026, and ready-to-wear is growing twice as fast as leather goods. Chinese consumers are moving away from status purchases toward products that express belonging and individuality: a new luxury mindset rather than a return to old patterns.