The idea: I’d put 80% in an actively managed small-to-medium-cap (SMID) strategy, 10% in emerging markets and 10% in a large-cap growth ETF.

The strategy: The valuation dispersion between large- and small-cap stocks has rarely been as wide as it is today due to the rise in interest rates. We are at an inflection point, and as rates come down, I think the market will broaden into the small- and mid-cap space. When we analyze where we’re likely to see accelerated growth over the next couple of years it points in this direction. I’d pick an active manager whose process has a quality tilt. I want to know I’m investing with companies that have the balance sheet flexibility to get them through whatever macro surprises might be on the horizon.

Investors are under-allocated to emerging markets, which have long been pressured as they’ve faced headwinds from a strong dollar. I want some exposure to the potential of the dollar weakening with rates moving lower, and there are very interesting regions where growth is exploding given the realignment of the global supply chain. India is picking up a lot of market share now, but there are smaller markets that are very interesting, including Vietnam.

With large-cap and Mag 7 names, while I want some exposure, I want to limit it given relative valuations and the potential downside risk I see. It will only get more difficult for these companies to exceed the implied growth expectations of the market. The challenge for me is that I’m a big believer that we’re in the early part of an innovation cycle likely to last for many years. Even though I’m not comfortable with the valuations and growth rates implied in the multiples of some of the largest companies, it’s likely that a few of them will be long-term winners. 

The big picture: Equity markets have performed well in Republican and Democratic cycles, but we could get some volatility with policy changes. Quality will matter. While there are a lot of small-caps that I like and that are poised to rally given their relative lag in performance, the mid-cap space is really interesting and there are a lot of companies there that are like teenagers just waiting to bloom. 

The idea: I’ve been very bullish on gold and silver, and gold miners and silver miners, which are leveraged to the respective metals prices. I also see some good values in the US energy independence theme and in uranium.

The strategy: I am very bullish on the VanEck Gold Miners ETF (GDX). I expect there will be a strong appetite for people to keep buying the dips in gold and pushing it higher. Concerns about the US budget deficit fuel interest in gold, and with the election, no matter who wins, you’re not going to see a fiscal hawk. While we’ve had deficits before, they’ve never been so dominated by contractual payments — the government can’t decide to not pay for Medicaid, Medicare, or not pay Social Security or not make an interest payment on a Treasury.

Meanwhile, other countries like China are accumulating gold because it’s shadow warfare with the US — if you want to show up the dollar as the reserve currency in 20 years, you’re not going to do that without a lot of gold.

I also like old-school traditional US energy companies at current prices. These companies should continue to be cash-flow monsters. I like Transocean (RIG), which rents rigs to oil companies, as a long-term play. The stock is very volatile but I like where it is trading now, at about $4. We’re seeing a whole long-term rerating of this sector which was left for dead a while back when everyone was saying oil drilling was dead.

I also like the uranium theme. Uranium’s been crushed along with other commodities, but under any political scenario renuking is happening. Electricity demand is not going down, and we may be making more electricity in wind and solar, but the pie is growing. That’s in part because of AI demand, which is a new factor that’s going to help rationalize a reengagement with nuclear energy. It’s a slow steady process, but it’s happening and people should have some exposure to that.

The big picture: I think 2025 will be a decent but not amazing year for stocks. If you look at the Magnificent 7, their earnings from here through mid-2025 are going to be good, but not as good as they were this year or last year. I also believe that if Big Tech just disappeared one day and you were stuck with the 493 other stocks in the S&P 500 you’d still have to be bullish, but the returns would not be nearly as good. 

The idea: The high valuations of big tech stocks and a shift in market leadership have created an opportunity for equity markets to broaden. The three key areas to invest in now are staples, real estate investment trusts (REITs) and small caps. 

The strategy: Packaged food producers have lagged behind the broader market in recent years. Inflation has weighed on input costs, pressuring margins. However, we expect profits for staples stocks to normalize in the medium term as inflation pressures ease. Additionally, we anticipate that these stocks will be more resilient during a market downturn, providing ballast in the event of an economic slowdown.

With small caps, our valuation models suggest they are more attractively valued than their large-cap counterparts. Small caps are poised to participate in future economic growth and should benefit from a decline in borrowing costs. And while high interest rates have weighed on REITs, they are now attractively valued compared to other sectors and continue to generate healthy growth rates. We see better valuations in the hotels, office and retail REIT space.

The big picture: The past few years have been focused on inflation and artificial intelligence. Following encouraging inflation data over the past couple of months and valuations that fully reflect the AI trend, the time is ripe for equity market performance to broaden beyond the themes that have dominated the market in recent years. 

The idea: The concentration of capital in US mega-cap stocks has created substantial investment opportunities elsewhere. One of the most compelling options emerging is US small-cap stocks. In recent years, investors have increasingly turned to small caps as a way to fund their exposure to high-growth stories.

The strategy: Having underperformed large caps for the past 13 years, the prevailing sentiment is that small caps no longer offer superior returns over time. However, this pattern is not unusual. Small caps typically experience long cycles of both outperformance and underperformance.

During prolonged periods of underperformance, investor sentiment can shift. Investors begin viewing small caps as less viable investments compared to the dominant mega-caps like the Nifty 50 stocks of the 1950s and 1960s or the high-flying tech stocks of the 1990s. This type of investor apathy is precisely what has historically set the stage for small caps to exceed low expectations.

Despite the latest performance drought, small caps have still generated superior returns over longer time horizons. This long-term outperformance can be attributed to the fact that small-cap earnings tend to outgrow large-cap earnings over time. Correspondingly, their recent underperformance can be attributed to disappointing earnings. While large-cap earnings have been steadily increasing for over a year, small-cap earnings have continued to decline. However, this trend appears to be shifting. 

The big picture: By year’s end, we expect small-cap earnings growth to surpass that of large caps. This anticipated turnaround in earnings from undervalued and overlooked small-cap stocks could signal the beginning of a new leadership cycle in the market.