Saira Malik
1. Don’t bet against the US
One of the main questions on investors’ minds is whether the AI-driven U.S. equity surge has created a bubble. Additionally, tariffs and the corresponding rise of deglobalization have prompted some investors (particularly those outside the U.S.) to reduce U.S. exposure. But we think U.S. large caps still have room to run. U.S. megacap tech companies may have less-than-clear monetization timelines around some aspects of AI profitability, but we think investors will continue to reward AI-related capex spending, which shows no sign of slowing
down in the U.S. (Figure 2).
Outside of the U.S., other global equity markets appear cheaper, but we see no catalyst for a leadership shift. And beyond equities, we think stronger relative economic growth, favorable tax and regulatory policies and a diversified economy offer compelling U.S. opportunities across such areas as private credit, private asset-backed finance and private investment grade bonds.
2. Alternative credit and private equity should be core allocations
While global fixed income remains attractive, we’re wary of duration risk and credit spread
tightening. At the same time, we think many (if not most) investors are underweight private markets and could benefit from taking on liquidity risk to seek enhanced returns, income and diversification. As such, we encourage investors to seek out alternative credit sectors beyond traditional fixed income benchmarks, including senior loans, collateralized loan obligations, public and private securitized assets, real estate and infrastructure debt and Commercial Property Assessed Clean Energy (C-PACE) financing.
Private credit headlines question whether the market is oversaturated or cracking. We see issues with underwriting and deal structure in riskier segments, but strong opportunities remain, particularly in middle-market direct lending. Selectivity and partner choice will prove critical – rising tides will no longer lift all boats. Deal structure and covenant protections will matter more.
Private equity also shows promise. Lower interest rates should spur M&A activity, and tougher fundraising means experienced managers are deploying capital. We favor senior over junior capital and prefer secondary markets with single-manager structures.
3. Municipals may be at the forefront of a new bull market
Throughout 2025, municipal prices lagged despite strong balance sheets, solid credit quality and low defaults. That has started to change over the last couple of months as municipal prices have begun to rally. We believe munis continue to offer value. As supply eases and
demand rises, supportive interest rates and strong fundamentals could continue to power
municipal bonds forward.
With municipal yield curves steeper than Treasuries, investors may be well compensated for duration risk. We see compelling opportunities across both high grade and high yield municipals.
4. The real estate rebound is just getting started
After years of falling values, oversupply and weak demand, 2025 saw values rebound and supply contract. We expect demand should follow.
For now, real estate markets are being driven by rising income returns. Capital appreciation hasn’t materialized yet, but we expect that will rise as well, providing another tailwind. The office sector remains under pressure, but medical office, grocery-anchored retail and affordable housing offer notable opportunities.
5. Look for the “second derivative” trades from the AI book and energy revolution
Megacap tech and data centers led early AI gains. And while we still see opportunities there, we think investors should also look for the secondary and future implications of these trends.
Other infrastructure investments such as utilities, battery storage and energy transmission look compelling, as detailed in our “best ideas” section. AI also creates direct or indirect opportunities in select asset-backed securities, real estate and municipal bonds tied to infrastructure buildouts. Despite U.S. political headwinds, the global shift toward renewables and energy efficiency continues as diverse power sources become essential.
We also think investors should pay attention to broader, longer-term AI and energy trends and risks. Key issues include upgrading the power grid, the intersection of data center growth with water scarcity, and AI’s impact on employment and corporate governance.
By Saira Malik, Head of Equities and Fixed Income & Chief Investment Officer
