Highwood Asset Management’s Q1 Masterclass: A Playbook for Riding the Sector Rotation Wave

In a world where every market headline screams “recession fears,” Highwood Asset Management has quietly engineered a Q1 rebalancing strategy that could be the blueprint for investors seeking to capitalize on the next wave of sector rotation. While others are scrambling to hedge against the unknown, Highwood is doubling down on high-margin, defensive-growth assets—and the data shows they’re already winning. Let’s dissect why this matters and why you should act now.

The Macro Backdrop: Volatility = Opportunity

The market’s obsession with “peak everything”—rates, inflation, debt—has investors paralyzed. But here’s the truth: sector rotations don’t wait for clarity. They’re driven by companies that anticipate where capital will flow next. Highwood’s Q1 moves reveal a stark message: reallocate to assets that thrive in uncertainty.

Oil & Gas: Highwood’s Liquids-Led Growth Play

Let’s start with the $33.2 million capital blitz into drilling. Highwood isn’t just chasing barrels—they’re targeting liquids-rich plays (75–78% of production) in Brazeau and Wilson Creek. Why? Because crude and NGLs are defensive in a downturn.

• Inventory Expansion: Validating 30 net locations (30% of Brazeau lands) with a 12-month payout period means these wells are cash machines, not risky bets.
• Hedging Smarts: With $15 million “in the money” on oil hedges at $95 CAD/bbl, Highwood has insulated itself from price swings. This isn’t luck—it’s strategy.
• Tax Assets as a Shield: Over $300 million in tax pools means no cash taxes for 2–3 years, freeing capital to drill more or buy back shares.

Real Estate: Selling “Old Economy” for “New Growth”

Highwood’s real estate pivot is a masterclass in sector rotation. They sold $145 million in non-core properties—think outdated malls or industrial relics—and plowed the cash into the Advanced Auto Parts Tower in Raleigh’s North Hills Business District.

• Quality Over Quantity: The new asset is below-market leased, with room to grow rents in a booming tech-and-logistics hub.
• Pipeline Momentum: Their development pipeline is 63% leased, up from 58% last quarter, proving demand for prime office space isn’t dead—it’s just selective.

The Contrarian Case: Why This Isn’t Just a Highwood Play

Highwood’s moves aren’t anomalies—they’re a mirror of broader market shifts:

1. Oil & Gas: With OPEC+ cuts and U.S. production plateaus, liquids-heavy producers (like Highwood) are the last bastion of margin resilience.
2. Real Estate: Investors fleeing retail are overlooking high-growth business districts (BBDs) like Raleigh’s North Hills, where rents are sticky and tenant demand is tech-driven.
3. Hedging as a Competitive Moat: Companies that lock in prices today (like Highwood’s 2026 oil hedges) will dominate when volatility spikes again.

Why Act Now? The Technicals Are Whispering

Highwood’s Q1 production already exceeds 6,300 boe/d, surpassing its own guidance. Meanwhile, its net debt/EBITDA ratio of 0.8x is a fraction of peers’, giving it optionality to buy back shares or snap up distressed assets.

This isn’t just about Highwood—it’s about sector rotation timing. When the market finally realizes that recession fears are overdone, the first to rebound will be companies with:
- High-margin, recession-resilient cash flows (think crude/NGLs).
- Strategic land/asset portfolios (BBDs, untapped oil plays).
- Hedged balance sheets (no panic selling when volatility hits).

The Action Plan: Mirror Highwood’s Playbook

1. Oil & Gas: Load up on liquids-heavy E&Ps with hedged exposure (e.g., Highwood, but also peers like Pioneer Natural Resources or EOG Resources).
2. Real Estate: Target REITs or funds focused on BBD office assets (e.g., Boston Properties or Vornado Realty Trust)—avoid the malls, chase the tech hubs.
3. Hedge Your Own Portfolio: Use options to protect gains while riding the sector rotation.

Final Warning: This Won’t Stay Quiet

Highwood’s Q1 results are a sector rotation siren call. They’re not just surviving—they’re positioning to dominate when the cycle turns. The data is clear: liquids-rich assets and prime real estate are the new “defensive” plays.

Investors who act now—before the herd catches on—will be the ones laughing when the market realizes where the real value lies.

The clock is ticking. Follow Highwood’s lead—or watch from the sidelines.

This is not financial advice. Consult your advisor before making investment decisions.