Companies belong to one of 6 styles. Which style is working now?
Performance this year has depended on buying (and selling) companies that belong to all six styles, at the right time.
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Every company can be bucketed into one of six styles: mean reversion, catalysts, quality growth, turnaround, cyclicals and value. Plenty of active managers have built their reputations on being very good at picking company that all fall into one bucket.
The question is whether the one-trick pony still has a place in active management. 2026 suggests it doesn’t. Performance this year has depended on buying companies that belong to all six styles, at the right time, and sized accordingly.
So which style to buy now?
October saw mean-reversion work with Healthcare and REITs (defensives more broadly) outperforming and financials mean reverting away from smaller resources and growth stocks ahead of the RBA meeting today. Is this style done?
Today’s rate hike came with a 6-3 split, and it was driven by inflation rather than economic growth. If two things hold true – i) today was the last hike, and ii) the economy avoids a downturn – history suggests the bottom may not be far away.
The small-cap index is already down over 20% from its Jan-2026 peak, which supports that view.
For those who simply want to capture the index turnaround, buying the index makes sense. Historically, the sectors that lead a small-cap recovery are consumer discretionary, small-cap tech/growth, REITs and non-bank lenders.
But every cycle is different.
This time, we’re still very early in the AI capex story. Alongside it, we have electrification and real infrastructure capex-led growth, which points to stronger resources and energy pricing for longer.
If we’re in a higher-for-longer rate cycle, with no more hikes but no cuts for an extended period, and with AI-driven dislocation in the labour force, consumer discretionary will continue to lag.
The market is now shaped by AI bots, quants and SMSF investors, increasingly trading alongside hedge fund shorts (yes, think of the MSB and AYA squeezes). Every day brings another overdone move in a stock (A4N today), which sees companies move from one style to the next quickly.
What could have been a value stock one day becomes a mean reversion stock the next. A catalyst stock can turn into a value (trap) should the timing begin to lag on execution or a mean reversion if it overshoots.
The six style ingredients (with very nimble weightings)
- Mean reverting: REITs/Utilities: MCY, EGH
- Catalyst: ION, JNS, AEM
- Growth quality: C79, VYS, TNE, TEA
- Turnaround: AXQ
- Cyclicals: CBE, SGM
- Value: FHE, CLV
The smalls vs large mean reversion typically takes place when rates start to cut however given the large resource composition of smalls and the lack of AI leveraged companies in the larger cap ASX, this might come sooner.
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Claudia Kwan is Managing Partner and Co-Portfolio Manager at NorthStar Impact, with over 15 years of experience in global equities and a strong track record as a fundamental stock picker. Her investment career was shaped by early exposure to Asian and international markets, where she developed deep expertise in identifying what is driving company and markets across different economic cycles and geographies.
Claudia began her career at Morgan Stanley, gaining institutional grounding in equity research and capital markets. This experience provided a rigorous analytical foundation and a global lens that continues to inform her investment approach today. She later built on this at Morphic Asset Management, focusing on global equities and refining her ability to assess company earnings drivers, business quality, earnings sustainability, and valuation across markets.
At NorthStar, Claudia co-manages the Australian Equities strategy, concentrating on bottom-up stock selection with a focus on small- and mid-cap companies. She is known for her disciplined, research-driven process, combining detailed company analysis with a clear understanding of market dynamics to identify mispriced growth opportunities. Her approach emphasises long-term earnings potential with short-term catalysts that will drive share prices higher.
A graduate of the Australian Institute of Company Directors (AICD), Kwan brings a strong governance perspective to her investment decisions, reinforcing her focus on quality, accountability, and long-term value creation.
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Claudia Kwan is Managing Partner and Co-Portfolio Manager at NorthStar Impact, with over 15 years of experience in global equities and a strong track record as a fundamental stock picker. Her investment career was shaped by early exposure to Asian...
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Claudia Kwan is Managing Partner and Co-Portfolio Manager at NorthStar Impact, with over 15 years of experience in global equities and a strong track record as a fundamental stock picker. Her investment career was shaped by early exposure to Asian...
Expertise
No areas of expertise
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