Higher interest rates and persistent inflation are redrawing the map of stock market winners, according to fund managers at the VT De Lisle America Fund, who argue that the four-decade tailwind enjoyed by steady growth stocks such as McDonald’s, Nike and Procter & Gamble has decisively reversed.
For 40 years, declining interest rates and falling inflation rewarded the predictability of those household names, pushing their price-to-earnings multiples higher and delivering strong outperformance. That comfortable pattern broke in 2021 when inflation surged and central banks began raising rates. At the same time, the arrival of ChatGPT in 2022 channelled vast sums of capital into artificial-intelligence infrastructure, redirecting investment into parts of the economy that had been neglected for decades.
The fund argues that this new environment is far more than a temporary shift. Higher interest rates and inflation tend to compress price-to-earnings multiples, while rising costs for materials and labour squeeze corporate profits. The urgency to spend on building out AI has meanwhile funnelled money into construction, manufacturing and blue-collar employment — sectors that benefit from capital expenditure rather than from the brand loyalty that lifted former stock market darlings.
To understand today’s landscape, investors often look for historical parallels. The fund points to the 1970s as the best precedent — a decade of high inflation and high interest rates — but with the crucial addition of artificial intelligence as a transformative force.
A new investment playbook
In place of the old growth-stock formula, the fund is deploying a deliberate combination of value and momentum — two strategies that are often seen as opposites. Value investing seeks out-of-favour stocks that are cheap on fundamental measures such as low price-to-earnings ratios; momentum investing buys stocks that have already been rising, betting that the trend will continue. When one strategy struggles, the other tends to perform, and the pairing can reduce overall portfolio risk. Some research suggests that keeping value and momentum as separate portfolios, rather than blending them into a single stock-picking process, may produce the best results.
Within the broad macroeconomic shift, the fund has identified a more specific trend: the break-up of old industrial conglomerates. These companies are packaging overlooked industrial assets into newly listed firms through “spin-offs”, a move that can unlock hidden value.
Companies poised to thrive
Three stocks illustrate how the fund is applying this approach. The first is Solstice Advanced Materials (Nasdaq: SOLS), which was spun off from Honeywell on 30 October 2025 as part of Honeywell’s plan to split into three independent companies focused on automation, aerospace and advanced materials. Solstice holds an oligopolistic position in refrigerants — its cash-cow product — which are increasingly necessary for cooling data centres as AI chips generate more heat. The company also supplies materials to America’s semiconductor supply chain and is investing $200 million to expand and modernise its electronic-materials facility in Spokane Valley, Washington. That expansion, expected to be complete by the end of 2029, will double production capacity for sputtering targets, reduce lead times and bolster domestic chip manufacturing.
What the fund calls the “hidden crown jewel” is Solstice’s stake in the Honeywell Metropolis Works facility in Illinois — the only uranium conversion plant in the United States, and one of just seven in the world. The plant, which converts uranium oxide into uranium hexafluoride for nuclear fuel enrichment, was idled from 2017 to 2023 but has since restarted, and Solstice is investing in debottlenecking projects to raise output. New companies such as FluxPoint Energy and Uranium Energy Corp (through its subsidiary UR&C) are planning to develop additional conversion capacity in the US, but for now the facility remains a uniquely scarce asset during what analysts describe as a nuclear renaissance, driven by energy-security concerns and the need for reliable power. Although Solstice trades at a price-to-earnings multiple in the high 20s — which looks expensive at first glance — the fund believes its earnings power is underappreciated as its semiconductor exposure grows and higher-priced uranium contracts begin to take effect.
The second stock is Forum Energy Technologies (NYSE: FET), a manufacturer of mission-critical equipment for the oil, gas, industrial and renewable energy sectors. Formed in 2010 through the merger of five oilfield product companies, Forum operates in a high-value niche and is a leading player in all of its product lines, using patented technical know-how that makes competition difficult. The fund describes it as a “picks-and-shovels” play on rising global energy demand driven by AI and on the increasing complexity of extracting oil and gas. Forum has delivered a 15% compound annual growth rate between 2021 and 2024, while its EBITDA has risen fivefold from $20 million to $100 million, with margins improving from 4% to 12%. Low reinvestment needs generate strong cash flows. Even after the stock has nearly tripled over the past year, the fund argues it remains a buy given its cheapness relative to cash flow, and notes that the company outperforms the Russell 2000 on key financial metrics such as cash flow yield and leverage. Roughly half of Forum’s business is outside the United States.
The third pick, Pennant Group (Nasdaq: PNTG), targets a different kind of steady growth — one rooted in demographic trends. Pennant owns, leases and operates care facilities for the elderly across the United States, and sees the ageing population as a long-term tailwind for sales. The company was spun off from The Ensign Group in 2019 and focuses on renovating older buildings to add value in a market where new construction is constrained by high costs. Its ability to execute this strategy depends on growing demand, scarcer assets and entrepreneurial local management teams. Pennant trades at a price-to-earnings multiple in the low 20s, with a high double-digit growth rate, giving it a price-to-earnings-to-growth ratio of not much above one — an enviable metric that suggests the stock is reasonably priced relative to its growth prospects.
