Notes from the Road: Summer 2024

What You Need to Know

In this note, we discuss feedback from recent meetings with clients around the world, where common themes emerge: The cyclical vs structural inflation outlook has become more muddied. The sustainability of public debt has come up in the majority of recent meetings, leading to a debate about the possible ways forward. Many investors seem to be looking for an excuse to own EM equities. Allocation to private assets remains a huge topic. We also reflect on some of the recent questions we have fielded about the aggregate impact of artificial intelligence (AI). We discuss how investors are adapting to these topics and what we think they mean for portfolio design.

Introduction

When we ask about which of our research notes are read most, one of the consistently popular seems to be feedback from our trips to see clients around the world. Everyone, it seems, wants to know what everyone else is doing. So, we offer another such note here, reflecting on discussions with clients in the US Southwest and Northeast, around Europe and Zoom calls with people anywhere in the world.

Of the key topics that we were repeatedly asked about, inflation topped the list. No surprise there, but with a focus on the distinction between cyclical and structural inflation. There were a significant number of questions about debt sustainability, in part prompted by the policy response to inflation but also relating to observations about the degree of fiscal largesse in the US. Private asset questions come up in nearly every meeting with allocators, specifically: How large should the exposure be? Which private assets should one choose? Is private asset investing a bubble or a structural trend? How would we know?

A significant number of investors seems to be looking for an excuse to buy emerging markets (EM); we discuss some of the tactical and strategic issues that have surfaced in these meetings. Finally, we reflect on some of the more strategic AI-related questions that clients have asked in meetings.

What is equally of interest, it goes without saying, is what people don’t ask about. We found very little concern about market valuation (any market!) and very little mention of the US election (there has been more recent interest in the French election from European investors and what this means for the volatility of fixed income). The US faces its most consequential election in decades, but, when en route to the lift at the end of the meeting, we ask why the topic didn’t come up. The reasons we hear are one of the following: a) it is too close to call; b) it’s too hard to work out the impact; c) despite massive differences in style, the net fiscal difference may be small or; d) the importance of politics for markets is overstated. On the latter reason, we would agree that this is usually the case, but we do worry that, strategically speaking, that view is overly complacent given the scale of the choice on offer. Finally, we note that environmental, social and governance (ESG) considerations remain off the list of topics that people want to ask about. 

Additional Contributors

Robertas Stancikas, Harjaspreet Mand and Maureen Hughes