Our best investment ideas

Section 5: Our best investment ideas

• Equities
• Fixed income
• Real estate
• Infrastructure and real assets

Equities

Willis Tsai

Best ideas

• Dividend-growing stocks look compelling alongside second-order AI beneficiaries. This segment offers strong free cash flow, balance sheet discipline and stable earnings growth — qualities increasingly valuable in a more volatile market.

Investment positioning

Market leadership has narrowed, with global equities still driven disproportionately by the AI investment cycle. AI remains a powerful structural tailwind, but the market is becoming more discerning about where spending translates into durable shareholder value.

In this environment, we favor a global, flexible approach emphasizing high-quality companies, durable cash flow and resilient earnings. We continue to favor U.S. large caps given their scale, liquidity and innovation leadership across the core AI ecosystem, while recognizing that selectivity now matters more than simple benchmark exposure.

We have grown less enthusiastic on U.S. small caps. While the full-cycle opportunity remains attractive, elevated financing costs, tighter liquidity and greater macro sensitivity leave smaller companies with less room for error relative to large caps.

We remain neutral on non-U.S. developed and emerging markets broadly, but see both as increasingly fertile ground for selective opportunity. In developed markets, we find attractive businesses in banks, defense and select industrials. In emerging markets, we are constructive where AI-linked supply chain exposure, improving governance or favorable domestic fundamentals create a differentiated earnings path.

Even with AI dominance, we see meaningful ways to diversify by favoring second-order beneficiaries — electrification, industrials, robotics and select software and networking businesses — where demand is improving but expectations are less extreme. The next phase of the AI cycle is likely to reward breadth of application and monetization discipline, not just participation in the initial infrastructure buildout.

Fixed income

Anders Persson

Best ideas

• Preferred securities should benefit from strong fundamentals and limited new issuance. Senior loans offer attractive yields and good relative value.
• In municipal bonds, we favor select opportunities in health care and higher education and see value in the 16-to-21 year maturity range.

Investment positioning

We believe that U.S. Treasuries continue to offer poor relative value given the wide range of alternatives across global fixed income markets. With prospects for rate cuts repeatedly pushed back and long-term rates expected to remain range-bound, we advocate maintaining neutral duration and employing a barbell approach to credit risk.

Across credit sectors, we generally favor higher-quality segments, while also seeking to preserve income in “plus” fixed income areas such as preferreds and senior loans. Preferreds offer attractive yields relative to other areas of the market, and fundamentals and technicals remain supportive. Senior loans should benefit as short term rates stay relatively elevated, though lower-quality segments face risk from higher debt servicing costs — making bottom-up analysis and careful attention to underwriting standards essential.

That same analytical discipline applies to both investment grade and below investment grade private credit. We continue to monitor private credit markets for signs of stress while also identifying ongoing opportunities. Recent negative headlines and isolated credit events underscore the importance of selectivity, focused on deal structure and strong covenants.

Elsewhere, investment grade public credit faces potential headwinds from tight credit spreads and extended duration. High yield fundamentals remain solid, and emerging markets debt looks compelling, given strong demand, relatively low default rates and attractive yields.

As discussed in our portfolio construction themes, municipal bonds stand out as one of our most favored sectors across global fixed income, supported by strong fundamentals and robust demand.

Real estate

Chad Phillips

Best ideas

• Across both private and public real estate, we are focused on sectors with compelling income and supply/demand characteristics, including senior housing, medical office and data centers.

Investment positioning

As outlined in our investment themes, we remain bullish on the ongoing private real estate recovery. On balance, we prefer more defensive areas of the market and believe a focus on income generation and income resilience makes sense — though we anticipate greater capital appreciation across real estate sectors in the coming quarters.

One minor shift from previous quarters involves the real estate equity vs. debt debate. At the margins we had expected the pendulum to swing toward equity investments, but that has not materialized en masse. At present, a combination of still-elevated interest rates, better relative return prospects and our focus on defensive positioning lead us to modestly favor real estate debt.

From a sector perspective, we favor resilient segments such as health care — specifically outpatient medical and senior housing in the U.S., which benefit from limited new supply, demographic tailwinds and solid fundamentals — and grocery-anchored retail, which have been delivering strong returns. The retail thesis is strongest in the U.S., but we see opportunities in Europe and Asia as well.

Other areas of opportunity include self storage and affordable housing in the U.S. and student housing in Europe and Australia — all of which benefit from solid demand dynamics.

For public REITs, we view net asset values as fairly valued. This remains a stock-pickers’ market, with our current focus on senior housing, data centers and industrial real estate.

Infrastructure and real assets

Jessica Bailey

Best ideas

• In public markets, we are focused on electric utilities delivering accelerating earnings growth. In private markets, we favor investments such as clean energy generation, energy storage and data centers.

Investment positioning

The growth of AI, surging energy demand and the rapid expansion of data center construction are all significant tailwinds for infrastructure investments across equity and debt, in both public and private markets. Infrastructure and real assets also offer strong fundamentals, robust demand, meaningful resilience and inflation-hedging potential given the essential service nature of much of the underlying assets.

We continue to see ample opportunities in equity investments, particularly in public markets where listed infrastructure is trading at a discount to the broader equity market. In private markets, we have a moderate preference for infrastructure debt given relative valuations.

On the equity side, we are focused on transportation, power transmission, regulated utilities and sustainable hyperscaler data center platforms. Our debt themes are similar, spanning diverse energy and power infrastructure including natural gas turbine financing, solar development and energy efficiency investments. We also see structural opportunities in the growth of non-bank capital given the demand for flexible financing, such as delayed-draw and covenant packages tailored to specific asset cash flows that traditional banks cannot provide.

We are also seeing solid demand growth for Commercial Property Assessed Clean Energy (C-PACE) financing, which offers attractive yields and long-dated amortization that provides predictability and potential resilience to interest rate volatility.

Farmland remains a compelling long-term allocation for differentiated return potential and inflation hedging. However, row crop margins continue to moderate, particularly in the U.S., and remain below the elevated levels of prior years.