In these uncertain times, investors are turning their attention to a new category of businesses known as Halo companies. This term, recently popularized on Wall Street, refers to established firms with substantial physical assets and minimal risk of becoming obsolete. These companies operate in sectors such as defense, engineering, utilities, infrastructure, and real estate—industries critical to everyday life.

Halo companies encompass a wide range of businesses, from GE Aerospace, a leader in aircraft engine manufacturing, to entertainment giant Walt Disney. British firms are also included in this group. Previously, these companies were often viewed as outdated, overshadowed by the rise of Silicon Valley’s tech innovators.

However, perceptions are shifting, and now Halo companies are seen as attractive investment opportunities. Financial heavyweights like Bank of America and Goldman Sachs are among those advocating for investments in these reliable sectors.

This growing interest in Halo companies has also crossed the Atlantic, with fund managers in the UK increasingly adopting what is being called ‘the Halo trade.’

The appeal of these companies lies in their robust fundamentals. Although they operate in various fields, Halo companies share key characteristics.

They boast strong balance sheets and healthy cash flow, and they are perceived as being well-shielded against competitive pressures.

Heavens above: The search for safe havens in troubled times has a new focus – the Halo companies

They share another key advantage. Huge disruption is being wrought by artificial intelligence (AI), but the Halo companies should be relatively immune to this wrecking ball.

As one fund manager said: ‘You can’t ask AI to build a supermarket or a data centre.’

Your portfolio, as this column said last week, could get a boost from the ‘AI adopters’, the businesses successfully deploying AI.

But, as Jason Hollands of Bestinvest argues, Halo stocks are another key defensive strategy at present for those looking to reduce risk.

Kate Marshall of broker Hargreaves Lansdown points out that the objective now is to locate companies ‘whose business models will remain resilient – regardless of how technology evolves’.

If share price volatility caused by the war in the Middle East is causing you to reassess your portfolio, here’s how to go back to the future with the Halo names.

Mice work if you can get it: Halo picks being drawn up by Bank of America and the rest feature US corporations such as Walt Disney

THE US HALOS

The Halo picks being drawn up by Bank of America and the rest feature US corporations such as pipe maker Advanced Drainage Systems, tractor giant John Deere, GE Aerospace, fast-food chain McDonald’s and Walt Disney.

Ohio-based Advanced Drainage embodies the attributes of a Halo company. When Lauren Taylor Wolfe, boss of the US fund management group Impactive Capital, took a stake in Advanced Drainage late last year, she pointed out (in graphic terms) that the AI system ChatGPT could not replicate the functions of Advanced Drainage’s sewage and storm water solutions.

Advanced Drainage shares stand at $137, 31 per cent higher than a year ago, but brokers rate them a ‘buy’, with an average target price of $197. Walt Disney, whose empire encompasses Pixar, cruise ships and Disney Plus, is also considered to be a ‘buy’, a view that comes as a relief to long-suffering shareholders like me.

The shares have tumbled by almost 50 per cent over the past five years to $100, but the average analysts’ target price is $130, reflecting hopes that visitors may flock to the Disney theme parks to escape dispiriting war news.

Also included in the Wall Street Halo lists are oil giants such as ExxonMobil and Occidental. Not so long ago the drive to reduce reliance on fossil fuels threatened to leave oil companies assets ‘stranded’. War in the Middle East has brought about a realisation that we may need Big Oil’s products for, perhaps, decades to come.

THE UK HALOS

THE suspicion that the requirement for fossil fuels will continue explains why BP figures among the UK Halo stocks. Its shares are up 22 per cent this year to 534.3p.

This means it makes sense to see if this stock is among the holdings in your funds and trusts, along with the other UK Halo shares. These include construction group Balfour Beatty, National Grid, which is the operator of the nation’s electricity transmission network; mining company Rio Tinto; and the water company Severn Trent.

Balfour Beatty shares are 71 per cent higher than a year ago following this week’s bumper profits and news of its record £22.7billion order book crammed with American and British energy projects.

Among them are the Hinkley Point C and Sizewell C nuclear power stations. Brokers see Balfour Beatty, which stands at 754p, as a ‘buy’, with one targeting a rise to 850p.

Rio Tinto shares have been hit by recent volatility, but as one fund manager remarked: ‘You can’t ask an AI system, whether it’s ChatGPT from OpenAI or Claude from Anthropic, to dig and run a copper mine, can you?’

Thanks to this, Rio Tinto shares are a ‘hold’.

The environmental record of the water companies may be atrocious, but we cannot live without these utilities – which is why analysts also see Severn Trent as a ‘hold’.

Some investors may be tempted to cash in their gains on the Halo defence companies, such as BAE Systems and Rolls-Royce.

Such is the uncertainty over the outlook in the Middle East that this would seem precipitate.

Yet it’s worth noting that ‘low obsolescence’ attributes could be challenged.

The conflict has highlighted the efficiency of cheaply-produced drones, raising questions over the viability of some expensive weapon systems.

THE HALO FUNDS

THE disparate nature of what qualifies as a Halo stock means that it may be easier to opt for a fund or trusts.

Marshall selects BNY Mellon US Equity Income whose holdings include ExxonMobil and other energy and industrials, rather than the technology titans that dominate so many US funds.

She also likes BlackRock Continental European Income which has a stake in Schneider Electric, the French group which makes the cooling equipment essential for data centres, the vast structures that supply computing power for AI.

Ben Yearsley of fund experts Fairview Investing points out that property companies own buildings which are hard assets, with low obsolescence.

He said: ‘Let’s remember that, if a property is not serving its original use, it can be repurposed.’

He suggests Schroder Global Cities Real Estate and the TR Property trust.

Hollands likes the Lazard Global Listed Infrastructure Equity fund which invests in airport operators, railway companies and the likes of Vinci, the French corporation which operates bridges, roads and motorways in 13 countries.

Hollands also suggests the 3i Infrastructure trust which backs energy transition, fibre optic cable networks, logistics and transport businesses.

I put some money into this trust a while ago, trying to lower my exposure to tech.

The Halo term had yet to be invented. Its emergence now is a reminder that the companies that are the mainstay of our existence could be a shelter, however the future unfolds.

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