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Consider diversifying equity exposure to AI-linked themes in energy, materials, and infrastructure.
AI remains a durable trend, with digital and energy infrastructure seeing strong, diversified investment and offering a compelling entry point.
Small companies have less buffer against input price rises, and less opportunity to adjust supply chains.
Global investors are questioning U.S. assets amid rising growth and policy risks, prompting a shift toward diversification, including Europe’s defense and infrastructure spending.
Policy risks are rising, with tariff-driven inflation and labor pressures emerging. Data has yet to show the full impact, but growth, costs, and business conditions will be affected, likely reviving volatility and making earnings quality key. Near term, Fed cuts should extend the equity rally and support risk assets.
Stay invested, focusing on earnings quality.
Consider deploying equity-like risk into high yield credit, where fundamentals and yield outweigh tight spreads.
Ex-U.S. outperformance may slow, but diversification remains prudent amid global risks.
We strongly prefer large caps. We believe small caps likely lag until growth improves.
Alternatives
Fixed Income
Equity
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U.S. credit quality remains strong, Europe looks attractive, but growth and inflation uncertainty may fuel volatility. We favor “buy and hold” short-duration strategy.
Strong fundamentals support opportunities in structured credit and convertibles; in floating loans, we believe only the highest-quality credit is likely to hold.
Sticky rates and tight spreads raise questions on fixed income, but we see income opportunities as too attractive to ignore.
Fed cuts should be sporadic, not sustained, making careful credit selection vital late in the cycle.
After the September cut, we expect the Fed to cut further in coming months, creating a window to lock in higher yields before they move lower across credit classes.
Treasury volatility supports a neutral-to-short duration stance; favor short duration credit (IG, HY, munis) with taxable munis as an infrastructure play.
Short duration credit can help manage rate volatility and long-term quality risks.
Alternatives
Fixed Income
Equity
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How to invest
Private markets are growing and democratizing, with lower rates potentially supporting deal flow.
Qualified investors may diversify into more resilient lower middle private market.
U.S. trade policy remains uncertain, but trends in re-globalization, AI, and energy independence point to higher capital intensity, infrastructure investment, and stickier inflation.
Geopolitical risk has risen since COVID-19, boosting demand for U.S. safe-haven assets. Inflation surprises add pressure, making diversification and inflation-aware strategies important.
Inflation-aware assets – commodities, materials, and real estate – may benefit from the macro backdrop.
Consider hedging geopolitical risk with equal parts oil, gold, and bitcoin as an equity satellite.