Transcript:
Caroline Woods:
Joining us now is Anastasia Amoroso, managing director chief investment strategist at partners Group. Anastasia, great to have you on your first time here.
Anastasia Amoroso:
Yes. Happy to be here.
Caroline Woods:
So great to have you. So let’s kick things off by getting your kind of overall market view. You know we are looking at green arrows across the board today. The S&P 500 less than 2% away from all time highs. Is this market on solid footing or are investors getting a little too comfortable?
Anastasia Amoroso:
No, I think it is, broadly speaking. And when I look at the economy, I see many pillars of support they’re building for this economy. It used to be that maybe you could rely on the corporation or your hyperscale or consumer, but now we have all of those things working for us. For example, when you look at consumption, it is still up nicely year over year, even though we did give a little bit of it back in July post the World Cup, I should say.
Anastasia Amoroso:
If you look at CapEx is actually surging to the highest levels in 2022. So the fact that we have this CapEx engine working, and I will know not only because of hyperscalers, but also because of the manufacturing and construction and defense, developments as well. So that’s a big positive. And that, of course, is the corporate earnings. And the corporate earnings are picking up very nicely this year, not just for the S&P, not just for the Mac seven stocks, but actually for small caps for mid caps and also for international stocks.
Anastasia Amoroso:
So all of those things really do support the market.
Caroline Woods:
What’s the biggest thing that could knock it off course from here.
Anastasia Amoroso:
Of course it’s the eye trade. It is the eye trade and any sort of disappointment or hiccup with that. Look, the fact of the matter is that 50% of the S&P is, in one way or another, tied to either a semiconductor stock or hyperscale hyperscalers stock or something else in that ecosystem. So if you do have a disappointment in terms of adoption or take breakthrough, that maybe derails the trajectory of semiconductor stocks.
Anastasia Amoroso:
That would be the disappointment. I don’t see it. We track adoption very closely, which modernization very closely. And I do see a lot of those things going in the right direction. But I will say, Caroline, that some of the enthusiasm around AI and specifically in the semiconductor space is priced in. And that’s the reason why you see stocks are down 20%, from there, from their recent highs.
Anastasia Amoroso:
All the while, the demand is exceptionally strong because guess what. That usually Azm has been priced in.
Caroline Woods:
So does that mean we should stop buying chip stocks here?
Anastasia Amoroso:
I don’t think that’s the case necessarily, because the fact is the fundamental backdrop is strong, and it probably will be for the next couple of years. But I think for them to really meaningfully perform here, we need to hear something new from the likes of Nvidia and from semiconductors. And look, there’s scope for that. You know, it’s been about gen I that it’s been about.
Anastasia Amoroso:
I we’re still squarely in the middle of developing and that at some point is going to be about physical AI and perhaps the physical I sovereign I China demand that could provide a fresh catalyst and, you know, kind of catalyze the space. But I think it needs to be something new, something incremental for these stocks to actually outperform the market again.
Caroline Woods:
So we have Nvidia reporting tomorrow. So forget beat and raised quarter. What is it that we need to hear from Nvidia to get the whole tech trade moving including semiconductors.
Anastasia Amoroso:
Yeah. So I’m not sure beat and raises enough firm Nvidia to really just catalyze the space. And the reason for that is if you look at the last oh I don’t know, eight quarters, they came right on top of expectations every single time. And yet in many of those quarters, the stocks actually sort of flatlined. Or even there was some profit taking.
Anastasia Amoroso:
So I wouldn’t be surprised if that could be the case today as well. But I think what we need to hear is, you know, maybe it’s a clearing of the bottlenecks that they’ve been talking about. Maybe it’s the China factor. And are they potentially stepping up demand? You know, maybe it’s the CPU part of their business, the networking part of their business, and it’s also doing well.
Caroline Woods:
So what I’m hearing from you saying, I mean, because saying that the AI trade is sort of priced into chip stocks at this point is pretty provocative. So what I’m hearing is that the tech trade is changing at this point then. So if you’re not necessarily as bullish on chips, where would that money be going with in tech?
Caroline Woods:
What part?
Anastasia Amoroso:
I mean, maybe even more broadly the eye trade is shifting. You know, first of all, just sticking with tech and AI for a second. You know, it’s not you know, it’s not only about the GPUs. We now we now know it’s also about the CPUs. But I think it’s also about networking. It’s about how do you connect all those data centers and how do you route efficiently between models and between data centers and networking has, you know, has a big part to play in that.
Anastasia Amoroso:
And then, of course, the other part of the eye trade continues to be power and access to power. And the fact of the matter is, is interconnection queues are still three, 4 or 5 years long. And so how do you build a data center and how do you power that? And there are more and more solutions that are available on the market.
Anastasia Amoroso:
So for example, for us at partners Group we think about owning existing, power generation capacity. We think about refurbishing some of the older, facilities. We think about mobile power generation and battery storage. And how can we get all of those resource efficiently to the data center location that needs it? So I think that’s what investors need to think about within the within the market.
Anastasia Amoroso:
The other thing I would say, you know, the market clearly has broadened, you know, beyond AI as well. And defense is a sector that’s very top of mind for us as well. We’re going to be in the middle of the replenishment cycle post the, Iran war, the the conflict part of it. Anyway, and at the same time, there is a greater commitment to re industrialization and shoring up our domestic defense space.
Anastasia Amoroso:
So that’s top of mind for us as well.
Caroline Woods:
So would you say you would still advise to have a tech heavy portfolio just shift within tech and then obviously defense?
Anastasia Amoroso:
Yes. I would think about taking a look at hyperscalers once again, because hyperscalers are actually there’s clearly have been at the forefront of the spending cycle, but they’re now the forefront of the getting of that ROI on AI cycle. And if I look at cloud, revenues, for example, they continue to move higher even though the CapEx is still moving higher.
Anastasia Amoroso:
But we might actually be sort of at the peak level of CapEx in terms of year over year growth rate, probably this year. So that means CapEx over time may come down, while cloud revenues may actually be ramping up. And judging from the backlog that continues to move higher. There’s a lot of that unlocked capacity that’s still ahead.
Anastasia Amoroso:
So I would actually think about kind of, you know, potentially rotating out of semiconductors back into the hyperscalers, which, as you know, took a back seat earlier this year.
Caroline Woods:
So the Meg seven or hyperscalers within the Meg seven haven’t necessarily run their course yet. You think they’re still.
Anastasia Amoroso:
I don’t think so. Absolutely. I mean, the fact is that there is a mismatch between, you know, when you deploy those CapEx dollars and, you know, when you build the data center, when you activate some of your cloud revenues. And so I think we’re actually it’s an inflection point to where you starting to see that payback.
Caroline Woods:
Okay, let’s move away from tech and talk about what else you like outside of defense as well. What areas of the market. Because we are seeing rotation into other areas of the market. We are seeing investors diversify more what are they getting right? Where should they be going?
Anastasia Amoroso:
Yeah, I’ll give you one kind of tech adjacent idea still. And then we’ll we’ll move on to broader markets. But, I would say software, you know, software, software actually is one of the going to be likely the primary beneficiaries of getting AI. Right. And if we do solve the chip bottlenecks, if we do bring down the cost of models down, guess who the beneficiary of that is going to be?
Anastasia Amoroso:
It’s a software company, or frankly, any other company that could effectively embed agenda capabilities and streamline the workflows. So I’m actually quite positive on the outlook for select software companies. I should say that may be able to do this effectively.
Caroline Woods:
And I’m sure our viewers are going to say, okay, which ones Anastasia can’t actually give individual stock picks, but what is it that retail investors should be looking at when they want to get selective with software companies? Because the fear is that AI is going to just write right? Software companies that well.
Anastasia Amoroso:
Let’s dispel that fear a little bit, and then let’s segment the software universe a little bit as well. You know, first of all, if you look at software earnings and the reporting season that we just just finished up 80% plus of software companies actually surprise. And they surprise to the upside. And they delivered earnings to the tune of 20% year over year.
Anastasia Amoroso:
So if we’ve been not we but if the market has been fearing, the death of software is not here. It’s not now and it’s not evident from these numbers. So that’s the first kind of rumor that I would dispel. The second thing is when you look at software, you have to segmented in several different ways. First you have to think of horizontal software, which is an application that really covers a lot of industries.
Anastasia Amoroso:
It could be, you know, software embedded in, you know, health care company or financial services company. And, you know, in that case, there’s not as sector expertise and therefore there’s not a moat. But if you compare and contrast that with a vertical software company, perhaps that company sits on a mountain of proprietary data in a particular industry, and it can monetize that data, and it can build a genetic workflows around that core data.
Anastasia Amoroso:
That’s very, very different. So that would be the distinction that that I would make. The second one is we do think about moats, you know, the technical moat, some of which I described, and also the non-technical moats, you know, to what extent is a piece of software embedded in the ecosystem? How long o the contract, how solid are the customers?
Anastasia Amoroso:
So it’s a bit of a screening checklist for sure to evaluate that. But I will say partners group, we’ve had this eye disruption framework for the last 4 or 5 years, and it helped us avoid some of the areas that have now been, you know, flagged as risky, which is HR, attack, legal tech, etc..
Caroline Woods:
So you don’t give individual stock picks. But as you think about investing in software, would you say it’s better to do a broader ETF for software, or is it you have to really stock pick picking that category.
Anastasia Amoroso:
Look for a short term momentum trade. Maybe the software ETF can be just fine. However, if I look at the composition of, GV, the leading software ETF, 70% of that is application software and a lot of that is horizontal software. And in fact, that’s likely to be the layer that is most susceptible to AI disruption. So longer term, I would not, you know, park the money in that ETF, hoping that all of those companies will adapt because some will not.
Caroline Woods:
Okay. So we’ve covered tech stop including software covered again.
Anastasia Amoroso:
Broad.
Caroline Woods:
Market. Yeah. In terms of the broader market, what do you like. What would you be avoiding.
Anastasia Amoroso:
Right. I’ll give you a couple of maybe contrarian ideas, which is all around alternatives and actually private credit. So if you look at the alternative, you know, private market asset managers, some of the, some of the largest ones, the ETF, PSP, for example, is done quite poorly, year today. But when I look at the alternatives universe, I actually see, fundraising that is quite strong fundraising that is diversified.
Anastasia Amoroso:
You know, maybe the money is not flowing as much into private credit in industry in general. But it is finding its way into infrastructure. It is finding its way into other alternative strategies, like in our case, royalties. So I will say the fundraising angle is still very much ongoing and strong. It’s not just the PRI wall story, but it’s a big institutional story as well.
Anastasia Amoroso:
If I also look at, you know, the health of some of the portfolio companies, we talked about software. But even if I look at the performance of, sort of the, you know, the middle market, company, the EBITDA growth continues. It’s, you know, it’s stable. It’s, you know, 5 or 6%. But but there’s certainly a degree of robustness there.
Anastasia Amoroso:
And in certain cases in higher growth portfolio companies, we see seen acceleration. So that’s positive. And then I do think the capital markets activity is likely to rebound, especially in the back half of the year. So that should also lift the spirits of some of these alternative managers. So I would be positive on that category. And then sort of adjacent to that as private credit.
Anastasia Amoroso:
You know, if you look at something like by ZD, which is the, you know, publicly traded BTC, ETF clearly has gotten, no traction this year, I would say. But if you look at the health of private credit, actually, again, the EBITA growth is picking up, coverage ratios are improving. I don’t actually expect the fed to hike interest rates.
Anastasia Amoroso:
So those coverage ratios should, should be in good shape. And, you know, software as percent of private credit as the at risk software is not as much as people think. You know, it’s not actually 20%. But this at risk horizontal says application categories that I described as probably like 7% of the the private credit universe. So with rates still elevated, and with spreads have actually, widening a little bit, I do think it’s actually movement for private credit and not to avoid it.
Caroline Woods:
And the private markets overall have become more accessible to the everyday investor. It used to just be kind of the institutional.
Anastasia Amoroso:
Right.
Caroline Woods:
Game, if you will. Does the average investor, though, need exposure to private markets? And if they don’t at this point have the exposure, how should they think about starting to add it?
Anastasia Amoroso:
Yeah, I mean, I always think of you, the investment universe, as a continuum. It is equities. It is fixed income. It is commodities and is not correlated assets. And if you think about the equity spectrum, for example, it is public and private equity. There are some stocks that you can participate in public markets. And that the exact right access point for what you’re trying to achieve.
Anastasia Amoroso:
And at the same time, there are other opportunities, are simply not available in public markets. And case in point, a lot of the eye opportunities, even though some of the largest ones are public, a lot of the, you know, still, you know, to be scale, the opportunities are squarely in private market. So that’s one reason for why considering exposure, there, is definitely an opportunity.
Anastasia Amoroso:
The other thing that we see in private markets, we see typically higher gross margins, for stocks. And in some cases we see outsized, earnings growth, which is all things equal. That’s why private market should outperform is because you have the ability to, to drive, earnings growth perhaps over and above was publicly available. And then in the fixed income space, you know, it’s a public and private continuous, you know, yes.
Anastasia Amoroso:
It’s leveraged loans and high yield and investment grade, but why not supplement that with private credit. That gives you somewhat different functionality. And then last but not least, you know, the uncorrelated assets, what’s truly uncorrelated in this market. Well, it’s actually infrastructure. If you think about infrastructure it has low correlation to either stocks or bonds. Or certainly the 6040 portfolio gives you this kind of growth driver because a data center and power exposure.
Anastasia Amoroso:
But at the same time, low correlation to GDP and inflation passes that are built in in our case, 85% of our portfolio companies have inflation escalators built in through them. So so that’s why I think it is the right moment to kind of expand how you think about the portfolio and look at the right opportunity across public and private spectrum.
Caroline Woods:
So if somebody says, okay, how do I invest in infrastructure?
Anastasia Amoroso:
They’re definitely more and more evergreen, vehicles that are available. And working with a financial advisor, for example, will will allow you to see a number of those opportunities.
Caroline Woods:
Okay. Anything you’re avoiding in this market right now.
Anastasia Amoroso:
Oh, that’s a good question. I would say anything with a thin profit margin. And so the two kind of sectors that would fall into that category would be consumer staples, would be consumer discretionary, although I’m somewhat more optimistic perhaps on consumer discretionary. But I do think, you know, the environment where you have elevated, energy costs, where you have tariffs, which are clearly not not a bygone story.
Anastasia Amoroso:
Sure. Just yet, all of those things can potentially squeeze margins. And, look, you do have the labor market that is somewhat wobbly. You know, it’s, picked up from last year. But looking at the pace of job creation, it is running at your breakeven rate. So it’s not a boy and consumer story by any means. And if you couple that with thin margins and something like staples and discretionary, it’s probably not my topic.
Caroline Woods:
What about Bitcoin. Because it was trading above 80,000. It’s back around 78,000 or so right now. Do you look at that as a healthy sign of risk appetite, a sign that speculation is going to be running hot. And so yeah, it’s investable here.
Anastasia Amoroso:
I mean I don’t look at it I don’t look at it. And look, you know, the trouble with Bitcoin I think for investors is that it behaves differently in different market cycles. Sometimes it is a hedge against dollar debasement. Sometimes it is a hedge against inflation or the fed. And sometimes it’s the tech trade. And it’s really difficult to suss out which one is going to be at a particular point in time.
Anastasia Amoroso:
I do, however, think that blockchain think the blockchain technology is foundational. It could find its way in building better applications, and tokenization can also be helpful across many sectors. But I don’t look as much at Bitcoin as a risk barometer because it acts so differently in so many different, market environments.
Caroline Woods:
And just when we think we know how it’s going to act, it, it’s probably going to surprises us like this year. All right. I think this is a great time to pivot to our rapid fire round of this or that. This is your first time.
Anastasia Amoroso:
What’s coming up.
Caroline Woods:
So we have quick questions. We have quick answers. No hedging if you can help okay. Are you ready?
Anastasia Amoroso:
I’m ready.
Caroline Woods:
Most are this or that questions. We’ll do some fill in the blank as well. All right. Ride the rally or wait for a pullback.
Anastasia Amoroso:
Oh right.
Caroline Woods:
The rally Nvidia or the next generation of AI beneficiaries.
Anastasia Amoroso:
Next generation for.
Caroline Woods:
Sure. Chips or software? Software AI infrastructure or AI adopters.
Anastasia Amoroso:
Both.
Caroline Woods:
We’ll give you one. Both. I was waiting for that mega cap tech or the rest of the market.
Anastasia Amoroso:
So you stick with that cap.
Caroline Woods:
Okay. Small caps are large caps.
Anastasia Amoroso:
Large caps and also private markets, mid-market companies.
Caroline Woods:
U.S. or international.
Anastasia Amoroso:
U.S. it’s hard to beat the multi engine economy.
Caroline Woods:
Growth or value.
Anastasia Amoroso:
Long term. It’s always growth.
Caroline Woods:
Stocks or bonds, stocks private equity or private credit.
Anastasia Amoroso:
Private equity.
Caroline Woods:
Bitcoin or gold?
Anastasia Amoroso:
Gold for the long term.
Caroline Woods:
Fed’s next move cut or hike?
Anastasia Amoroso:
I think it might be a cut.
Caroline Woods:
Major risk recession or inflation?
Anastasia Amoroso:
I can’t say both to that one. Let’s go with inflation.
Caroline Woods:
But the fed would be cutting rates because of the economy easing inflation.
Anastasia Amoroso:
But the risk I guess is that where all kind that.
Caroline Woods:
Fresh money invested or keep dry powder.
Anastasia Amoroso:
Invested gradually.
Caroline Woods:
Rest of 2026 offense or defense.
Anastasia Amoroso:
A little bit of both have the income. But stick with what’s been working so far this year okay.
Caroline Woods:
You’re going to fill in the blank. Finish this sentence. The most overhyped investment right now is.
Anastasia Amoroso:
Memory.
Caroline Woods:
Stocks. The most underappreciated investment right now is eye doctors. The eye trade with the most money still to be made is.
Caroline Woods:
Anastasia Amoroso:
Financials.
Caroline Woods:
The part of the market I avoid putting new money into is.
Anastasia Amoroso:
Consumer.
Caroline Woods:
The best place to put $10,000 today?
Anastasia Amoroso:
Is the S&P.
Caroline Woods:
The biggest surprise for investors between now and year end will be.
Anastasia Amoroso:
The fed is going to cut interest rates.
Caroline Woods:
The S&P 500 ends 2026 at or near
Anastasia Amoroso:
8200.
Caroline Woods:
Thousand. That’s Anastasia Amoroso. Thank you so much for playing and for all of your insights. Anastasia is managing director or chief investment strategist at partners Group. If you enjoyed this street talk, check out our full interview with Angelo Zino. He reveals his top tech stock picks ahead of a big week of earnings.
