We recently released our Quarterly Investment Committee Review after our investment team meeting and thought it helpful to summarize and share our current thinking. While we’ve attempted to summarize our findings below, if you prefer a deeper dive the full Investment Committee Review can be found here.
For most of the past two years investors have viewed markets through a very narrow lens: artificial intelligence (AI), falling inflation, and the expectation the Federal Reserve (Fed) would eventually begin cutting rates. That narrative was interrupted abruptly in the first quarter of 2026.
The Iran conflict reminded investors of something markets periodically forget during long bull markets: geopolitics still matters. A lot.
The closure and disruption of the Strait of Hormuz sent oil prices sharply higher, reignited inflation concerns, disrupted expectations for Fed easing, and triggered a broad risk-off move across financial markets. The result was a quarter where traditional market leadership began to crack, volatility returned and diversification suddenly mattered again.
But beneath the volatility something more important may be happening.
This quarter increasingly felt like a transition from one market regime to another.
For several years markets rewarded a very concentrated group of mega-cap technology companies tied directly to the buildout of AI infrastructure. That trade became crowded, expensive, and heavily dependent on continued capital expenditure (capex) escalation. During Q1 many of those same companies corrected sharply as investors began questioning whether the economics of the AI arms race justify the valuations attached to them.
At the same time, earnings growth broadened meaningfully beyond the largest AI suppliers. That matters.
The next phase of the AI cycle may not belong exclusively to the companies building AI infrastructure. It may increasingly benefit the companies implementing AI to improve productivity, lower costs, and expand margins across the broader economy. In many ways this feels less like the end of the AI story and more like the beginning of a new chapter.
That distinction is important for portfolio construction.
The Market is Reminding Investors Why Diversification Exists
One of the more important developments during the quarter was the dramatic reversal in market leadership.
The S&P 500 and Nasdaq Indexes declined as mega-cap growth stocks sold off, while smaller-cap and equal-weighted indices held up relatively well. International equities also outperformed US markets as the dollar weakened and valuation gaps became increasingly difficult to ignore.
This is exactly the type of environment where concentration risk becomes visible.
For years investors were rewarded for owning a very small group of dominant US technology companies. Diversification often felt unnecessary. Q1 2026 was a reminder that concentrated leadership works exceptionally well until it suddenly doesn’t.
We continue to believe international equities deserve greater attention than they’ve received over the past decade. Valuations remain substantially cheaper than the US, fiscal policy abroad is becoming more supportive, and a structurally weaker dollar could become a powerful tailwind over the next several years. If geopolitical tensions ease, international and emerging market equities could become some of the largest beneficiaries.
That does not mean abandoning US equities.
It does mean the era of effortless concentration may be ending.
Inflation May Not Cooperate as Easily as Markets Hoped
Markets entered 2026 assuming inflation would continue moving steadily lower and allow the Fed to begin easing policy. The Iran conflict complicated that outlook significantly.
Higher energy prices immediately fed into inflation expectations and pushed Treasury yields higher across the curve. Suddenly the conversation shifted from “how many rate cuts?” to “what if the Fed can’t cut at all?”
At the same time, several underlying economic indicators remain stronger than many investors appreciate:
Global money supply growth is accelerating.
Manufacturing activity is improving.
Fiscal liquidity remains modestly supportive.
The result is a very unusual environment where growth is slowing modestly, inflation remains sticky, and markets are struggling to determine which risk matters more.
That tug of war likely defines the remainder of 2026.
Fixed Income is Investable Again
For much of the past decade fixed income struggled to compete with equities due to exceptionally low yields. That environment has changed materially.
Today, investors can once again earn attractive income while also gaining diversification benefits from high-quality bonds. Importantly, active management matters more in this environment because volatility, curve shifts, and credit dispersion are all increasing.
We continue to favor:
High-quality credit
Intermediate duration exposure
Treasury Inflation-Protected Securities (TIPS)
Mortgage-backed securities
Active yield curve positioning
The key point is simple: fixed income once again provides both income and portfolio stabilization.
That has not been true for much of the past fifteen years.
Real Assets are Behaving Exactly How Real Assets are Supposed to Behave
One of the clearest lessons from Q1 was the importance of real asset exposure.
Commodities surged, led overwhelmingly by energy as geopolitical risks exploded higher. Gold also benefited from safe-haven demand and ongoing concerns surrounding deficits, debt issuance, and fiscal sustainability.
This is precisely why we continue emphasizing commodities and real assets inside diversified portfolios.
They are not designed to outperform during every market environment. They exist because occasionally the world becomes inflationary, unstable and supply constrained.
And when that happens, they behave differently than traditional stocks and bonds.
We also continue to see attractive opportunities in Real Estate Investment Trusts (REITs) and infrastructure. Public REITs still trade at substantial discounts to private market valuations while several sectors—particularly data centers, infrastructure, and health care—continue benefiting from powerful secular demand trends.
In many ways, real estate today looks far healthier fundamentally than investors realize.
Private Markets: Not All Alternatives are Created Equal
Private markets continue to require careful selectivity.
Infrastructure and private real estate remain attractive due to durable cash flows, inflation-linked characteristics, and long-term structural demand drivers.
Private credit, however, is beginning to show stress.
Rapid asset growth, weaker underwriting standards, and liquidity mismatches are creating growing concerns—particularly in retail-oriented structures exposed to lower quality software and technology borrowers. Several private credit vehicles experienced significant redemption pressure during the quarter.
This feels increasingly similar to what happens late in many credit cycles: easy capital eventually exposes weaker underwriting.
That does not mean private credit disappears as an opportunity set. It does mean manager selection, structure, and underwriting discipline matters substantially more going forward.
We are Entering a Wider Distribution of Outcomes
The defining feature of this market environment is not simply volatility.
It is the widening range of possible outcomes.
A durable geopolitical resolution could trigger a significant rally in international equities, cyclicals, and risk assets broadly. An escalation could drive oil materially higher, reaccelerate inflation and force markets to completely reprice Fed expectations.
That is why flexibility matters so much right now.
We continue to favor:
Diversification over concentration.
Quality over speculation.
Active management over passive complacency.
Real assets as inflation and geopolitical hedges.
Tactical flexibility over rigid positioning.
For years, investors operated in an environment dominated by liquidity, disinflation, and narrow leadership. The next several years may look very different.
And portfolio construction will likely need to adapt accordingly.
Important Disclosures & Definitions
Real Estate Investment Trust (REIT): companies that own or finance income-producing real estate across a range of property sectors. Listed REITs have characteristics of both the income potential of bonds and growth potential of stocks.
Tailwind: a certain situation or condition that may lead to higher profits, revenue or growth.
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