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 particularly favor dividend-growers, which tend to offer strong free cash flow levels and solid profit margins.
• We also like infrastructure companies that can weather both inflation and softer economic growth risks.

Investment positioning

Equities remain caught between positive and negative crosscurrents: elevated interest rates and inflation combined with softening economic growth. But despite elevated valuations (mostly due to narrow market leadership by megacap tech companies), areas of the global equity market remain attractive thanks to solid earnings and growth-oriented tax and regulatory policies in the U.S. Thus, we remain broadly neutral toward global stock markets, and we expect volatility will remain relatively elevated.

Overall, we have a bias toward higher-quality stocks within higher-quality market segments, leaning toward industries and geographic regions that offer fundamental tailwinds. Likewise, we hold a less positive outlook toward areas with greater sensitivity to economic conditions or interest rate fluctuations. In the U.S., we expect market leadership will broaden from the recent megacap tech dominance. In particular, we remain favorable toward U.S. small caps that could benefit from shifts in tax policies, rising M&A activity and more protectionist trade practices.

Outside the U.S., as mentioned in our portfolio construction themes, we are growing more positive toward developed markets. The likelihood of a stronger dollar and tariff trends remain risks, but we see more opportunities around the globe.

Private equity markets remain under pressure, especially given a lack of fund distributions and still-high interest rates. But we expect M&A activity to increase, which should help with both fundraising and distributions.

Fixed income

Anders Persson

Best ideas

• Securitized assets and senior loans both offer solid value with lower duration risk.
• For municipal bonds, high yield munis continue to look attractive, and we think the performance difference between high yield and high grade will narrow in 2025.

Investment positioning

Interest rates have been slow to decline, and inflation risks remain, but we believe the global macroeconomic backdrop favors fixed income investments. We expect rates will remain relatively elevated and largely range bound in 2025. As a result, current yields offer compelling income to investors.

For now, we maintain our view that better relative value opportunities can be found through credit allocations rather than solely taking on duration risk. We prefer an overall neutral duration stance, although investors holding high levels of cash should consider slightly lengthening duration and increasing yield. We think credit fundamentals and the economic backdrop warrant taking on select credit risk, including in below investment grade areas of the market.

Senior loans offer some of the market’s best opportunities, in our view. Floating-rate investments look compelling given the rates backdrop, relatively high yields and potential for declining default rates. We also favor securitized assets (especially mortgage-related investments that offer attractive yields and solid credit risks) and high yield (spreads are tight but yields and fundamentals remain solid).

We do not favor U.S. Treasuries (we see better opportunities elsewhere) and investment grade bonds (spreads are tight and the duration profile is longer than we prefer). Emerging markets debt has performed well lately, but the strong dollar and tariffs remain risks.

Municipal bonds enjoy strong and stable credit quality; state and local governments have solid balance sheets and ample liquidity; and the market features attractive supply/ demand dynamics. Valuations also look compelling, as performance has lagged over the last year. Municipals are one area where we think it makes sense to extend duration given the relative yield advantage and still-strong credit fundamentals of longer-dated assets.

Private credit markets remain constructive, and we generally prefer more defensive and higher-quality areas of the market. Market growth has slowed but remains in positive territory.

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 upgraded private real estate in our year-ahead outlook, and we continue to believe this stance makes sense. Supply issues remain, and elevated interest rates could present challenges. But real estate rent and occupancy growth are healthy, and investor demand is returning for most sectors (the office sector remains troubled). The improving climate is driving increased competition for real estate deals, which is a positive indicator for the future.

Health care and neighborhood retail are two sectors where we see particular opportunities. Outpatient medical buildings have extremely low vacancy rates as demand is far outstripping supply, and senior housing is benefiting from shifting demographics and limited new supply. Neighborhood retail may be an out-of-consensus area of focus, but we think low vacancy rates, limited new supply and attractive pricing should be tailwinds for this segment across the U.S., Europe and parts of Asia.

We have a slight bias toward real estate debt over equity, given valuations and relatively wider spreads.

Real assets

Justin Ourso

Best ideas

• In public markets, our best ideas include North American senior housing (demographic trends, plus opportunities for industry consolidation) 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 clean energy generation and data centers, as well as strong global demand for protein and healthy foods.

Investment positioning

Both public and private infrastructure investments remain preferred areas. The massive growth in power demand should be a strong tailwind for years to come and is running ahead of available supply. This trend favors equity areas such as data centers, power-generating utilities, electric transmission owners, independent power producers, energy pipeline owners and battery and storage investments. We are somewhat less positive toward U.S. on- and offshore wind investments, given increased political and regulatory scrutiny, but European investments continue to look solid. Energy infrastructure credit investments also look compelling due to similar factors, and we see particular opportunities in debt investments centered around generative AI, data centers and energy storage.

Public real estate markets offer solid fundamentals and earnings prospects. We have a particularly favorable view toward senior housing, with limited supply and growing demand.

Farmland tends to be relatively insulated from macroeconomic factors and geopolitical risks. Row crop margins and profits have declined, but we see compelling investments in areas featuring stronger crop diversification, such as the U.S. Southeast and Pacific Northwest. We also see value in non-U.S. permanent crop investments such as citrus, avocados, cherries and table grapes, which enjoy rising demand.

Agribusiness investments offer opportunities, including investments that focus on food ingredient processing that can reduce in-store labor at quick-serve restaurants (a growing area of the market).