In our latest episode, Sid Ahl and Erika Pagel are joined by Sarge McGowan and Kif Hancock to look back on the surprises of 2025—and discuss what may matter most for portfolios in 2026.
The conversation covers the resilience of markets amid tariffs and shifting rate expectations, the continued dominance (and debate) around AI-driven investment and capital spending, and how global opportunities in Europe and Japan may fit into diversified portfolios. The group also shares how they are thinking about the balance between passive and active exposure, manager selection in an environment of high concentration, and what could drive a broadening of returns in the year ahead.
Highlights:
- Why 2025 market returns surprised investors—and what index concentration implies for diversification going forward.
- How the Fed’s “third rate cut” and a K‑shaped economy are shaping the outlook for rates, inflation and growth.
- AI’s shift from experimentation to implementation: real-world productivity gains, infrastructure buildout and second-order beneficiaries.
- Europe’s mixed picture: structural growth headwinds alongside selective bottom‑up opportunities in aerospace, defense and AI infrastructure.
- Japan’s reform “evolution, not revolution” and why manager selection remains critical.
- Portfolio implications for 2026: the role of passive exposure, disciplined rebalancing, private market pacing, and scenarios that could unlock private equity exits.
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Terms and Definitions:
AI (Artificial Intelligence) refers to computer systems that can perform tasks typically requiring human intelligence, such as pattern recognition, language understanding and decision support. Alpha measures the excess return of an investment relative to a benchmark index.
Beta measures a stock’s volatility compared to the overall market; a beta above 1 indicates higher volatility.
Capex (Capital Expenditure) refers to funds used by a company to acquire, upgrade, or maintain physical assets such as property or technology.
CPI (Consumer Price Index) is a measure of inflation that tracks changes in the prices paid by consumers for a basket of goods and services.
Downside capture (or downside capture ratio) is a performance measure that shows how much a fund/portfolio tends to decline relative to a benchmark during periods when the benchmark is down.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a financial metric used to evaluate a company’s operating performance by measuring profitability from core business activities EPS (Earnings Per Share) is a company’s net income divided by its weighted-average shares outstanding, often used as a proxy for profitability.
Free Cash Flow (FCF) is the cash a company generates after accounting for cash outflows to support operations and maintain capital assets.
Net Debt to EBITDA is a leverage metric calculated as net debt divided by EBITDA, often used to assess balance sheet risk.
ROIC (Return on Invested Capital) measures how efficiently a company generates returns from the capital invested in its business.
Passive Investing is an approach that seeks to match (rather than outperform) an index’s return, typically through index funds or ETFs.
Alpha Extension Strategy is a portfolio approach that seeks market (index) exposure while using long/short or leverage techniques to pursue incremental alpha.
Tracking Error measures the divergence between a portfolio’s returns and its benchmark’s returns.
K‑shaped Economy describes an uneven recovery or growth pattern in which different segments of the economy experience materially different outcomes.
Hyperscalers are large cloud service providers offering scalable computing resources, such as AWS, Microsoft Azure and Google Cloud.
Magnificent Seven refers to seven mega-cap technology companies—Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla—that have driven significant market returns.
IPO (Initial Public Offering) is the process by which a private company offers shares to the public for the first time.
Vintage Year refers to the year a private investment fund begins deploying capital, and is often used when discussing diversification across entry points in private markets.