Kevin Hebner

Investors need to look beyond traditional asset classes and approaches as shifts across global markets create new opportunities and challenges for portfolio construction, according to leading investment managers speaking at the GSFM Investment Symposium this month.

The Symposium brought together investment experts to examine the forces reshaping markets, from changing equity and bond correlations and valuation opportunities in Australian small and mid-caps, to the evolution of artificial intelligence, the growth potential across Asian markets and the increasing importance of infrastructure and private markets. 

AI – the one trade that matters?

The growth and potential of AI has dominated markets since 2023 but Nick Griffin, CIO at Munro Partners, said the world is still only at the start of the AI story.

“There’s a lot of talk about whether we’re in an AI bubble and our view is this is a boom, not a bubble. AI is the next big platform shift, and it’s only just beginning so we believe this is a very good time to be in investing,” he said.

“The shift to agentic AI is now taking off, and at a scale that we’ve never seen before in human history. But it’s still in its early stages – nothing grows like this at the end of its life only at the start of its life.

“Investors who are concerned about whether current valuations are sustainable or when AI companies will start delivering on their promises, should ask themselves this: Are people using a lot of AI? The answer is unequivocally yes. The next question is: are they going to use more AI? Again we believe the answer is unequivocally yes, because AI is a general purpose technology that’s applicable to every industry in the world. Currently we’re probably using less than five per cent of all the AI we are going to use in the next decade, so there is enormous upside still ahead.”

Kevin Hebner, global investment strategist at TD Epoch, agrees that AI is a long-term story but said investors should also prepare for ongoing market volatility.

“Our view is that AI is the third industrial revolution and that brings opportunities, but investors should keep in mind there will be booms and busts along the way so they need to construct resilient portfolios.

“Comparable examples from the past, such as the growth of railways, electricity, and autos, show there are multiple booms and busts during these kinds of cycle, so it’s important to create portfolios that are resilient, which means diversification – across the entire AI stack, geographies, and market cap.

 “It’s also important to de-hype portfolios. There’s a lot of hype and concentration in portfolios, for example towards tech momentum. So portfolio construction, risk management analysis, and constructing resilient portfolios, are critical and it’s more difficult than it’s ever been before,” he added.

Kristin Ceva, senior portfolio manager at Payden & Rygel, said the growth of AI is also playing out in fixed income markets around the world. 

“In fixed income markets, government issuance is expected to hold relatively flat over the next couple of years. But the area of fixed income that is really growing is AI financing which is becoming more of a credit and fixed income story. In 2027 AI financing is expected to be around $600 billion as focus shifts from being equity-led towards credit becoming a larger percentage of the overall pie,” she said.

“As this plays out, it will have implications for yields which will move higher, and credit spreads will potentially move higher as well. This makes it a longer-term positive story for savers and fixed-income investors.

“Fixed income also has an important role to play as a diversifier away from the AI trade. With the US equity market so dominated by AI assets, emerging market debt looks increasingly attractive. Many emerging markets are looking strong at the moment, having moved quickly to control inflation and supported by very resilient growth as well as improving external financing, better current-account balances and stronger foreign-reserve buffers.”

Alec Small, portfolio manager at Payden & Rygel, says the outlook for fixed income is very favourable. 

“There’s an adage in investing: do you want to eat well, or do you want to sleep well? The point being that a portfolio needs both, and bonds are the sleep-well side of it.” 

“What has changed is that investors are now being compensated properly for sleeping well, in a way they haven’t been for a number of years. Everyone wants your money right now, and when capital is scarce it has a price. That price is the yield. It’s a long way from the years after the financial crisis, when there was too much capital and not enough compelling places to put it, and lending to governments earned you very little after inflation.”

“The AI build-out needs to raise more than a trillion dollars next year, and those estimates have only moved one way in 2026: up. The hyperscalers get most of the attention, and deservedly so. They stepped up materially this year, to around $300 billion of bond issuance, and we expect that elevated pace to continue. But the incremental growth is coming from everyone else: data centres, neoclouds, the AI labs, plus new equity and IPOs. That is a lot of supply for the market to absorb, and it is one of the bigger reasons investors are being paid more to lend today.”

“And it’s not just a US story. We look at real yields, which is simply what you’re paid after inflation, and we compare each market against its own ten-year history rather than against each other. On that basis yields are elevated right across the market, in the US, in other developed markets and in emerging markets. For a stretch of the last decade, investors in some of those markets were effectively paying for the privilege of lending. That has reversed everywhere.”

Spreading risk across a portfolio

Investors may need to rethink the role of traditional portfolio diversifiers as the relationship between equities and bonds changes, and consider alternative strategies, private markets, and trend-following as increasingly important strategies.

According to Tarek Abou Zeid, head of client portfolio management at Man Group, the traditional role of bonds as a counter to equities has become less reliable, particularly in an environment where inflation remains elevated.

He highlighted that trend-following strategies are a potential source of alpha, particularly during a financial crisis. The innovation in these strategies could help address the traditional trade-off between performing well in crises and participating in markets during more benign periods.

“Investors have traditionally relied upon the 60/40 split, but they must now consider where portfolio protection and diversification will come from in the next market cycle.

“The performance of trend-following during market crises, whether the bear market in the early 2000s, the credit crisis in 2008, or COVID, shows that remaining invested, rather than attempting to time such events, allows investors to benefit as the models adapt to changing market cycles,” he added.

Marc-Andre Lewis, president and CIO of CI Global Asset Management, argued that effective portfolio construction requires an understanding of how investors are likely to behave during periods of market stress, amongst other things.

“Investors looking to private markets through evergreen fund-of-funds structures need to look beyond just selecting their underlying managers. A FOF portfolio needs to be built for investors, not just a mechanism to distribute funds.”

He also highlighted the importance of modelling the interaction between market movements, liquidity calls and distributions.

William Briggs, managing director at Ardian, said infrastructure gives investors exposure to assets that are increasingly essential to economic activity, while also providing potential protection against some of the forces driving market volatility.

 “Heathrow airport is an example of systemic infrastructure with cash-flow visibility, and inflation protection while also providing opportunities for industrial asset management and transformation.”

Valuation gaps visible as investors look beyond Australia’s mega caps

A widening valuation divide between large-cap stocks and the wider market is creating opportunities for active investors, with overlooked Australian SMID-cap companies and Asian technology emerging as opportunities for investors. 

Tim Carleton, CIO at Auscap Asset Management, said the Australian market had experienced a meaningful valuation dislocation over the last six months, with large-cap stocks becoming increasingly expensive.

“The valuation gap has emerged despite considerable difference in underlying earnings growth, creating opportunities for investors willing to look beyond the largest companies in the Australian market,” he said.

Carleton said the dynamic was evident in the retail sector, where since 2002, JB Hi-Fi has generated compound EPS growth of 11 per cent per annum compared with a decline in Woolworths’ EPS, yet Woolworths has historically traded at a premium valuation to JB Hi-Fi.

Andrew Swan, head of Asia (ex-Japan) equities at Man Group, said investors should also look beyond the established beneficiaries of the artificial intelligence boom as the technology enters a new phase.

“The AI opportunity is becoming much broader than the semiconductor companies that initially captured investors’ attention. As AI moves from training towards inference and agentic applications, the infrastructure required to support it is expanding across power, networking, cloud and applications,” he said.

Swan described Asia’s industrial production as being at a four-year high, while non-AI-related export strength has also been accelerating. Selected Asian economies account for approximately 76 per cent of the region’s exports, providing a significant opportunity set beyond the AI theme.

Qiao Ma, portfolio manager at Munro Partners, said small and mid-cap companies globally were being overlooked by investors despite the potential for significant earnings growth in areas benefiting from long-term structural trends.

“The opportunity in SMID-caps is not simply about buying cheaper companies. It is about finding businesses with the earnings growth and structural tailwinds that can allow them to grow into, and potentially beyond, the valuations the market is currently assigning them,” she said.

Qiao highlighted the aviation industry as one example of the structural opportunities emerging outside the better-known AI names, with rising travel demand meeting a constrained supply chain and shortages of aircraft, components and skilled labour.

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Tim Carleton

Investors shouldn’t mistake market volatility as representing material changes in the value of listed companies, according to Tim Carleton, Auscap Asset Management’s CIO, who says the reality is that the underlying value of certain businesses is far more stable than their share price movements might suggest.

“Developments in artificial intelligence, the outbreak of hostilities in the Middle East, and the perceived impact of the budget on residential property prices and disposable income, have dominated short term share price movements,” he says.

“Such factors affect consumer confidence and the perception around the near-term economic outlook. From a markets perspective, this creates volatility and dislocations as participants respond to the news flow.

“However on the ground, we are seeing that there is often far more that is in the control of management in terms of the business’ future economic performance and earnings growth than there is outside their control.

“When everyone is fixated on the present, we believe it pays to focus on the future and what the business will look like in a few years from today.”

Carleton says two Australian businesses that are great examples of this are Nick Scali and Lovisa, both of which are consumer-facing business and therefore, at face value, vulnerable to softening consumer confidence.

“We recently spent time in the UK visiting these businesses and the story was much more positive than the headlines might suggest,” he says.

Australian furniture retailer Nick Scali (ASX: NCK) expanded its operations into the UK in 2024, buying a network of existing UK stores, Fabb Furniture, and converting them to Nick Scali stores. The most recent half year results reflected that the Nick Scali range was starting to resonate with British consumers, with like for like sales growth at 32 per cent in January 2026 for stores that had been branded as Nick Scali for more than 12 months.

“While the proof will be in the company’s results in years to come, increasing referral customers and conversion appears to be improving, all while still operating in a tough macroeconomic environment.

“The long-term investment thesis in Nick Scali is positive, and we continue to see opportunities for the company to grow its revenue and earnings in Australia and the UK, and to also take its operations beyond these two markets.

“Similarly, Lovisa’s expansion in the UK is putting it in a very strong position. Despite the remarkably low price point, the jewellery is extremely high margin. In the first half of FY26, Lovisa recorded gross margins of 82.9%, leading to very profitable store metrics. With a key global competitor, Claire’s, falling into bankruptcy in 2025, closing 290 stores in the United States and nearly 300 in the UK across 2025 and the first half of 2026, Lovisa should be in a position to increase its market share in these and many other underrepresented international geographies.”

Carleton says taking a view on what the business will look like in the future allows investors to benefit from “time horizon arbitrage” which involves taking a longer term perspective to buy into high quality, growing businesses when they are priced attractively on a through the cycle basis due to short term, transient concerns.

“Consumer discretionary businesses like Nick Scali and Lovisa remain in our portfolios. These two businesses offer good value for investors, and have solid future management growth plans that will positively impact earnings growth over the long term.

“We are excited by the quality of the current portfolios, positive on the earnings growth we expect over time and enthused about the value on offer,” says Carleton.

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Stephen Miller

Global markets will face a challenging year ahead with turbulence and uncertainty from some key areas dominating the investing landscape. Artificial intelligence, geopolitics and inflation will continue to influence market volatility in 2026, according to GSFM and its fund manager partners Auscap Asset Management, Man Group and CI Global Asset Management. 

GSFM investment strategist, Stephen Miller, says the existing “stagflation-lite” scenario and current macro and geopolitical uncertainties may dampen market sentiment in 2026.

“Ongoing resilience in the macroeconomy and slowly declining inflation – should it eventuate – may see a broadening of stock performance. But with “stagflation-lite” not yet vanquished as a scenario, and with conventional valuation metrics showing equity markets in extremely “rich” valuation territory, it pays to be cognisant of a number of macro and geopolitical uncertainties that may yet derail equity market ebullience.

“A clear uncertainty on the investment horizon for 2026 are the tectonic shifts in the geopolitical arena.

“President Trump’s “Donroe Doctrine” is perhaps the notable geopolitical development in 2026 along perhaps with the fracturing of the NATO alliance.

“By appearing to embrace a “spheres of influence” view of the world whereby the “Great powers” assert control over their respective regions, the Donroe Doctrine may well see the world divide into “Great power” blocks. That might encourage China to formally access Taiwan. It might empower Russia in the Baltics creating challenges for the European Alliance / European Union, itself a little fractured as politics in Europe becomes more polarised.

“Were those spheres of influence to also manifest themselves in an economic sense it might further damage global trading architecture through protectionist tariff measures and retaliation and prove a headwind for global economic activity,” says Miller.

Auscap Asset Management’s CIO, Tim Carleton says that the market may well continue to focus on inflation in 2026 given its potential to impact interest rates.

“We have persistent wage inflation, booming commodity markets and fiscal stimulation in Australia and the US, all leading to inflation levels above central bank targets. Should we see a dovish Federal Reserve chair appointed at the same time as we get a continued pickup in underlying inflation we are cognisant that there may be a reaction at the long end in the bond market. This could have the potential to impact equities markets.”

“From an investment perspective, this may create some great opportunities. During 2025 we saw the unwinding of a bubble in many high quality companies that has been in place for a number of years. The extremely low interest rate environment during the COVID period resulted in very strong performance and stretched valuations for many of the great listed businesses that were seen as having reliable growth that would be largely independent of the cycle and macroeconomic environment. Valuations for these businesses are now getting back to more normal historical levels. Should the derating continue, it will present some interesting and compelling investment opportunities in businesses we would be interested in owning at the right price,” says Carleton.

Given the year started in the midst of a commodity bull market, Carleton expects very strong earnings near term from companies exposed to commodities.

“Gold, precious metals, lithium and copper all kicked off this year very strongly, which should result in meaningful upgrades to earnings estimates. However, we are also wary that commodity strength is often typical of the late stages of a bull market.”

Carleton adds the big four domestic banks have started the year at near record multiples of earnings, despite the emergence of competitive pressures in the banking sector.

“We think caution is warranted in relation to the major domestic banks. They are likely to come under continued competitive pressure from Macquarie Group as it pushes further into housing lending, as well as from the Government in relation to the low interest rates that most customers are receiving in their savings accounts, despite advertised rates being significantly higher.”

Man Group’s head of Asia (ex-Japan) equities, Andrew Swan, says that Asian markets are in a renaissance, with the second-leg of growth expected as global growth strengthens.

“Having staged a quiet comeback and delivering its second best performance since 2010, Asian markets are on the path for further outperformance this year driven by the global demand for artificial intelligence (AI).

“We are seeing strong guidance from semiconductor companies in the region suggesting demand for AI remains strong. Earnings have also been on an upward trajectory over the years, and that is important for share prices.

A part of the next leg of growth in the region Swan says will come from the execution of China’s five-year plan, which starts this year in 2026.

“The Chinese economy needs to pivot away from just investment to more balanced growth, with a focus on consumption.

“However, the opportunity set is now broadening beyond China, with other markets in the region, like Indonesia, set to benefit from lower interest rates.

“Another opportunity we see is with India, which has been through a correction. Valuations have corrected along with earnings growth expectations. There are clear signs that that Indian economy is bottoming out now, and expectations are much more reasonable from an earnings point of view,” says Swan.

Geof Marshall, private markets lead at CI Global Asset Management, says just as the AI narrative has dominated public markets in 2025, it also impacted private equity and venture capital investment decisions last year, and he expects this will likely continue in 2026.

“Private markets continued to evolve in 2025, with private equity still challenged by a lack of monetisation impacting fundraising, and private credit continuing to disintermediate the banking channel.”

“Blurring the line between private equity given their size, and venture capital given their negative cash flows, the private market answer to the Mag 7 – the ‘Private Mag 7’ (comprising of Anduril, Anthropic, Databricks, OpenAI, SpaceX, Stripe, and xAI ) – now have an implied total valuation of more than US$1.4 trillion, or about the same size as the German stock market.”

“This will have a marked impact on private equity and venture capital investment in 2026,” he says.

Marshall adds that non-AI related activity is also likely to increase in 2026 despite a three-year period of muted returns.

“General partners (GP) – those that make the investment decisions for private market funds – are sitting on dry powder in excess of $1 trillion and credit markets are very accommodative, partly because the equity component of recent leveraged buyouts have been larger and the debt component smaller. This may auger a return to private equity roots of ‘buy cheap and fix or build’ over financial engineering.

“Over the past year generalist investors and the media have looked for problems in private credit. While it is true that rapid growth in an asset class can lead to poor underwriting and lower returns, as Apollo has pointed out, it is hard to reconcile equity markets at or near all-time highs with high default rates.

“In terms of asset classes, infrastructure has outperformed real estate on returns, volatility, and fundraising since 2022. This seems likely to continue in 2026 as real estate, while stabilised, continues to wrestle with secular changes. The infrastructure opportunity set grows, especially in power generation with the ongoing demand for AI.

“These asset classes are likely to outperform their public market equivalents in 2026, earning their illiquidity premium, and providing good opportunities for private market investors,” says Marshall.

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Damien McIntyre

GSFM and Australian equities manager, Auscap Asset Management, have formed a partnership, with GSFM the exclusive distributor of the Auscap High Conviction Australian Equities Fund and the Auscap Ex-20 Australian Equities Fund in the Australian and New Zealand markets.

Auscap Asset Management was founded in 2012. It is a quality first, value focused, active Australian equities manager. Its High Conviction Australian Equities Fund and its Ex-20 Australian Equities Fund both have a RECOMMENDED rating from Zenith and Lonsec.

GSFM CEO, Damien McIntyre, said the partnership brings the number of GSFM’s specialist fund manager partners to 10.

“GSFM’s goal is to partner with high calibre investment managers to deliver differentiated, quality investment strategies to help Australian investors build wealth. Auscap’s Australian equity funds certainly meet our criteria.

“Auscap is a considered, patient and long-term investor, an approach that has paid off in consistent performance.

“The High Conviction Australian equities fund has a 12+ year track record and is a top quartile fund. The Ex-20 Australian Equities Fund was launched in November 2023, and has shown similarly good performance,” Mr McIntyre said.

Tim Carleton, Auscap’s founder and chief investment officer has over 20 years’ experience in the financial services industry including as an executive director at Goldman Sachs where he was responsible for managing an Australian equities portfolio, and Macquarie Bank where he worked in the Investment Banking team.

He was a founder of Auscap, which has a quality first, value-focused philosophy.

“Our vision is to continue to develop a leading funds management business that has a reputation for outperformance, strong risk management, a positive culture and integrity.

“In GSFM we have found an experienced and knowledgeable team with nationwide capabilities across relevant channels, and we look forward to working with Damien McIntyre, Ben Williams and the broader team.

“Partnering with GSFM, with a recognised reputation as experts in distribution, means the investment team can focus our attention on continuing to deliver strong returns for our clients.”

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