Best ideas across asset classes

Section 5: Best ideas across asset classes

• Equities
• Fixed income
• Real estate
• Real assets

Equities

Saira Malik

Best ideas

• We suggest a barbell approach that balances a focus on the growth-oriented U.S. tech/AI theme with more defensive positioning in dividend growers and listed infrastructure, both of which offer income and potentially lower volatility.

Investment positioning

We maintain a broadly neutral stance toward equity markets. Stock prices continue climbing despite uncertainty surrounding economic growth, tariff policies, geopolitical developments and shifting earnings expectations. We anticipate equity market volatility to persist at relatively high levels, and while we are conscious of elevated valuations in some pockets of the market, we continue to see select opportunities for discerning investors.

With this backdrop, investors should prioritize high-quality companies and stock selection over macroeconomic-driven investment decisions. We particularly favor sectors offering inflation protection, stable growth or market participation with superior downside capture potential.

Compelling opportunities exist among select growth stocks demonstrating strong fundamentals, meaningful pricing power and reasonable valuations. The technology sector continues offering attractive long-term prospects driven by AI-related productivity gains, especially for companies that can maintain competitive margins. Beyond technology, we favor financials benefiting from reduced regulatory pressure, as well as utilities and health care as more defensive sectors.

The U.S. dominance in tech, combined with tax cuts and lower regulations, supports our preference for U.S. large caps over small cap equities and other developed markets. We remain cautious toward emerging markets given their vulnerability to evolving global trade policy risks.

Private equity deal activity appears poised for improvement over the coming quarters, which would benefit this market segment and alleviate some of the pressure it has experienced in recent periods.

Fixed income

Anders Persson

Best ideas

• Securitized assets (especially commercial mortgage-backed securities) and senior loans offer a compelling combination of attractive yields and value.
• For municipal bonds, we favor water/sewer bonds and select opportunities in health care and higher education.

Investment positioning

We maintain a broadly positive outlook toward global bond markets despite fixed income appearing rich on a credit spread risk premium basis. Current yields remain very attractive, credit fundamentals are strong and investor demand for fixed income assets remains elevated.

Long-term rates have declined over the last month, and we expect bond market volatility will remain elevated. We encourage investors to take advantage of volatility driven by policy shifts and economic deceleration through broad diversification and active management. We advocate maintaining a neutral duration stance while continuing to identify attractive credit opportunities. We expect duration will reassume its role as a growth hedge over the coming quarters.

Regarding specific bond market sectors, we think investment grade credit faces potential headwinds from extremely tight credit spreads and extended duration profiles. And we see better valuations outside of U.S. Treasuries as well. Senior loans, CLOs and securitized assets remain attractive given their relatively high yields. We are increasingly optimistic about emerging markets debt given improving fundamentals and appealing relative valuations. High yield and preferred securities feature solid fundamentals with favorable long-term prospects, though recent price appreciation has elevated valuations.

Municipal bonds represent one of our most preferred market segments, with prices dislocated from underlying fundamentals (primarily due to substantial supply increases). State and local government finances remain resilient, and, given municipal bonds' underperformance relative to the broader fixed income market this year, we view current levels as presenting exceptional value opportunities.

Private credit markets have experienced some spread compression, yet overall yields remain attractive with robust demand, particularly within the middle market loan segment.

Real estate

Donald Hall

Best ideas

• We remain focused on "global cities" experiencing growing, educated and diverse populations with a particular focus on the health care, industrial and housing sectors.

Investment positioning

We believe the real estate sector remains in the early stages of recovery with an increasingly favorable risk/reward profile. Property prices have strengthened across property types and geographies over recent quarters, supported by solid underlying fundamentals and accelerated demand trends.

Among sectors, we favor medical office and senior housing properties, both benefiting from very low vacancy rates, robust demand and favorable demographic tailwinds. Neighborhood retail also presents compelling opportunities given limited new supply pipelines and strengthening consumer demand.

Real estate debt continues offering attractive valuations and relatively wide spread premiums. Currently, we view opportunities between real estate equity and debt instruments as roughly balanced.

Real assets

Justin Ourso

Best ideas

• In public markets, our best ideas include non-U.S. industrial real estate (attractive valuations and solid earnings) and AI-related infrastructure, especially areas like electric utilities that have yet to fully realize potential benefits.
• Across private markets, we continue to focus on investments that align with climate and digital transformations, such as solar/battery storage and data centers.

Investment positioning

In public real asset markets, we maintain a slight preference for infrastructure over real estate. The AI boom should continue to benefit infrastructure, especially utilities positioned to capitalize on strong secular growth trends. We are focused on regions experiencing the highest power demand growth while avoiding jurisdictions experiencing regulatory scrutiny.

Public real estate also looks compelling as the asset class appears positioned for broad cyclical recovery. Improving fundamentals, rising demand and constrained supply create favorable conditions, especially in areas such as health care and senior housing. Lower rates would also support real estate investments.

On the private markets side, we continue identifying diverse infrastructure opportunities across equity and debt markets, chiefly those benefitting from surging power demand and expanding AI and cloud computing needs. We are focused on modern, efficient energy and digital infrastructure over legacy, with special attention to data centers and sustainability-focused infrastructure investments promoting and benefitting from environmental transitions.

Long-term farmland allocations remain attractive for their differentiated return potential and inflation hedging characteristics. However, we are seeing price moderation in row crop margins and anticipate some tariff-related headwinds for areas such as U.S. soybeans.