As documented previously on BRIDGE, a combination of government stimulus, easing monetary policy, and supply chain challenges associated with the post-pandemic reopening of economies has led to significant price distortions across various investment themes and sectors. Speculative investor behavior, fueled by an increased money supply, underscored the cyclicality prevalent in industries reliant on disposable income.

Additionally, the divergence between long- and short-duration assets became pronounced as central banks initiated one of the swiftest rate cycles in recent history to address overheating economies.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Higher interest rates prompted investors to pivot away from long-duration assets—which, while holding greater long-term potential, are more sensitive to rate fluctuations due to earnings positioned far into the future—toward safer short-duration assets. The latter, typically service- and contract-based with predictable cash flows, gained appeal, especially as secure government fixed-income instruments offered competitive yields.

Consequently, the medium-term performance spread—on an equal-weight basis—between industries widened depending on their duration characteristics. Sectors with predominantly shorter-duration assets were generally better aligned with market performance, excluding additional macroeconomic tailwinds or unique industry-specific factors.

As noted in our recent report ([BRIDGE, October 3]), the pollution and treatment controls industry exemplifies this trend. Specific idiosyncratic factors, including niche market segments, monopolistic tendencies, and long-term M&A-driven consolidation, have bolstered certain industries to outperform the market on an equal-weight basis over a three-year period.

This analysis extends to the water and waste management industry, which not only paralleled market performance amid inflationary pressures but, in some cases, outperformed (e.g., Republic Services Inc. and Clean Harbors Inc. , with respective gains of +70% and +350% against the market since the pandemic low).

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

In line with the pollution and treatment controls industry, business maturity remains a critical determinant of revenue predictability, particularly due to established, longstanding relationships with key partners.

While large-cap companies inherently benefit from stable, long-term contracts and a well-established reputation, mid- and small-cap companies are generally more susceptible to underperformance (e.g., Stericycle Inc.), making them potential acquisition targets (e.g., Sharps Compliance Corp, US Ecology Inc., Harsco Corporation). As regulatory measures continue to tighten, industry consolidation is likely to persist.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA