Our best investment ideas

Section 5: Our best investment ideas

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

Equities

Willis Tsai

Best ideas

• We remain constructive on companies benefiting from AI-driven revenue acceleration. We also favor businesses with durable earnings growth, strong free cash flow generation and disciplined capital allocation, which leads us to favor dividend growers.

Investment positioning

Global equities continue to be shaped by the AI investment cycle, but the underlying earnings backdrop is stronger and broader than many investors appreciate. Earnings growth has expanded beyond the largest technology companies into areas benefiting from a constructive macro backdrop and company-specific tailwinds.

Within AI, we believe the market is entering a new phase. The initial stage rewarded companies providing the infrastructure required to build AI capabilities. Investors are now looking for evidence that enormous capital investments are translating into tangible business outcomes. Many of the largest AI spenders are demonstrating accelerating revenue opportunities and growing operating leverage. As a result, we remain constructive on large-cap growth companies at the center of the AI ecosystem.

We continue to favor a global and flexible approach centered on high-quality businesses with durable competitive advantages and resilient earnings growth. This continues to support an overweight to U.S. equities, where many of the world’s leading innovators remain concentrated. Beyond the core AI beneficiaries, we see attractive opportunities among electrification, industrial automation, robotics, networking infrastructure and software companies that stand to benefit from broader adoption of AI technologies.

We are less enthusiastic toward U.S. small caps. While the long-term opportunity remains appealing higher financing costs, greater economic sensitivity and lower earnings visibility are headwinds. Similarly, we have become somewhat more selective within emerging markets and are focusing on areas exhibiting structural growth, improving governance and differentiated earnings trajectories.

Fixed income

Anders Persson

Best ideas

• Senior loans offer attractive yields and good relative value against other areas with similar credit risk. Municipal bonds remain relatively insulated from geopolitical headwinds and offer compelling yields, especially on a taxable-equivalent basis.

Investment positioning

With long-term interest rates remaining stubbornly high (and volatile) and the Fed turning more hawkish, we advocate neutral duration positioning. We expect Treasury yields to remain elevated in the near term given upward pressure on energy prices, and U.S. Treasuries are beginning to offer better relative value.

Across credit sectors, we favor a barbell approach: generally favoring higher-quality segments, while also seeking income in “plus” fixed income areas such as senior loans, preferreds and emerging markets debt. Senior loans offer particularly attractive yields and should benefit from elevated rates. We also see better value in securitized assets, particularly in commercial mortgage-backed securities, while emerging markets debt enjoys strong demand and relatively low default rates.

Investment grade public credit faces potential headwinds from tight credit spreads and extended duration. High yield fundamentals remain solid, and while preferred securities have had a strong run and look more fairly valued, they continue to feature strong issuer fundamentals.

In private credit, both investment grade and below investment grade fundamentals appear attractive, and much of the headline noise around the asset class has faded in recent months. Selectivity, deal structure and strong covenants remain paramount.

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 favor sectors with durable income and supply/ demand characteristics, including senior housing and medical office.

Investment positioning

We remain bullish on the private real estate recovery, though we favor defensive, income-oriented positioning. Elevated rates keep us favoring real estate debt over equity, even as we expect greater capital appreciation across sectors ahead.

Health care remains our highest-conviction theme. Outpatient medical buildings and senior housing benefit from severely constrained new supply and the global demographic trend of aging populations.

Neighborhood and grocery-anchored retail look like an attractive counter-consensus opportunity across the U.S., Europe and select Asian markets. Vacancies sit at all-time lows, new supply is nearly nonexistent, and investors are beginning to notice.

We are less enamored of the U.S. multifamily apartment sector, where we think prices are generally too high as capital has flooded into the segment. We do expect the technical backdrop to improve over the coming quarters as supply gets absorbed and as the cost of home ownership continues to favor rentals.

For public REITs, net asset values look fairly valued following a period of strong performance. This remains a stock-picker’s 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 favor electric utilities trading at a discount while delivering accelerating earnings growth. In private markets, we favor preferred tax equity structures, which have grown in demand given the sunsetting of renewable power tax credits, as well as high-leverage C-PACE financing.

Investment positioning

A number of persistent trends including the massive growth of AI, surging energy demand and expanding data center construction remain significant tailwinds for infrastructure across equity, debt, public and private markets. Our key investment themes focus on capitalizing on surging power demand, digitalization, electrification and the growing need for energy security.

In private markets, our equity focus is on transportation and power & transmission given strong demand in these segments. We also see more opportunity in European investments given wider credit spreads and improving relative value. On the credit side, we favor energy and power infrastructure, emphasizing essential assets with defensive characteristics including contractual cash flows, collateral protection and consistent financial and operational covenants.

We see solid demand growth for Commercial Property Assessed Clean Energy (C-PACE) financing, including in higher leverage structures, which offers attractive yields and long-dated amortization that provides predictability and potential resilience to interest rate volatility.

In public markets, U.S. infrastructure fundamentals have been improving, and we see particular opportunity in electric utilities. Higher interest rates in Japan have made us less positive on that market, and we see political risk emerging in U.K. water utilities.

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 prior years’ elevated levels. Higher fertilizer and fuel costs, along with supply-chain disruptions, present additional risks.