THINK DIFFERENTLY

Executive Summary

Market review

January delivered strong headline gains, as positive data surprises fueled risk assets. Headline gains masked periods of heightened volatility and sharp corrections towards month-end. Geopolitics, as well as the scrutiny of Fed’s independence ahead of Kevin Warsh’s nomination each triggered risk-off moves. What did well? Global equities advanced, with the popular S&P 500 up 1.4%, reaching 7000 for the first time. Precious metals posted a strong monthly gain despite a late-month correction, with silver and gold up 18.9% and 13.3%, respectively. What struggled? The U.S. Dollar index fell 1.4% versus G10, while cryptocurrencies lagged amid ETF liquidations.

Outlook: constructive but cautious near-term

Baseline view: remain constructive on supportive fundamentals, though near-term volatility and the ongoing positioning reset could persist. Policy uncertainty around the new Fed Chair nomination and upcoming mid-term election concerns could also continue to cloud the outlook.

Equities: Staying positive, with our exposures broadening beyond US megacaps into markets with better valuation and positioning that offer tactical upside.
Fixed Income: Preference for shorterduration, high-quality investment-grade credit for more resilient income.
Alternatives: Gold as a strategic hedge with recent correction helping to reduce crowded positioning. We also favour Alternative income, such as catastrophe bonds, for yield and diversification.

Time to be selective

Our 2026 Market Outlook emphasized selectivity, diversification, and active management amid uncertainty. January played out in line with this view:

Gold and silver corrected sharply as crowded positioning unwound – more a reset than a breakdown in fundamentals.
AI leadership came under scrutiny as markets shifted from hype to execution, pressuring heavyweight spenders amid questions over pay-off timelines.
Software stocks sold off despite resilient broader markets, as markets focused on AIdriven disruption risks.

Key takeaways: 1. Sentiment can turn quickly against crowded trades. 2. Fast-moving themes like AI demand nimble and active management, 3. Diversification remains the most reliable defense in a concentrated market.

Income still attractive, but no longer easy

2025 delivered strong gains for income investors. The ‘easy’ phase is likely behind us.

Valuations are stretched: credit spreads sit near multi-year lows, leaving little margin for error despite still attractive income.
There will be winners & losers: For now, we are still seeing favourable fundamentals and positioning in markets like EM & Asia.
Selection is crucial: Heavy new issuance (borrowing) from AI-driven tech firms has reshaped bond markets, increasing dispersion between winners and losers.
Active duration matters: Short-term yields remain anchored by policy cuts, while longer-dated yields have risen on fiscal supply concerns – active duration and risk management is important to manage volatility.

THINK DIFFERENTLY

Executive Summary

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