The Viewpoint: Navigating transitions in 2025

2025 was a year of rapid change and shifting market dynamics. In the first of a series looking at what a transitions approach, Fund Manager Bixuan Xu and Assistant Fund Manager Alexander Johnstone share their perspective on navigating volatility, the value of frameworks that separate short-term noise from lasting trends, and how they identify companies driving or enabling structural transitions as part of our Global Equity Transitions strategy.

They discuss the importance of spotting meaningful change early, whether through operational improvements or enabling technologies, and highlight the disciplined process behind their investment decisions.

Q: After a particularly interesting year for equity markets, can you give a sense of what stood out to you? What did you learn through the year?

Bixuan Xu (BX): What really struck me about 2025 was the sheer speed of change. One minute we were dealing with a new wave of artificial intelligence (AI) breakthroughs, the next it was geopolitical surprises or sudden regulatory moves that nobody had pencilled in. Under the surface, the market was anything but calm. Headline indices remained strong, but sector performance moved around so fast that a simple buy and hold approach felt increasingly exposed.

Alexander Johnstone (AJ): I completely agree. It was one of those years where I think that having a portfolio balanced across the Corporate Life Cycle[KK1] [BX2]  genuinely mattered. Early on, investors were firmly ‘risk off’. DeepSeek, a cheap Chinese AI model, the release of which caused market volatility, dented confidence in US technology and spooked investors. Meanwhile the concerns over potential new tariffs created a lot of uncertainty. But then everything flipped and suddenly the more growth-orientated, Accelerating businesses were back to leading the charge.

BX: Exactly. That whiplash environment is why we use frameworks that help us judge structural shifts properly, without the short-term noise these volatility events can cause. You need a way to separate short-term volatility from the real changes that will shape long-term returns.

AJ: And it’s also why the Life Cycle approach helps. Different parts of the portfolio contributed at different moments through the year, which meant we weren’t relying on one style or one factor to work. When markets moved from fear to enthusiasm, we had something that could catch both sides of that swing.

Source: Royal London Asset Management

BX: Ultimately, what I learned this year is that resilience comes from being prepared for transitions: not just the big headline ones, but the quieter ones happening inside companies. If you can position for those early, you’re not just reacting to markets, you’re anticipating them.

AJ: It was also a reminder that that markets don’t move in straight lines – but if your portfolio can adapt, you don’t need them to.

Q: Taking a step back, what does Transitions really mean to you in an investing context? What do you look for in companies?

BX: For me, Transitions is about spotting meaningful change early. Not the familiar, widely owned companies the market already feels comfortable with, but the shifts inside businesses that are genuinely altering their economics and extending the life of their business models.

AJ: Yes, the kind of change that isn’t showing up on the screens yet, but you can feel building if you look closely.

BX: Exactly. When we talk about Transitions, we’re talking about companies improving their own operations or enabling others to do so across four big structural themes: climate stability, natural capital preservation, health & wellbeing and equality of opportunity. These aren't ESG labels; they are long-term forces that will define industrial competitiveness for years.

At the company level, this leads us to two broad types of businesses. First are the ‘Improvers’: firms that are upgrading their operations and economics as they adapt to a changing world. Then there are the ‘Enablers’: companies supplying the tools, technologies or materials that help entire industries shift. Both groups capture forward-looking change before it becomes obvious to the wider market.

And this matters because that kind of early change is often where the value is. Markets tend to reward neat, established stories, which means capital crowds into businesses that may already look fully priced. But I think that real upside often sits in the less fashionable parts of the energy, materials and industrials sectors, where companies quietly pivot to business models and revenue streams that are more aligned to future demand, extend the life of their assets and improve their cash flows long before the market catches on. One example would be a legacy paper company using the same pulp and equipment to help the chemical industry move from fossil fuel feedstocks to plant-based inputs.

There’s also the resilience angle. Enablers tend to be solving real problems in scalable, competitive ways. They’re not reliant on sentiment, they are supplying the picks and shovels of modernisation.

And finally, it’s just the right thing to do. The volatility we saw in 2025 reflected deeper tensions, for example, inequality or energy dependence. As stewards of long-term capital, we can invest in a way that supports the world we want to live in, while still targeting strong risk-adjusted returns.

Q: How do you decide which companies are included or excluded from transition-focused portfolios? How do you think about an oil company for example?

AJ: When we assess whether a company fits in our Transitions portfolio, we start with a simple question. Does it genuinely align with one of our four Transitions themes, either as an Improver or an Enabler? If the answer is yes, then we put it through our framework. We look closely at four areas specifically: intentionality, the benefit of its products and services, actual performance on the ground and any material negative impacts. If it meets the standard, we move on to build a clear Transitions thesis with milestones that we can track over time.

BX: And that tracking part really matters. A company might look promising on day one, but the work does not stop there. We need evidence that it is moving in the right direction and that the economics support the shift. If progress stalls, we need to understand why.

AJ: Oil & gas is a good example. We think an oil company can earn a place in a Transitions portfolio, but only if it has a credible plan. That could mean acting as an Enabler through technologies like carbon capture or acting as an Improver by cutting its own operational footprint in a material way. At the same time, we recognise the negative impacts that come with the sector, so any holding will usually come with a very active engagement focus. Shell is a good example of this, and we have engaged with them many times. However, if progress falls behind our milestones, we follow up. If the answers do not convince us, we move on. Occidental in 2025 was a case in point. We started to see the alignment we needed begin to drift and we decided to exit.

Read more: The Viewpoint: Transitioning the global energy sector to a low carbon future

Q: How are you thinking about the current environment and the rest of 2026? Are there any emerging trends we should be aware of?

BX: Attention right now is focused on the conflict in  and geopolitical risk generally. There is obviously a massive human impact here. For many investors, the potential impact on global inflation, interest rates and growth rate is at the forefront of their thinking. Whether this crisis is resolved in next three weeks or three months or even longer will have very different implications for global growth this year. When looking at our strategy, we are obviously aware of changes in the macro environment but our life cycle balanced portfolio aims to neutralise different macro factors and let stock selection drive performance. This crisis is not changing the structural trends we invest in – if anything, it probably amplifies some of the trends we feel excited about.

AJ: There are a couple of trends that feel genuinely interesting. Clean energy is one of them. Electrification keeps spreading through the economy and governments are still focused on energy security, so the growth backdrop is strong. We think the sector is close to an inflection point. This lines up neatly with our climate stability theme.

BX: And it is not just the clean energy companies themselves. The continued rollout of AI is creating a huge knock-on effect. Data centres need more power, grids need upgrading and hardware needs to become more efficient. The big tech firms have the capital to push this forward, so they may end up shaping the energy mix almost as much as policymakers.

AJ: Healthcare is another area we like. It had a tough time in 2025 because the market worried about drug price reforms and tariffs, but a lot of that pressure is fading now. The long-term drivers are still intact. Innovation in biopharma is strong, ageing populations keep demand steady and cash flows tend to be relatively defensive. These are factors which appear underappreciated by the market, which is why we remain overweight.

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