Hyperion: “Sustainable growth has rarely been more identifiable” - so how do you find it?

What does genuinely sustainable growth look like today?

It’s seemingly a big question, given the current market climate and the understandable obsession with interest rates, geopolitics, valuations, and the biggest disruptive force we’ve seen in decades – artificial intelligence.

For Hyperion’s Jolon Knight, however, “sustainable growth has rarely been more identifiable”.

How does he arrive at such a conclusion? Well, it does come with the caveat that said sustainable growth now sits in a narrower group of businesses than headline indices suggest, but he offers the following;

“Genuinely sustainable growth today looks like organic, market-share-led revenue growth, not cyclical earnings, underpinned by sustainable competitive advantages, innovative cultures, and large addressable markets".

He goes on to add that sustainable growth is anchored to structural themes, most importantly the shift to an AI-first economy: compute power, scarce data and the physical infrastructure behind it.

And whilst the macro and thematic crosscurrents are real, Knights posits that “most are non-fundamental noise that compresses multiples without changing intrinsic value”.

Whilst those are some big claims, Hyperion has the track record to back them up. Over the past 10 years, the Hyperion Global Growth Fund – Active ETF (ASX: HYGG) has delivered 16.3% per annum (as at 31 March 2026), even despite a recent drawdown period, which Knight unpacks below. That's good for a 2.6% per annum outperformance of the benchmark over the same period. 

In the following Q&A, as part of Livewire’s 2026 Growth Series, Knight discusses how Hyperion thinks about sustainable growth, risk, valuation, and the businesses best positioned to compound over the next decade.

Sustainable competitive advantage matters most

For Knight, the defining characteristic separating long-term winners from investment traps is not simply revenue growth, returns on capital, or free cash flow. It is the durability of the competitive advantage underpinning those outcomes.

“Returns on capital and free cash flow are outputs; sustainable competitive advantage is the input that determines whether those outputs persist.”

Knight argues that periods of structural change tend to expose weak business models quickly, particularly when technological shifts lower barriers to entry across industries. That has elevated the importance of identifying businesses whose moats strengthen, rather than weaken, as capabilities scale.

Hyperion’s process places heavy emphasis on qualitative analysis, with the firm’s internal research framework incorporating roughly 90 separate ratings tied to sustainable competitive advantage across innovation, culture, pricing power, industry structure, durability, and cost efficiencies.

“The companies that compound through this period will be those whose moats deepen as capability scales.”

Importantly, Knight believes many businesses currently benefiting from thematic enthusiasm may ultimately struggle if they lack durable pricing power or differentiated positioning. Sustainable competitive advantage, rather than cyclical momentum, is what allows companies to sustain elevated economics over long periods.

“Without durable sustainable competitive advantage, both returns on capital and free cash flow mean-revert.”

Structural growth is becoming more concentrated

As noted above, Knight believes one of the defining characteristics of the current market is that genuinely sustainable growth is becoming increasingly concentrated within a relatively small group of businesses.

Those companies tend to share several traits: strong market positions, large addressable markets, resilient balance sheets, and exposure to structural rather than cyclical growth drivers.

The shift toward artificial intelligence remains an important part of that backdrop, although Knight frames it less as a short-term thematic trade and more as a broad economic transition that will reshape competitive dynamics across industries.

“The transition to AI and Large Language Models does not represent a marginal improvement to existing economic arrangements. It represents a fundamental reorganisation of how value is created and distributed across the economy.”

That is particularly important, Knight argues, because many traditional valuation and analytical frameworks were designed for incremental economic change rather than structural disruption.

“The analytical frameworks that dominate institutional investing are calibrated to a world that changes incrementally. They are designed to process continuity, not discontinuity.”

As a result, Hyperion believes markets are still struggling to properly price the long-term earnings power of businesses best positioned for this transition.

Knight also argues that investors should avoid viewing AI as a single investment trade. Instead, he sees it as a multi-layered growth cycle spanning infrastructure, semiconductors, cloud computing, data, enterprise workflows, and end-user applications.

“The AI growth cycle is not a single trade. It is a multi-layered, multi-decade structural theme with different parts of the investment opportunity maturing at different times.”

Why Hyperion embraces concentration and volatility

The Hyperion Global Growth Fund remains highly concentrated, typically holding around 20 positions, including several widely owned mega-cap growth businesses. Knight rejects the idea that concentration itself represents risk.

“We define risk as permanent loss of capital, not tracking error or crowding.”

Instead, Hyperion believes that concentration allows capital to be directed toward the highest-risk-adjusted long-term return opportunities while maintaining diversification across structural growth themes.

Knight also dismisses concerns around crowding in popular growth names, arguing that sentiment-driven volatility can create opportunity rather than danger.

“Crowding is a sentiment metric, not a fundamental one.”

That philosophy has shaped the firm’s portfolio management process, particularly during periods of market weakness. Hyperion actively adds to positions during periods of unjustified weakness and trims exposures when sentiment becomes overly optimistic.

According to Knight, that “top and tailing” approach has contributed meaningfully to long-term alpha generation.

The recent drawdown across parts of the growth universe has therefore increased Hyperion’s forecast return expectations rather than reduced conviction.

Knight points to two major drivers behind the weakness: geopolitical instability tied to the Iran conflict, and uncertainty around how AI may disrupt parts of the software and SaaS ecosystem.

Despite those concerns, Hyperion’s long-term earnings expectations for the portfolio have continued to rise.

“While PEs have de-rated significantly in this drawdown, our short-term earnings have not changed, and our long-term earnings estimates have increased.”

Knight notes that the fund’s forecast 10-year internal rate of return now sits above historical averages, at approximately 23%.

The stock picks Hyperion continues to back

Asked to highlight high-conviction opportunities within the portfolio, Knight pointed to both Amazon (NASDAQ: AMZN) and ASML (NASDAQ: ASML) as businesses the market still underappreciates.

For Amazon, the attraction extends far beyond its retail operations. Hyperion sees the company as strategically positioned across several important growth layers, including cloud infrastructure, proprietary data, logistics, and distribution.

“AWS just printed its strongest revenue growth in three years, capacity-constrained against accelerating enterprise AI demand.”

Knight also notes that Amazon remains a good example of a business Hyperion was prepared to own through periods where short-term profitability looked weak, because the long-term economics remained highly attractive.

“It is a good example of a company we owned through loss-making years where unit economics were sound and the long-term earnings power continues to be systematically underestimated.”

ASML represents a different kind of opportunity. While the market often categorises the company as cyclical semiconductor equipment exposure, Hyperion sees it as a structurally advantaged monopoly-like business central to advanced chip manufacturing.

“ASML holds a near-monopoly in EUV lithography, the gating technology for advanced chip manufacture.”

Knight believes that as compute demand accelerates through larger AI models, increasing inference requirements, and broader enterprise adoption, leading-edge chip manufacturing will become increasingly critical.

“The market still treats it as cyclical semi-cap equipment; we view it as an essential, structurally advantaged supplier to the AI build-out for at least the next decade.”

EPS growth remains the key long-term driver

Looking ahead, Knight believes the dominant driver of returns for global growth equities over the next three to five years will be sustained earnings growth rather than multiple expansion.

“Short-term factors bond yield movements, P/E re-ratings, and cyclical earnings noise are mean-reverting and non-compounding.”

“EPS growth, by contrast, compounds, and its influence increases with duration.”

That view underpins Hyperion’s focus on businesses capable of sustaining elevated earnings growth through structural competitive advantages rather than cyclical tailwinds.

Knight expects a relatively small group of modern businesses with strong value propositions, durable moats, and large addressable markets to continue capturing disproportionate economic value over time.

At the same time, he believes many incumbent businesses across legacy industries face increasing pressure from technological disruption and creative destruction. For Hyperion, the opportunity set therefore remains highly attractive, but increasingly selective.

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