Artificial Intelligence is Everywhere

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Artificial intelligence everywhere
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The capabilities of artificial intelligence are advancing with the investment focus expanding from computing power to include additional layers of the technologies used to build web or mobile applications. As a result, we are finding more opportunities to invest in stocks of companies that are leaders or beneficiaries of AI.

In our new paper Artificial intelligence is everywhere, we provide an overview of the AI theme and how it is enabled by cloud computing and foundational science and technologies including semiconductors1. It touches on some of the recent advancements as well as the risks and challenges of developing and using AI.

AI is supported by foundational science and technologies such as:

  • Cloud computing: Essential for training and hosting AI models
  • Internet of Things: Collects data necessary for AI applications
  • Semiconductors: Provide the computing power for AI
  • Cybersecurity: Protects AI systems and data
  • Renewable energy: Helps ensures sustainable power for energy-intensive AI operations.

Use cases for AI are expanding rapidly and include code generation and documentation  for developers; automating customer requests; summarising medical reports and simplifying sales and marketing workflow. Such applications improve productivity and efficiency.

Recent advancements in AI technology include making new large language models capable of complex reasoning and problem-solving; making user interactions with AI models more intuitive; and the arrival of next-generation semiconductors to support AI training and inferencing2.

Harnessing the cloud

Cloud computing with advantages including lower costs, scalability, enhanced security and access to advanced technologies provides the necessary infrastructure and resources for AI development and deployment. Thus, investment in digital infrastructure is crucial for supporting AI initiatives. This includes datacentres, networking equipment, and storage systems. There is also growing demand for cooling systems, energy efficiency, and renewable energy sources to power AI datacentres.

The three major US cloud service providers grew cloud revenue by more than 30% over the last four years, surpassing USD 180 billion in combined revenue in 20233. Despite this, there is still a long growth runway: only about 20% of total workloads has migrated to the cloud.

Cloud service providers, large enterprises and government entities are investing heavily to build and equip the datacentres required to support AI initiatives. Our outlook for investments in digital infrastructure over the next several years is positive.

Today, most of the capital investment is focused on computing power, driving demand for semiconductors. Providers of server computers and other datacentre equipment are seeing robust growth. Some of the focus is likely to shift in favour of investment in networking and storage equipment to support training and inferencing of large language and other AI models.

We expect the long-term returns of developing and deploying AI technology to be attractive. Companies that expand beyond the infrastructure layer and create new applications or services are likely to see higher returns on investment. However, the high cost of components is a key variable.

 

Key investment opportunities

Here are the main areas:

Developers: companies creating AI innovations; cloud service providers training and hosting AI models; semiconductor companies

Foundational technologies: high bandwidth memory and networking chips; semiconductor capital equipment and materials suppliers; foundries; providers of networking and data storage systems; providers of energy efficiency and alternative energy solutions, such as cooling and solar panels

Data providers: companies with proprietary data sets that can be used to train AI models and provide competitive advantages

‘Beneficiaries’: Companies leveraging AI to improve products and services.

Challenges and risks

These include stricter regulations, for example, on copyright and data rights slowing innovation and demand for AI infrastructure.

There is also a need to avoid bias, produce accurate outputs, and ensure that real content can be distinguished from fake information.

Finally, AI systems and data need to be protected from cyberattacks.

Conclusion

Arguably, artificial intelligence is the most significant technology theme since the dawn of the internet age.

As AI technology advances and becomes more pervasive, we believe the investment opportunities among publicly traded equities are broadening. Capitalising on the positive trends while avoiding potential pitfalls will require an active approach to investment management.

 

Opinion article by Pamela Hegarty and Derek Glynn, BNP Paribas AM

The Rise of Small and Micro Caps: Investors Will Increase Their Allocation Over the Next 12 Months

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Small and micro-cap investments

A global study by New Horizon Aircraft reveals that fund managers are increasingly interested in small and micro-cap stocks. The report, based on a survey of fund managers from the U.S., Canada, Europe, the Middle East, and Asia, with a total of $82.4 billion in assets under management, concludes that 76% of respondents anticipate that institutional investors’ exposure to small and micro-cap stocks will increase in the next six to twelve months. Furthermore, one in three (34%) fund managers believes allocations could increase by 25% or more.

For retail investors, the trend will be similar: 83% of surveyed fund managers expect retail investors to increase their allocation in the next six to twelve months, with 52% indicating that the allocation could rise by more than 25%, and one in eight (12%) suggesting that exposure to small and micro-cap stocks could increase by more than 50%.

“One in three fund managers describes the current level of institutional investor exposure to this type of asset as underweight, with 21% of respondents describing the allocation to micro caps as slightly underweight and 11% describing it as extremely underweight. The current level of exposure is described as overweight by 4% and 23%, respectively. A similar outlook is seen with retail investors, with fund managers describing the allocation of this group to small and micro caps as underweight (32% and 27%, respectively) and as overweight (17% and 13%, respectively),” the report notes.

In the opinion of Brandon Robinson, CEO of Horizon Aircraft, this analysis shows that fund managers believe institutional and retail investors’ exposure to small and micro-cap stocks is lower than it should be. “However, with anticipated interest rate cuts and expected improvements in market conditions, fund managers foresee investors significantly increasing their allocation to small and micro-cap stocks. As the economy recovers, small and micro-cap companies may have greater growth potential than large-cap companies due to their smaller revenue bases and agility in seizing opportunities. This has historically made them more attractive to investors driven by the potential for high returns and accelerated earnings growth in the coming 12 months,” he explains.

The Final Stretch of the Year in the U.S.: Elections and Markets on Separate Paths

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Elecciones en EE.UU. y mercados

With just days until the U.S. decides its president, the market is starting to anticipate a Trump victory without major hesitation.

Despite the short-term market volatility around elections, U.S. equity performance tends to be fairly “indifferent” to which party takes the White House, especially if Congress remains divided. As a starting point, it seems somewhat “pointless” to link a market outlook to a party aspiration, says a Fynsa report.

Generally, markets have risen under both Republican and Democratic presidents, and the reason is that “markets simply go up, and over 100 years of modern history, the compounded annual growth rate is practically identical under presidents of both parties,” adds the study.

However, some sector-specific impacts can be observed depending on the candidate. For example, Republicans would focus on deregulating the economy and creating a positive fiscal boost from tax extensions.

Trump could replace Jerome Powell, potentially leading to unpredictable changes in Fed policy.

There might also be a higher risk of increased tariffs against China and moderate risks against global tariffs. Mega-cap stocks could be affected by higher tariffs, given the additional costs arising from relocation and potential Chinese retaliation against these control measures.

But, overall, highly regulated industries such as healthcare, energy, and the financial sector are potential relative winners under a Trump presidency.

On the other hand, the economic policies and measures proposed by both candidates are likely to contribute to an increase in the fiscal deficit, although experts at Fynsa expect the deficit to be larger under Trump. “The most bipartisan thing in the United States is that public spending keeps growing. The national debt was $19 trillion when former President Trump took office and $28 trillion when he left. And the Democrats have added another $7 trillion to the debt,” the report adds.

Looking Toward Year-End

The third quarter will continue to be a test for big names related to artificial intelligence, according to a report by Sarah Stillpass, Global Investment Strategist at J.P. Morgan Private Bank. In line with Fynsa, Stillpass does not believe that the elections or Middle East unrest are reasons to dismantle long-term plans.

“We believe the most important implications are those resulting from policies after the elections, and it’s important to recognize the difference between a short-term operation and a fundamental trend,” says the J.P. Morgan report.

For these reasons, with just under 70 days until year-end and just over a week until the next FOMC meeting, the U.S. bank provides a series of recommendations for investors.

First, the expert recommends identifying goals and creating a long-term plan for effective portfolio maintenance. “Just like medical check-ups, regular portfolio reviews are equally important,” the bank’s text notes.

Economic and market dynamics can shift both short-term and long-term, which can lead to unexpected impacts. For this reason, it’s important to review your target asset mix and consider the possibility of rebalancing.

Secondly, “it’s crucial” to maintain a long-term perspective and focus on fundamentals. Remember that markets tend to record gains regardless of who is president. If market uncertainty causes doubt about your portfolio allocation, take it as an opportunity to review your goals and plan.

Lastly, the strategist recommends using available tools to improve portfolio efficiency. “Integrating technology and innovation into investment strategies can enhance portfolio performance in the long run.” For example, artificial intelligence, “which can improve the active portfolio management process by allowing managers to gain a competitive edge through better data analysis and faster decision-making.” Additionally, this technology can improve more traditional strategies, such as tax-loss harvesting, which involves realizing losses to offset gains, concludes the expert.

The Growth of Active ETFs Is Unstoppable: Their Assets Have Reached $1.05 Trillion Globally

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Crecimiento de los ETFs activos

The ETF market shows great strength worldwide, as do actively managed ETFs, which achieved assets of $1.05 trillion as of the end of September, surpassing the previous record of $1.01 trillion set at the end of August 2024. This figure indicates that assets have increased by 42.5% so far in 2024, rising from $737.06 billion at the end of 2023 to $1.05 trillion.

According to ETFGI, flows show that this type of vehicle recorded net inflows of $26.50 million in September, bringing total inflows for the year to $240.14 billion. “This year’s record cumulative inflow of $240.14 billion is followed by cumulative net inflows of $113.80 billion in 2023, and the third-highest record was $106.90 billion in 2021. This was the 54th consecutive month of positive net inflows,” the report states.

Additionally, the report highlights that in the United States, where actively managed ETFs can use semi-transparent or non-transparent models, only 52 of the 1,659 actively managed ETFs use a semi-transparent or non-transparent model, representing only $14 billion of the $791 billion invested in these strategies.

In light of this data, Deborah Fuhr, managing partner, founder, and owner of ETFGI, notes: “The S&P 500 index rose 2.14% in September and is up 22.08% so far in 2024. The developed markets index, excluding the U.S., increased by 1.26% in September and is up 12.53% in 2024. Hong Kong, with a rise of 16.51%, and Singapore, with a rise of 7.43%, saw the largest increases among developed markets in September. The emerging markets index rose by 7.72% in September and is up 19.45% in 2024. China, with an increase of 23.89%, and Thailand, with an increase of 12.43%, registered the largest gains among emerging markets in September.”

As of the end of September 2024, according to ETFGI data, the global actively managed ETF/ETP industry included 2,962 ETFs/ETPs, with 3,679 listings, assets of $1.05 trillion, offered by 485 providers across 37 exchanges in 29 countries. By strategy type, globally focused equity ETFs saw net inflows of $15.49 billion in September, raising cumulative net inflows for the year to $139 billion, surpassing the $76.15 billion in cumulative net inflows in 2023. Meanwhile, actively managed fixed-income ETFs attracted net inflows of $10.19 billion in September, bringing cumulative net inflows to $86.36 billion, significantly more than the $36.20 billion in 2023.

A substantial portion of these inflows is attributed to the top 20 active ETFs by new net assets, which collectively captured $12.75 billion in September. The BlackRock Flexible Income ETF (BINC US) led with the highest individual net inflow, capturing $1.58 billion.

Fundamentals or Market Sentiment: The Ongoing Gold Rally, Under Debate

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Debate sobre el rally del oro

Gold prices have hit new highs. Midweek, the ultimate safe-haven asset reached $2,753 per ounce, marking a 33% increase for the year. According to experts, geopolitical tension stemming from the Middle East explains this surge.

At the start of the week, Ned Naylor-Leyland, gold investment manager at Jupiter AM, noted that the recent rise in gold prices was primarily due to futures contracts rather than physical demand or central bank purchases. “This is a crucial distinction as it highlights the nature of the gold market and how the dollar price of the yellow metal is driven not by physical trends but by futures market activity.”

He also pointed out that gold has gained prominence as central banks seek a buffer against the financial stability risks posed by rising geopolitical tensions, as well as events like the global financial crisis and the coronavirus pandemic. “Around one-fifth of above-ground gold reserves are held by central banks,” Naylor-Leyland added.

In contrast, Carsten Menke, Head of Next Generation Research at Julius Baer, believes this price surge has more to do with market sentiment than fundamentals. “The impressive rally in gold continues, with prices surpassing $2,700 per ounce last week. When looking for factors driving this rally, it appears to be mainly momentum and market sentiment. The position of short-term speculative traders and trend followers in the futures market recently reached one of the highest levels on record. Such extreme euphoria is typically a warning signal, as it shows a certain detachment of prices from fundamental factors,” Menke argues.

He explains that the U.S. dollar and U.S. bond yields have risen again as expectations for rate cuts have tempered. As a result, he notes that already moderate inflows into physically-backed gold products have slowed even further. “Gold buying in Asia remains weak, as indicated by Chinese imports, physical deliveries, and domestic price premiums. India’s gold imports have also normalized after high volumes in response to a surprising cut in import duties,” the Julius Baer expert added.

Short-Term Outlook

Despite this debate over the drivers behind gold’s price growth, there is a consensus on its positive short-term outlook. Marcus Garvey, Head of Commodities Strategy at Macquarie, agrees that gold’s “practically steady” rally continues, once again outperforming other assets. “While recent gains have not been explosive, the pace has been faster than estimated in our base scenario in September, when we updated forecasts, projecting an average price of $2,600 per ounce in the first quarter of 2025, with potential to advance toward the $3,000 per ounce level,” he indicates.

Macquarie maintains that challenging budget outlooks across developed markets are now a key feature of the bull market.

“Clearly, the upcoming U.S. elections contribute to uncertainty in this area. The scope and potential effectiveness of stimulus measures from Chinese authorities remain unclear, but if they succeed in significantly boosting the domestic equity or real estate markets, or both, it could dampen Chinese demand for gold,” Garvey argues.

“We continue to see a solid fundamental outlook for gold,” says Menke, explaining, “A further cooling of the U.S. economy and the prospect of lower interest rates in the U.S. could attract more Western investors to the market. The same applies to the U.S. presidential elections, which are reportedly prompting gold purchases by major investors who believe that, regardless of who reaches the White House, the U.S. dollar will be under pressure due to rising fiscal deficits.”

Finally, Julius Baer adds that Chinese investors and the People’s Bank of China should also return to the gold market. “For the former, it’s about the persistent weakness of the economy despite recent support measures. For the latter, it’s the low proportion of gold in its foreign exchange reserves and ongoing geopolitical tensions, especially with the U.S. In this context, short-term pullbacks are likely to be seen as buying opportunities,” Menke concludes.

The Miami Industry Hopes for a Quick Resolution of U.S. Election Results

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Impacto de las elecciones en EE.UU. en Miami

On Tuesday, November 5, U.S. elections will close, and who will lead the White House remains a big question. Although Donald Trump holds a slight edge according to betting markets, what matters most to the financial industry is a swift announcement of results without any dispute.

With this context, Miami’s buy-side representatives are analyzing potential scenarios and how the elections could impact investors.

Ignacio Pakciarz, Founder and CEO of BigSur Partners, expressed that he expects a “Red sweep” where Republicans win both the executive and both houses of Congress.

“We’re basing this primarily on betting markets and a range of financial indicators that consistently point to this outcome,” the expert stated.

According to Pakciarz, the market could experience a minor “relief rally” of 2-3% just from the elimination of electoral uncertainty—so long as there is no “contested election,” which would be the worst scenario. On the other hand, for BigSur’s CEO, “the best outcome would be a divided government.”

Alejandro Behrens, Managing Director at MAXIMAI Investment Partners, commented that he expects a “highly contested election” that will hinge on the swing states.

Behrens warns that “the market will react depending on the clarity and speed with which the results are known.” He agreed that much will also depend on how balanced the government will be, taking into account the Senate and House results.

“Markets usually tend to prefer a more divided government. For me, the best outcome for investments would be one where the winner is known quickly. I think the worst scenario would be one where doubts linger, and it takes several days or even weeks to find out who the new president will be. This would definitely not be positive for the markets and would cause a lot of uncertainty,” he reflected.

Fernando de Frutos, Chief Investment Officer at Boreal Capital Management, outlined three scenarios that could affect the market.

Firstly, who ultimately wins and how anticipated the result was. Secondly, whether the losing party contests the results; and finally, how Congress will be structured.

According to De Frutos, currently, prediction markets show Trump with a slight lead and around a 30% probability of a “Republican sweep.” However, “this advantage has been declining, and polls indicate a very close race,” he clarified.

Given these possible scenarios, for Boreal Capital Management’s CIO, a “Republican sweep” could be positive for stocks in the short term, but might impact bonds, as deficits and tariffs could lead to a rise in interest rates, which in turn could place downward pressure on stocks.

In this regard, De Frutos clarified that “investors generally value all available information, but the impact of fiscal and economic policies often materializes over time and may not immediately influence markets.”

However, the effects of policies related to regulation, tariffs, and taxes tend to be more immediate, the expert explained, noting that the “Trump trade” in 2016 serves as a clear reminder of how markets can react swiftly to policy changes.

Investor Recommendations

It’s well-known that election periods bring volatility and uncertainty for investors. For this reason, financial advisors need to have clear recommendations for their clients.

In this aspect, BigSur Partners “prioritized a healthy rotation toward sectors with good valuation levels.” According to Pakciarz, these sectors would benefit from deregulation that a Trump administration would bring.

Behrens, for his part, worked to help his clients “stay calm and continue with a long-term focus regardless of the election outcome.”

De Frutos, in turn, believes that beyond the “immediate market reaction,” regardless of the electoral outcome, the U.S. will continue to be one of the most attractive markets for investors.

The expert emphasized that for clients with a medium- or long-term investment horizon, “these elections are basically background noise” and noted that historically, stock markets have risen under both Republican and Democratic presidents, and “staying out of the market can be costly in the long run.”

“Since post-election market reactions are notoriously hard to predict, we do not recommend making drastic adjustments based solely on the election results,” he concluded.

Securitization and alternative assets: New opportunities for portfolio management

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Nuevas oportunidades en securitización y activos alternativos
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In the current climate of economic uncertainty, market volatility, and increasing geopolitical risks, portfolio diversification has become a priority for asset managers. Traditional strategies based on equity and bond investments have proven insufficient to mitigate the inherent risks of financial markets. Alternative assets emerge as a critical tool here, providing managers with new diversification opportunities to enhance portfolio resilience and profitability, FlexFunds highlights.

Alternative assets encompass investments in real estate, private equity, infrastructure, private debt, commodities, art, and collectibles, among others, characterized by their low correlation with traditional assets. This makes them an attractive option for managers and investors seeking to reduce portfolio volatility and mitigate the adverse effects of economic cycles.

In a high-inflation, high-interest-rate scenario, managers need to explore opportunities outside traditional markets. Alternative assets offer stability and potential returns, helping safeguard investment value during uncertain times. David Elms, head of diversified alternatives at Janus Henderson Investors, highlights that, during periods of economic transition, alternative investments can generate long-term returns independent of equity or fixed-income markets, particularly in bearish conditions.

Today, portfolio managers are increasingly turning to asset securitization to optimize their diversification strategies. This tool enables converting illiquid assets into tradable securities, facilitating distribution among investors. For managers, this approach opens up access to assets that would otherwise be unattainable due to their illiquid nature.

Securitization not only improves the liquidity of underlying assets but also provides an additional source of diversification. According to the II Annual Report of the Asset Securitization Sector by FlexFunds and Funds Society, portfolio managers are more familiar with securitizing traditional, tangible assets such as real estate projects, loans and contracts, and stocks.

One of the main advantages of alternative assets is their ability to generate absolute returns—i.e., positive returns regardless of market conditions. Portfolio managers incorporating these assets into their strategies aim to minimize economic cycle dependency by diversifying their investments into areas less correlated with equity or fixed-income markets.

In line with this, and based on a survey conducted by FlexFunds and Funds Society to over 100 investment and portfolio management experts, the most sought-after assets for securitization include real estate projects, loans and contracts, stocks, bonds, and mutual funds, as shown in Figure 1.

Source: II Annual Report of the Asset Securitization Sector 2024-2025

Figure 1: Assets of greatest interest for securitization

 

In addition to diversification and risk mitigation, alternative assets provide access to sectors undergoing growth and economic transformation. According to the same report, the most common types of alternatives that managers include in their portfolios are detailed in Figure 2.

 Source: II Annual Report of the Asset Securitization Sector 2024-2025

Figure 2: Alternative product in the portfolio

 

However, investing in alternative assets also entails challenges that must be managed carefully. The lower liquidity of these assets, as well as their opacity and lack of regulation in some cases, can increase risks. To mitigate these, rigorous due diligence and an experienced management team are crucial to understanding each alternative investment’s unique characteristics.

From a manager’s perspective, integrating alternative assets into investment strategies represents both an opportunity and a responsibility. The challenge lies in identifying suitable assets that align with investors’ objectives and risk profiles. The selection of these assets should be accompanied by constant portfolio review and adjustment, considering market fluctuations and emerging opportunities.

In this context, FlexFunds, as a leader in designing and issuing investment vehicles (ETPs), facilitates access to international markets, especially in a financial environment where diversification through alternative assets is key. With its securitization program, FlexFunds offers managers the ability to:

  • Issue ETPs at half the time and cost of other alternatives available in the market.
  • Securitize multiple asset classes, including alternatives.
  • Facilitate distribution of alternative assets across banking platforms worldwide via Euroclear.
  • Streamline capital raising from international investors.
  • Simplify the onboarding and subscription process for investors, compared to traditional alternative asset subscriptions.

For further information, please contact one of FlexFunds’ experts at contact@flexfunds.com

Latincapital Wealth Management Strengthens Its Advisory Team With the Addition of Matías Rodríguez

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(cedida) Matías Rodríguez, gestor de Latincapital Wealth Management

The Chilean firm Latincapital Wealth Management is expanding its advisory team. The company, the financial advisory unit of Sartor Finance Group, announced the addition of Matías Rodríguez Zaror.

According to a statement, the professional has been appointed as a wealth management manager, bringing 14 years of experience in the local financial industry to the group.

The company emphasized Rodríguez’s ability to manage accounts, operate in financial markets, and build strong client relationships, describing him as a “key asset” for Latincapital with a strategic focus for the company.

Before joining Sartor’s subsidiary, the executive held the position of Associate Director Relationship Manager Assistant for Chile at Julius Baer, where he spent seven and a half years. He also worked as a real estate broker for the fintech Capitalizarme, according to his LinkedIn profile.

“This appointment confirms Sartor’s commitment to excellence in investment management and growth alongside our clients,” said Rodrigo Bustamante, Co-Head of Latincapital Wealth Management and partner at Sartor Finance Group, in the press release.

Sartor is a financial services holding company that includes a fund manager specializing in private debt. The group has $850 million in assets under management (AUM), with operations in Chile, Peru, and Uruguay. Earlier this year, the firm announced its merger with the wealth management branch of the multi-family office Latincapital & Co, aiming to expand across Latin America.

Brazil’s Largest Pension Fund Seeks to Outsource Part of Its Equity Management

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Fondo de pensiones de Brasil busca externalizar gestión

Brazil’s largest pension fund, Previ (Banco do Brasil Employees’ Pension Fund), is in the process of outsourcing a small portion of its equity portfolio, according to sources from Funds Society.

The foundation, which currently manages approximately 280 billion reais (around $4.9 trillion), confirmed the existence of a study for portfolio outsourcing but declined to reveal details, stating that it is still at a very early stage.

Complementary Strategies

One of the assets that has already received pre-approval in this process is Trígono Capital, specialized in Small Caps.

In this process, Previ is specifically looking for a manager for a dividend strategy, focusing on assets that the company does not currently hold in its portfolio. Other strategies are also under consideration.

With managing partners, the foundation is expected to create exclusive funds, making small contributions from its younger portfolios, particularly from defined contribution plans.

The focus will be on enhanced management, introducing strategies and specializations that do not currently exist within the foundation’s assets.

Four Secular Trends That Offer Long-Term Certainty Amid Short-Term Volatility

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Tendencias seculares en medio de la volatilidad

“Putting money back to work” was the theme under which Oddo BHF AM recently presented its macroeconomic and market outlook in Madrid for the next four months. Laurent Denize, the firm’s Chief Investment Officer, led the presentation, focusing on three concepts investors should consider to capitalize on market trends: rotation, duration, and carry.

Denize clarified that Oddo’s stance aligns largely with market consensus, with a few nuances. Their outlook comprises four key points: a soft landing for the global economy, a continuation of the gradual trend toward disinflation seen over recent quarters, further interest rate cuts from the Federal Reserve and the ECB, and an increase in geopolitical risk, especially in the Middle East and in the lead-up to the U.S. presidential elections in November. However, Denize emphasized that the elections’ outcome is less concerning than the U.S. fiscal deficit, which he deemed “worrisome.” He also highlighted Germany’s risk of deindustrialization due to its anti-nuclear policy and growing reliance on Chinese imports, and France’s political instability and high government deficit, leading to significant tax hikes.

In this context, how can investors safeguard their portfolios? “We’re seeing that flows and market positioning are increasingly important,” Denize commented, pointing to the concentration in markets like the U.S. He believes that “valuations appear attractive, but EPS expectations are unrealistic,” which could lead to a rapid rotation.

Denize describes a landscape of rising volatility, declining liquidity, and investor indecision, yet with rich valuations across many market segments. He suggests these factors explain “the significant yield discrepancy between fixed income and equities,” arguing that “bond positioning doesn’t make sense” given the anticipated curve normalization. “We need to look for duration where it’s cheap, and today, that’s in equities, not debt,” he concluded.

Betting on Secular Trends

To navigate this environment, Oddo recommends focusing on secular investment trends. Denize points to the rise of artificial intelligence (AI) as the first such trend, noting its impact on capex could be pivotal: “We see a valuation gap between less capital-intensive companies and those investing heavily in AI. Interest is shifting from semiconductor manufacturers to software.” He anticipates that AI will drive further growth in trends like reindustrialization and robotics as a means to counter demographic shifts.

Two other secular trends noted by Denize are the growth of the healthcare sector—partly due to AI and scientific advances that enable better diagnostics and new drug discoveries—and the green economy. Specifically, Denize predicts “a rally” in green energy, driven by electrification over other energy sources, and stated, “The market is being very complacent about changes in the energy mix.”

The final secular trend mentioned by Denize is the emergence of new consumption patterns, tied to the widespread adoption of new payment methods. Oddo also anticipates a recovery in the luxury sector by 2025.

Due to these trends, Oddo recommends a defensive positioning for the coming months, favoring stocks tied to utilities, real estate, basic consumption (such as food and beverages), and construction, as they are well-positioned to benefit from both the rate-cut cycle and the trends in electrification and energy transition.