At Great Lakes Advisors, we believe the true measure of an investment strategy is its ability to deliver consistent outcomes over time, regardless of market headlines or investor sentiment. For more than two decades, our Large Cap Value (LCV) strategy has done just that, outperforming its benchmark in 20 of the past 24 years (gross of fees).
But while performance matters, we believe the real story behind our success lies in the disciplined process that drives it—one rooted in identifying durable businesses with the capacity to reinvest and compound value for years to come.
Why We Believe Consistency Is the True Competitive Advantage
We view consistency as more than a performance metric. It’s a strategic advantage that can help financial advisors build stronger, more predictable outcomes for their clients.
In our view, staying invested through market cycles rather than chasing short-term trends helps advisors:
- Reinforce their value as steady, long-term partners.
- Build client trust by delivering on long-term plans.
- Simplify portfolio management by reducing unnecessary shifts.
Consistency, in our experience, builds credibility. It fosters better investor behavior and can lead to something every advisor values—happy clients who share their success with others.
What We Look for in a Company: Wide Moats and Relentless Reinvestment
We believe the long-term winners in the market share two essential characteristics: they own a durable competitive advantage, and they reinvest to extend that advantage over time.
Our research focuses on identifying wide-moat businesses, companies with defensible market positions built on scale, brand strength, network effects, or high switching costs. But owning a moat isn’t enough. What companies do with that advantage is what separates leaders from the rest.
We target companies that:
- Generate meaningful free cash flow.
- Reinvest heavily in research and development.
- Are often trading below our estimate of their intrinsic value.
What This Looks Like in Practice
We see this dynamic playing out across sectors, not just in technology but also in healthcare, consumer markets, and financial services. Here are several examples that illustrate how durable moats and reinvestment could create compounding value:
FOX Corporation: A Balanced Approach to Digital Expansion
FOX demonstrates how a legacy media company can remain relevant without overspending. Through its acquisition of Tubi, FOX gained a foothold in the fast-growing streaming market without the multi-billion-dollar commitments made by competitors like Disney or NBC. This disciplined expansion gives FOX exposure to growth without sacrificing profitability. At the same time, FOX maintains flexibility to pursue emerging opportunities like sports betting through its relationship with FanDuel, while continuing to return capital to shareholders through share buybacks—$250 million per quarter—supported by a healthy balance sheet.
Google (Alphabet): Leveraging Scale and AI to Widen Its Moat
Google exemplifies how a company can continuously expand its moat through reinvestment in innovation. From core search and advertising to cloud services and AI, Google’s scale makes it increasingly difficult for competitors to keep up. A case in point is its Waymo division, a long-term bet on autonomous driving that represents significant future optionality. Additionally, with more than 30% of Google’s new code reportedly written by AI, the company is using its own technology to accelerate productivity and entrench its market leadership even further.
Boston Scientific: Expanding Leadership in Medical Innovation
Boston Scientific is a clear example of a company using both R&D and strategic acquisitions to strengthen its competitive position. It operates across several medical verticals—cardiology, urology, and oncology--and has a history of bringing breakthrough products to market, such as drug-eluting stents and the Watchman device for stroke prevention. Its recent innovations, like the Farapulse system for atrial fibrillation treatment, position Boston Scientific to capture the growing demand in minimally invasive medical procedures, reinforcing its moat in the healthcare space.
J.P. Morgan: Unmatched Scale and Technology Leadership
J.P. Morgan’s size and financial strength give it a competitive advantage that few can match. With an $18 billion technology budget planned for 2025, greater than the combined tech spending of all U.S. regional banks, the firm is investing heavily in cybersecurity, digital banking, and data analytics to further strengthen its position. This scale advantage is also evident in deposit growth: over the past five years, the top five U.S. banks, including J.P. Morgan, have added $2 trillion in deposits, equal to the total of the other 4,900+ banks combined. These deposits provide low-cost capital that can be reinvested to drive future growth.
How Key Economic Themes Shape Our Portfolio
We believe great companies don’t operate in a vacuum—they evolve with economic and market forces. Two key themes shaping our portfolio today include:
1. The Rise of Second-Derivative AI Opportunities
While chipmakers often dominate headlines, we see opportunity in the essential infrastructure that supports AI’s rapid expansion—power, materials, and logistics. For example:
- Quanta Services (PWR): As AI-driven data centers multiply, the demand for electricity is surging—some estimates suggest a 4x to 6x increase in power needs. Quanta specializes in modernizing electrical grids, building high-voltage transmission lines, and expanding substation capacity. These capabilities position Quanta as a key enabler of the infrastructure needed to sustain AI’s growth for years to come.
- Martin Marietta Materials (MLM): Every data center requires vast amounts of concrete, aggregates, and cement. With operations concentrated in high-growth regions like Texas, Arizona, and North Carolina, MLM benefits from geographic pricing power and regulatory barriers that limit new competition. These factors make MLM a critical supplier to the ongoing data center construction boom.
These companies represent, in our view, lower-volatility, cash-generating ways to participate in long-term AI infrastructure growth without the elevated risk often associated with high-profile tech stocks.
2. The Re-shoring of U.S. Manufacturing and Energy
We continue to monitor how energy security, manufacturing independence, and supply chain resilience are reshaping the U.S. industrial economy. Companies tied to infrastructure, materials, and domestic production stand to benefit from these long-term shifts. In our view, this trend provides structural tailwinds to businesses like Quanta and MLM, which are well-positioned to meet the physical demands of this new industrial cycle.
Managing Risk While Seeking Opportunity
While the economic backdrop remains generally constructive, with low unemployment, ongoing capital investment, and moderating inflation, we recognize risks on the horizon. Geopolitical uncertainty, trade tensions, and the possibility of a mild recession all warrant attention.
However, we believe markets are forward-looking. Even if growth slows temporarily, we see durable businesses with the ability to navigate through cycles and emerge stronger.
The Bottom Line
At Great Lakes Advisors, we believe enduring success comes from a disciplined focus on:
- Companies with structural competitive advantages.
- Businesses that reinvest to extend those advantages over time.
- Strategies built to capture long-term, durable growth, not just the trends of the moment.
For financial advisors seeking consistency in their client portfolios, we believe this approach offers a powerful foundation for long-term success.
