Algy's Investment Podcast | Episode #24

Guest: Pete Davies (Head of Global Developed Market Strategy, Lansdowne Partners)
Host: Algy Smith-Maxwell
Date: February 12, 2026
Episode Title: Pete Davies: Where are the Risks and Rewards Over the Next Decade?

Episode Overview

In this detailed episode, Algy Smith-Maxwell sits down with Pete Davies to dissect the changing landscape of investment risks and rewards in the next decade. Davies shares Lansdowne's uniquely active approach, focusing on fundamental shifts in macroeconomics, the impact of de-globalization, and why their portfolio is positioned for opportunities in banks, industrials, and overlooked asset-heavy businesses. The conversation delivers rare insight into both top-down and bottom-up fund management, challenges faced industry-wide, and the active choices that distinguish Lansdowne's strategy in 2026.

Key Discussion Points & Insights

1. Macro Trends Shaping the 2020s

(01:44 – 04:03)

• Shift from Private to Public Risk: Davies asserts that, unlike the last 40-50 years, today “most of the risk is in the public sector, not the private sector. And that's really weird ... if there's going to be a big problem, it's probably going to be government bonds.” (00:00, 01:44)
• Supernormal Growth in Western Capex: The 2020s will be defined by “people building stuff, physical stuff in the West, which hasn't happened for 30, 40 years.” (01:52)
• De-Globalization’s Investment Impacts: Expect companies hurt by globalization to rebound and past winners to potentially struggle: “...the things that did poorly out of globalization might start doing well and the things that did well out of globalization might struggle a bit.” (03:53)
• Investor Implication: The complete opposite playbook is needed compared to the last generation of investing.

2. Active Management & The Dangers of Style Drift

(04:03 – 06:09, 27:33 – 28:41)

• Portfolio Flexibility: Lansdowne “structurally assumes we are going to change our portfolios”, driven by analysis rather than sticking doggedly to one investing style (growth, value, etc.) (04:19, 05:26).
• On Style Drift: “Style is a very dangerous part of fund management. If you assume the world isn't going to reward the same style throughout every decade, which I wouldn’t...” (05:24)
• Adaptation Over Rigidity: “Once you start ... [that there’s] only one kind of share ... it becomes very hard to change your portfolios for different decades because you get accused of style drift.” (04:51)

3. Assets with Contrasting Signals: Gold & Tech

(06:09 – 08:10, 08:18 – 09:35)

• Paradox of 2025: Both gold and tech performed well—a historically unusual pairing. Gold signals fear; tech, optimism. This reflects two possible outcomes: productivity-led recovery or public sector collapse/bond crises.
• Davies’ View: “There's either a ton of private sector investment ... or ... the frailties of the public sector are very hard to resist and something unusually difficult happens.” (06:18)
• On Diversifiers: Davies owns gold in the fund, but is skeptical of bonds: “For me, bonds are a very poor investment. Dangerous, I would say.” (08:18)

4. How Politics & Elections Affect Markets

(09:41 – 12:00, 14:53 – 16:51)

• Political Risks Are Real: “Markets affect politics ... politics has tended towards tail events ... some of the hardest parts of my career have been driven by very unlikely political things actually happening.” (09:41–10:17)
• 2026 Outlook: “The biggest differential ... is ... there are a lot of drivers for why economic growth should be quite strong this year at a point where most people are quite pessimistic.” (10:44)
• Midterm Elections Impact: Less about trading opportunities, more about persistent pro-growth US policy (lower inflation, market support) pre-elections. (11:55, 12:00)
• Risks: The main risks—sentiment turning on AI/capex, niche inflation “pockets around AI” (US electricity, copper, DRAM prices). (14:53–16:51) – but fossil fuels and labor inflation seem unlikely to spike.

5. Energy Investment: Capex, AI & the Role of Nuclear

(17:05 – 19:31)

• AI-Induced Energy Demand: AI is driving pronounced local inflation in US electricity prices; could spur increased capex in energy, possibly including nuclear.
• Strategy: “Whether it's nuclear power stations or anything else, our view ... in the end, it feels very hard to imagine people not using a ton more building materials and that that's not priced in at all.” (18:16)

6. The Lansdowne Approach: Differentiation, Research & Innovation

(20:37 – 24:00)

• Cross-Pollination with Academia: Engagement with university IP/unlisted companies for differentiated perspective, especially in tech and defense. (20:37)
• Theme-First Investment: “We look for where things are changing, especially where those things are accompanied by a degree of complacency [that] things won't change.” (20:37)
• “Pick and shovel” Tech Investing: Focus on the companies underpinning AI and technology revolutions, not necessarily the headline names. (43:01–43:17)

7. 2025 Portfolio Review & 2026 Positioning

(24:06 – 30:56)

• Strong, Broad-Based Returns: In 2025, their global strategy returned c. 35-36% in sterling, versus the World index c.12.5%. (24:06, 24:22)
  • Top contributors were diversified (“Banks, building, and Data plus ... defense and airlines”).
  • Few major losers; only one stock down more than 25%. “We tried to be quite active in the portfolio ... that share we managed to ... have, I think, on average about a quarter of the weighting we started the year with…” (26:05)
• Current Positioning: Themes remain “fresh”, still high expected returns (c. 25% over next 4 years). (27:33)

8. Portfolio Construction & Risk Management

(31:08 – 36:01)

• Valuation Metrics:
  • P/E: c. 12–13x vs. 21x for the broad market
  • Dividend Yield: ~3.7%
  • Price-to-Book: ~0.5x
  • Active Share: Over 90%, indicating highly differentiated portfolio
  • Holdings: About 40 stocks (never below 30, rarely above 50)
• Asset-Intensive Focus: Emphasis on “stuff” (building materials, steel, cement, banks—companies with tangible assets).

Quote:

• Davies: “It's very rare, I've never seen it, to have both a price-to-sales and a price-to-book discount…” (32:59)

9. Banks: Return of Normality & Risk Reassessment

(36:01 – 39:22, 53:34 – 56:07)

• Portfolio Weight: Up to 24–25% in banks, notably higher than tech, explained by risk/reward—banks are now “back to normal”, less volatile; tech shares “had lots of volatility.” (36:01, 36:58)
• Not a Contrarian Bet for the Sake of It: “Banking's normally quite a good business. After crises it looks like a very bad business ... people take a long time to spot them going back to normal.” (37:07)
• Deposits as Key Asset: “All the value is in deposits ... banks are natural growers above GDP.” (53:34)

10. Data+ and Under-the-Radar Tech Exposure

(39:24 – 41:51, 43:01 – 47:43)

• Tech Bias: Little exposure to MAG7/US megacaps; approach shifted from non-capex-defensive winners to capital-intensive businesses supplying tech—AI “pick and shovels” (e.g., TSMC, Prismian, analog semiconductors).
• On Nvidia: “If the world pans out the way their CEO describes it, then their shareholders will do very well. I think we ... will do very well out of TSMC ... The question of where Nvidia sits relative to its peers is still a bit hard...” (41:51)
• Optionality-driven Buys: Tremendous upside in analog semis and companies likely to directly benefit from increased application of AI. (47:29–49:27)

11. Tangible Assets: Building Materials, Steel & Cement

(56:07 – 61:19)

• Local Supply Protection: “De-globalization and tariffs is actually protection of local assets ... [with] Mittal the steel producer and Heidelberg the cement company, they are asset-intensive businesses ... supply side reduction with increasing demand is a perfect storm.” (56:27)
• Valuation: “Mittal trades on, give or take, 0.5x book value ... it would cost you three or four times the book value to replace most of these assets.” (59:11)

12. Team Structure and Decision-Making

(61:19 – 65:16)

• Collaborative Model: “I would view myself as a component of the team rather than the other way around ... more about drawing out the right person for the subject ... you want people who check your natural biases.” (62:20)
• Stock Picking vs. Themes: Themes emerge from deep stock research, not top-down imposition. “What we get is two really nice things ... more differentiated themes and premium return via stock selection within themes.” (63:59)

13. Defense as a Theme

(65:16 – 67:43)

• Long-Term Trend: “It became obvious that you were in a very long cycle for defense … the biggest question is, is the demand going to be in the same stuff that you built 20 years ago?” (65:51)
• Stocks: Large exposure to BAE Systems, plus involvement with Helsing (private defense tech).

14. Active Management: The Value of Differentiation

(67:55 – 69:20)

• Why Be Active? “This decade you will get rewarded a lot for not doing the same thing as the index.” (67:55)
• On Cash: Prefer to stay invested; holding >5–6% cash is rare (69:22).

15. Geographic Mix and Output-based Allocation

(71:29 – 73:06)

• Geographic Split: Roughly 40% UK, 40% Europe, 20% US, driven by best ideas, not top-down allocation.

16. Company Research and Meetings

(73:06 – 75:39)

• Research Depth: Initial meetings are forward-looking, focusing on the strategic case, not just quarterly numbers.
• Unique IR Insight: “If the IR person effortlessly explains the investment story to you, you probably feel like the company knows which way it's going...” (74:02)

17. Notable Quotes & Memorable Moments

• On Public vs. Private Sector Risk:

  "We're in a world where most of the risk is in the public sector, not the private sector. And that's really weird ... it hasn't happened for 40, 50 years."
  — Pete Davies (00:00, 01:44)

• On the Opportunity for Active Managers:

  "This decade you will get rewarded a lot for not doing the same thing as the index." — Pete Davies (67:55)

• On Human vs. Machine Intelligence:

  "...the human brain has about 5,000 times the number of connections ... and runs on the power of a light bulb ... Simultaneously, it's pretty efficient. ... The right way for investors to think about this is not to try to get too absorbed with some sort of superiority of computers to humans, but to understand what functions ... are likely to be well disposed to computers..."
  — Pete Davies (78:42)

• On AI’s Pick and Shovel Beneficiaries:

  "Our contention would be that objects are going to get way more intelligent this decade. But it doesn't matter whether Nvidia make a ton of money. The brain getting more intelligent is only going to be relevant if bodies will use that intelligence."
  — Pete Davies (43:17)

• On Adaptive Team Culture:

  “I would view myself as a component of the team rather than the other way around.”
  — Pete Davies (62:20)

Segment Timestamps for Key Topics

• 00:00 — Episode open: Public vs. private sector risk
• 01:44 — Macro trends: Capex, public risk, de-globalization
• 04:03 — Adapting investment styles & portfolio change
• 06:09 — Gold vs. Tech: Signals and scenarios
• 09:41 — Political risks and markets
• 10:44 — 2026 macro outlook and elections
• 14:53 — Risks to growth in 2026 (AI, inflation)
• 17:05 — Capex, AI’s impact on energy/nuclear
• 20:37 — Lansdowne’s research model and academic partnerships
• 24:06 — 2025 performance review
• 27:33 — Is the portfolio still “fresh”?
• 31:08 — Portfolio valuation and construction metrics
• 36:01 — Weighting in banks; volatility and risk
• 39:24 — Data+ theme and tech exposure
• 43:01 — “Picks and shovels” for AI
• 47:29 — Most exciting tech company (TSMC)
• 53:34 — Deposit growth in UK banks
• 56:27 — Building theme: Mittal, Heidelberg
• 61:19 — Team process and decision-making
• 65:16 — Defense/BAE and new defense tech
• 67:55 — What real active management means
• 69:22 — Cash management philosophy
• 71:29 — Geographic allocation by output
• 73:06 — Approach to company research
• 75:39 — Outstanding CEOs: Example Aviva
• 78:42 — Human brain vs. AI discussion
• 80:32 — Doubling return potential in portfolio
• 81:54 — Career motivation & adapting as a PM

Conclusion

Davies’ wide-ranging conversation with Algy Smith-Maxwell delivers a masterclass in truly active fund management—eschewing dogma, identifying new risks (especially in government bonds), and seeking opportunity in overlooked but essential “stuff” as the world reindustrializes. He places high conviction behind tangible assets, bank recoveries, and underappreciated enablers of digital infrastructure, rejecting both closet indexing and hype-driven FOMO. This decade, Davies argues, belongs to nimble, deeply-researched strategies rather than those wedded to the last cycle’s winners.