Decision time

With economic growth and inflation slowing, and central banks starting to cut interest rates, we see significant opportunities in the fixed income market. We think investors should invest cash and money market holdings into high-quality corporate and government bonds, where we expect to see price appreciation as markets start to anticipate a deeper rate-cutting cycle. We also expect broadly diversified fixed income strategies to perform well in the months ahead.

We see a variety of opportunities to enhance and diversify portfolio returns via the currency and commodity spaces. First, although the US dollar could remain well-bid in the near term, we expect it to weaken over the medium term as US interest rates are cut and fears rise about the US fiscal deficit. As a result, we recommend selling dollar rallies. Second, with the SNB unlikely to cut rates much further from here, we expect the Swiss franc to appreciate. Finally, we see opportunities in a broad range of commodities, including oil, copper, gold, and silver.

The market potential of AI is vast, and we expect AI to be a key driver of equity market returns over the coming years. We think it is important that investors hold sufficient longterm exposure to AI. For now, we see the best opportunities in the enabling layer of the AI value chain—which is benefiting from significant investment in AI capabilities— and in vertically integrated megacaps, which are well positioned across the value chain. We also think investors should look beyond the US for ways to capture AI growth, including in China’s tech monoliths.

We think the idea of seeking quality growth should apply broadly to investors’ equity holdings. Recent earnings growth has been largely driven by firms with competitive advantages and exposure to structural drivers that have enabled them to grow and reinvest earnings consistently over time. We think that trend will continue, and investors should tilt toward quality growth to benefit.

The US election is likely to trigger volatility, and we think investors should manage risks accordingly. In equities, the US consumer discretionary and renewables sectors would be at risk in a “red sweep” scenario. We would see more potential upside in financials in that scenario. Investors should consider strategies to help hedge risks in sensitive stocks and sectors. We also think that gold can act as an effective hedge against fears of geopolitical polarization, inflation, or excessive deficits.

Including alternative assets—both traditional and sustainable in a well-diversified portfolio can help investors navigate a shifting interest rate, technological, and political backdrop. During periods of changing rate expectations, equity-bond correlations can rise periodically and hedge funds with low correlations to traditional assets could help reduce portfolio volatility. Private equity, meanwhile, offers investors the opportunity to invest in growing companies, including those exposed to AI, which are not (yet) listed on public markets.