Lara Pellini is a global equity portfolio manager for Capital Group. Earlier in her career she was an equity analyst covering European, Eurasian and Latin American retail and luxury goods. We asked her how rapid changes in international trade and geopolitics are affecting her thinking, how Europe is adapting to these shifts and how her time as an analyst shapes her views as a portfolio manager.

European markets have been doing well this year despite fresh tariffs from the Trump administration. Meanwhile, U.S. indices have pulled back — a reversal of the trends for the last decade. What’s your sense of that?

The European Union (EU) construct is undoubtably fragile, but it seems to come to the fore in periods of severe crises — and we are seeing one now. I’m Italian, and the EU reminds me of our national soccer team. We might struggle during qualifying, but we might still win the tournament — even if that creates a lot of turmoil in my family along the way! Jokes aside, think about Nixon and the collapse of the Bretton Woods system and how that led to the formation of the European Monetary System, or how the fall of the Soviet Union and the reunification of Germany drove the creation of the euro. Europe has faced severe threats in the past and has often overcome them.

However, most important to me is how crises can trigger companies to restructure. Consider Germany in the early and mid-2000s. It had been the sick man of Europe in the late ’90s, with high unemployment and low growth. Some would argue its turnaround was driven by German initiatives, but I think government policies are often behind the curve. Rather than driving change, they end up supporting the real restorative — companies restructuring.

I think the country might be experiencing a similar moment now.

More broadly, we are still assessing the impact of tariffs. Things change rapidly, but companies are better prepared than they were a decade ago. European companies, including banks, have been busy deleveraging and decreasing their European exposure while increasing their exposure to the U.S., Latin America and the Asia Pacific region. That means many of the major European banks are more global than ever, and their balance sheets are stronger and fitter. Hence, they will be better able to respond to any tariffs or turmoil.

Have recent events changed your investment approach?

My investment approach is very much bottom up. I invest in companies, not in macro. I do like to have a macro and geopolitical overlay to my portfolio, but you can’t be scared by current events. One example: Stockholm-based H&M was in the early innings of its international expansion during the Swedish recession of the ’90s. Its share price tripled in that time.

The defense industry is another example. Europe has underspent in defense, and it likely needs to reverse that. I feel that’s constructive, but I’m mindful of valuations as these are capital expenditure-heavy companies, and manufacturing facilities can only scale gradually. Any enthusiasm for the sector would have to be checked against company-by-company fundamentals and valuations.

That approach seems like it might apply to fashion, which you covered as an analyst.

I love fashion, but when it comes to investing, I spend very little time worrying about fashion trends. I spend a lot of time worrying about business models. Business models are enduring; fashion trends are fickle.

I’ll give you an example. One of the companies I have covered and invested in during my career is Zara, which is owned by Inditex. It’s a fashion group and a leader in apparel retailers. I would say it’s one of the most innovative and disruptive retailers in the world. Its business model is predicated on a very strong distribution and, above all, a proximity of sourcing.

It manufactures products close to the consumer so it can read the trends, see what is selling well and quickly replenish those lines. It has a very low inventory commitment. It’s a distinctive business model. Today, as we speak about the importance of derisking the supply chain and onshoring, this is such a contemporary model — yet the company was created in 1975. It’s 50 years old. How many fashion trends have we had since then? But this business model has been able to capture them.

In your time as an analyst, you built a reputation for being very hands-on. Do you have a story about working in the industries you were covering?

I really love to get my hands dirty, and one of my first industry coverage areas was European food retailers. Everyone told me, “Lara, find your edge. Think outside of the box.” It was a given that I had to read the annual reports and know the financials of the company, but the rest was left up to me.

I thought, you know what, it’s a very tangible sector. I’m going to ask if I can work in the stores and use my language skills. The first company was puzzled because no one had asked that before, but they knew Capital Group had a long-term investment approach — they realized I wasn’t trying to get an edge on the next quarterly results. I was there to understand the management and the culture, to understand more about the business model and the jargon. I did it first in the U.K., then in France and Germany. I did a little bit of everything.