Going with the AI flow may be the path of least resistance, but concentrating on a single theme might not get you to your destination, according to Nuveen CIO Saira Malik.
“The narrower the focus, the greater the likelihood that other compelling ideas will be overlooked. Limiting potential sources of diversified risk and return in this way isn’t a sound strategy,” she said in the firm’s midyear outlook.
Her comments respond to the AI boom – more specifically, the surge in hyperscaler data centers – which has become the dominant driver of global financial markets.
She noted that some investments are better positioned than others across equities, private markets, alternative credit and real assets.
“That’s not to say AI no longer presents attractive investment opportunities. But the trade has become more nuanced as investors shift their gaze from which companies are spending the most on AI to which ones are actually generating a meaningful return on their investment,” Malik said.
The distinction, along with varying tailwinds and headwinds across AI-related subsectors and industries, is a key theme in Nuveen’s outlook.
The firm highlights five portfolio construction themes:
- From AI boom to AI disruption;
- Don’t bet against the US in a bid for diversification;
- Alternative credit and private markets remain core;
- Municipals continue to offer compelling, durable opportunity;
- The private real estate rebound is just getting started.
Nuveen favors a broad mix of asset classes beyond the AI trade, including alternative credit and private markets (equity, debt and real estate), “where selectivity and deal structure are paramount, and which offer a degree of insulation from AI disruption and geopolitical noise,” Malik said.
Head of global equities, Willis Tsai, said dividend-growing stocks look compelling alongside second-order AI beneficiaries.
“This segment offers strong free cash flow, balance sheet discipline and stable earnings growth – qualities increasingly valuable in a more volatile market,” Tsai said.
He noted that AI remains a powerful structural tailwind, but markets are becoming more discerning about where spending translates into durable shareholder value.
“In this environment, we favor a global, flexible approach emphasizing high-quality companies, durable cash flow and resilient earnings. We continue to favor US large caps given their scale, liquidity and innovation leadership across the core AI ecosystem, while recognising that selectivity now matters more than simple benchmark exposure.”
Nuveen has grown less enthusiastic on US small caps, noting that while the full-cycle opportunity remains attractive, elevated financing costs, tighter liquidity and greater macro sensitivity leave smaller companies with less room for error relative to large caps.
The firm remains neutral on non-US developed and emerging markets broadly, but sees both as increasingly fertile ground for selective opportunity.
“In developed markets, we find attractive businesses in banks, defense and select industrials. In emerging markets, we are constructive where AI-linked supply chain exposure, improving governance or favorable domestic fundamentals create a differentiated earnings path,” Tsai said.
CIO and head of global fixed income, Anders Persson, added that preferred securities should benefit from strong fundamentals and limited new issuance, while senior loans offer attractive yields and good relative value.
“In municipal bonds, we favour select opportunities in health care and higher education and see value in the 16-to-21 year maturity range.”
