Schroders Sees Investment Opportunities Broadening Beyond US Megacaps

In a note, Carrell pointed to accommodative policy, easing geopolitical tensions and continued growth linked to artificial intelligence as factors supporting a more favourable backdrop for diversified portfolios. The “Magnificent Seven” — including Google, Amazon, Apple and Nvidia — have driven a disproportionate share of equity market returns, while US earnings growth remains concentrated among a relatively small number of companies.

Carrell cautioned that broader opportunities do not mean risks have disappeared. Sticky inflation, fiscal deficits and rising Treasury issuance are weighing on longer-dated bonds, while energy security remains fragile. He also warned that rapid AI investment is raising questions about capital intensity, free cash flow, financing structures and competition.

He described a “valuation vortex” in which strong performance attracts investment, lifts valuations and prompts more ambitious forecasts, drawing in further capital. The cycle can continue while earnings hold up, he said, but high valuations increase the cost of companies missing expectations. Schroders is not turning away from technology: Carrell sees potential in AI infrastructure, software and services, as well as businesses using AI to lift productivity or generate revenue. He urged investors to examine rising capital expenditure, potentially opaque off-balance-sheet and circular financing, and the challenge open models could pose to pricing power and returns.

Healthcare is among Schroders’ preferred diversifiers because it has relatively low correlation with the broader equity market. Sector earnings are at their strongest level since 2021, the article reported. Within equities, Carrell said the firm favours international markets, where valuations are generally less demanding and returns depend less on a handful of companies. It also favours banks, which may benefit from interest rates remaining above levels seen in the previous cycle, and commodity-related companies exposed to supply discipline, infrastructure investment and energy-security priorities.