1.
Deploy cash into bonds: corporate and municipal credit quality is good, and cash rates are biased lower.
2.
Treasure curve volatility leads to a neutral-to-short duration preference, using short duration credit (IG, HY, munis) and balanced with structured products and taxable munis.
3.
Strong fundamentals create an attractive opportunity in structured credit and convertible bonds.
Policity rates have fallen: reinvestment risk still dominates portfolios.
Uncertainty about growth and inflation suggests higher and more volatile market interest rates, making duration an unreliable source of returns.
U.S. public credit quality is expected to remain very strong, supported by still-resilient economic activity.
1.
Deploy cash into bonds: corporate and municipal credit quality is good, and cash rates are biased lower.
2.
While the Q1 pace of European performance is likely not sustainable, we see tactical upside in ex-U.S. equities.
3.
Small caps are unlikely to outperform durably unless interest rates move lower while growth is resilient – unlikely this year.
We are at maximum policy uncertainty, but if earnings quality holds, equity market volatility can provide relief from high valuations and create buying opportunities.
Enthusiasm for U.S. assets is fading, while Europe’s increased defense and infrastructure spending faster interest rates cut offer potential upside.
The AI trend is here to stay, seen in investment in digital and energy infrastructure.
Consider deploying gains into high-yield corporate credit.
Global preference for U.S. assets is likely to remain strong amid geopolitical risks and tech outperformance, which will weigh more heavily on oil importers, including parts of Europe and Asia. This dynamic supports continued U.S. outperformance alongside a balanced allocation to ex-U.S. equities.
At the same time, valuations are re-igniting concentration risk. We see opportunities for diversifying additions in U.S. large cap value and high quality small cap equities, and short duration credit for its equity-like risk characteristics.
AI is likely to remain a key equity market driver, with investors unlikely to turn away from tech’s sustained profitability for a prolonged period.
Year to date, markets have moved through sharp shifts in positioning. At minimum, higher oil prices may delay policy easing, while equity market performance is increasingly concentrated in tech and AI-related earnings strength.
For new equity deployments, diversifying equity exposure into (1) materials and digital infrastructure tied to the AI theme and (2) high quality small caps
U.S. small-cap exposure and ex-U.S. developed market equity allocations now neutral; focusing on quality names benefiting from AI and policy tailwinds
Fully invested (market weight) in U.S. large cap equities; prioritizing strong earnings quality
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Within credit, maintaining an underweight position to floating rate bank loans, barring highest quality selection within the asset class.
A still-resilient economic backdrop supports credit fundamentals (interest coverage, maturity timeline) over the medium term, though stress in parts of the credit market warrants greater selectivity.
Recent rate volatility, wider credit spreads, and higher yields have renewed questions about the risks to fixed income. In our view, the income generation opportunity has improved, with higher all-in yields providing a cushion against uncertainty as fundamental quality remains robust.
The U.S. public and private credit cycle is maturing. Overall credit quality is – and we expect it to remain – robust, but lower-quality segments (such as CCCs within HY credit and more concentrated areas of private credit) look more vulnerable. We expect strong underwriting to pay off this year.
Balancing short duration credit exposure with longer duration in infrastructure debt, leaning into the steeper municipal curves.
Keeping credit exposure (IG / HY) shorter duration to manage rate volatility and credit risk. Volatility in long rates creates buying opportunities for duration above a ~4.7% 10Y Treasury yield.
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We favor a “buy and hold” short duration corporate credit approach, which has the potential to maximize the benefits of quality while reducing exposure to volatile market-determined interest rates.
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Deal activity has improved, but macro uncertainty and private credit stress may temper opportunities.
Private markets allocations continue to grow, increasing competition for high-quality assets, especially in large deals; selectivity remains key as performance dispersion is likely to increase.
Using resilient mid-market private credit and equity for qualified investor portfolios
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Historically, commodities and gold have served as effective diversifiers in eras of upside inflation surprise; recent geopolitical events reinforce this role. While we do not yet expect a double-peak in inflation, pressures from tariffs, oil, and structural factors – supply chain re-globalization and AI infrastructure spending – are likely to keep inflation sticky.
Hedging inflation and geopolitical risk with both gold and commodities allocations. Considering gold/precious metals/industrial metals as a 5-20% satellite sourced from equity.
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Geopolitical shocks have become more frequent, influencing even traditionally “safe haven” U.S. assets.
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