Two structural shifts are redrawing the investment landscape — and global small caps are in the frame

IMC’s Travis Prentice says AI disruption and the reshoring of manufacturing are reinforcing forces reshaping capital flows, competitive dynamics, and market leadership

The investment thesis that powered markets for two decades is facing its most serious structural test yet. AI is no longer a narrative — its productivity gains are becoming measurable, and the industries most exposed are precisely those that quality investors have long favoured. Manufacturing is coming home. And the capital required to fund both shifts is flowing toward parts of the market most portfolios have barely touched.

Travis Prentice, Chief Investment Officer at Informed Momentum Company (IMC), says that doesn’t mean quality is broken — but it does mean the conditions that made quality strategies so effective may be changing in ways that reward a different kind of discipline. Software companies and high-margin service businesses with moats built on informational advantages and proprietary code face the greatest potential for disruption. Labour-intensive industries — consulting, research, and knowledge-based services — are close behind.

“We don’t think quality is broken. History shows that companies with high relative profitability have outperformed historically. But quality like other factors can be cyclical — and when you have major technology disruption coinciding with a reshoring of industrial capacity, the sectors most at risk are often the same one’s quality strategies are most concentrated in.” says Prentice.

Prentice identifies two reinforcing structural shifts now underway. The first is AI moving from hype to measurable economic impact. Unlike the prior software era — defined by asset-light models and extraordinary incremental margins — AI is inherently capital-intensive. Delivering it at scale demands massive investment in compute, data centres, custom silicon, power generation, and cooling infrastructure. Value creation is migrating down the stack, toward the hardware and physical infrastructure that makes AI possible.

The second shift is the reversal of peak globalisation. After decades of optimising for cost efficiency, corporations and policymakers are now prioritising resilience and domestic capacity. Rebuilding manufacturing and strategic industries demands sustained investment in factories, automation, energy infrastructure, electrical systems, and skilled labour — reinforcing the same infrastructure demands that AI is already generating.

“These forces are not operating in isolation. The reshoring cycle is reinforcing AI’s infrastructure demands — we could be looking at a multi-year capex cycle centered on tangible assets, not intangible scale. The companies that benefit most from the next phase may not be the ones that dominated the last one”. says Prentice.

For investors, Prentice says the broadening of the AI trade is already visible — and it extends well beyond the familiar names. Where the rally was once concentrated in a handful of hyperscalers, participation is widening into infrastructure, utilities, construction, financials, and industrials. Smaller, less-followed companies globally are emerging as direct beneficiaries of the capex cycle: thermal management specialists supplying data centre cooling, power infrastructure builders serving the grid upgrade cycle, high-efficiency power conversion businesses critical to AI compute density, and industrial conglomerates positioned at the intersection of reshoring and energy transition.

Examples from the IMC portfolio include:

• Modine Manufacturing (US) — Thermal management solutions for data centre cooling infrastructure
• Asia Vital Components (Taiwan) — Thermal and cooling components for servers and data centre hardware
• Argan (US) — Power plant construction serving the grid capacity buildout
• Doosan (South Korea) — Heavy industrial and power infrastructure for the reshoring cycle
• Vicor Corporation (US) — High-efficiency power components enabling greater AI compute density

Prentice says “Passive and cap-weighted allocation has amplified concentration risk for two decades. As capital cycles toward infrastructure, industrials, and real assets, participation is likely to widen — and that broadening is already visible in companies like these, which are benefiting directly from the capex cycle but have been largely bypassed by index-heavy strategies.”

It is in this context that Prentice sees momentum strategies as particularly well-placed. Rather than predicting which sectors should win, momentum follows where capital is actually moving — an advantage that compounds when leadership is shifting and fundamental anchors are unreliable.

Prentice adds “In a period of regime change, price trends often reflect improving fundamentals before backward-looking metrics catch up. Momentum doesn’t require calling the winner — it responds to where strength is emerging. Right now, that signal is pointing toward parts of the market most investors haven’t been watching.”

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