As we move into 2026, we wanted to share our outlook for the year and some of the themes guiding our investment decisions for your portfolios. We're optimistic about the opportunities ahead while recognizing that markets will continue to have their ups and downs along the way.

Theme 1: The Artificial Intelligence (AI) Infrastructure Buildout

The buildout of data center and technology infrastructure to support AI remains a top investment conviction for us. We believe the market may underestimate both the scale and duration of this infrastructure expansion, and we see this as a multi-year investment cycle that's still in its early stages.

Most people who have used these technologies have interacted with text-based chatbots. These applications require relatively little computing power. But the next generation of capabilities demands exponentially more resources. Basic chat represents a baseline, while coding assistance might need 10 to 50 times more computing power. Video generation could require hundreds of times more, and autonomous systems and robotics that must model the physical world could require tens of thousands to even a million times more computing power than a simple chatbot.

These more complex applications are expanding rapidly, and we expect technological progress to continue in 2026. This ongoing advancement may support sustained investment across the infrastructure value chain, from the chips that power these systems to the data centers that house them.

Here's an interesting constraint: building new power transmission lines typically takes much longer than building a new data center. This mismatch creates both challenges and opportunities. Here in the U.S., natural gas plays a significant role in meeting these power demands, and there's currently a substantial pipeline expansion underway.

We maintain positions across this value chain, including semiconductor manufacturers, data center operators, and companies providing energy infrastructure. Now, it's important to set expectations about volatility. In 2025, many companies in this space saw their stock prices drop 20% or more at some point during the year, even though they ended up posting strong annual returns. We believe similar patterns may continue in 2026 as the market figures out which companies will be the long-term winners.

Theme 2: Fixed Income Opportunities as Policy Eases

As the yields you can earn on cash and money market funds fade in a lower rate environment, and as stock portfolios become more concentrated in a handful of large technology companies, it’s important to think about income and diversification more holistically across your entire portfolio.

We favor the intermediate portion of the yield curve, bonds that mature in 3 to 7 years. This sweet spot offers consistent income and has shown better ability to balance out stock market swings than longer-term bonds have in recent years.

Within corporate bonds, we expect the income you earn may be the main driver of returns. Investment grade corporate bond spreads are starting 2026 near historically tight levels, and high yield spreads don't leave much cushion if some companies run into trouble. This kind of environment benefits from careful selection to find relative value.

We also see attractive opportunities in emerging market debt, which offers solid fundamentals and less crowded positioning than domestic corporate bonds. A weaker U.S. dollar and improving sovereign balance sheets may support both hard currency and local currency debt.

Theme 3: Diversification in a More Concentrated Market

A handful of mega-cap technology companies now represent over 40% of the S&P 500's total market value. Even if you don't think you have a lot of exposure to these themes, many portfolios are more concentrated in the same underlying growth drivers than investors realize.

The good news is that fundamentals have been improving across the broader market. All 11 sectors of the S&P 500 posted gains in 2025, and the median stock delivered its strongest earnings growth in four years. Earnings growth accelerated meaningfully in the third quarter across many sectors beyond technology.

We see opportunities in financials, supported by a steeper yield curve and continued M&A activity. We also favor gold mining companies and international markets, particularly Asian emerging markets, for exposure to different parts of the technology value chain alongside attractive earnings growth expectations.

We're also seeing opportunities in defense and aerospace. Geopolitical tensions and the need to modernize aging military infrastructure continue to support steady demand in this sector. Many of these companies have long-term contracts that provide visibility into earnings, and they often benefit from bipartisan political support. While headlines about geopolitical tensions can feel unsettling, the companies serving these needs tend to be stable, dividend-paying businesses that can provide portfolio ballast.

To rebuild diversification, we're also incorporating alternative strategies. Hedge fund strategies can offer returns that aren't tied to traditional stock and bond markets. Gold had a strong year in 2025 and continues to see structural support from central banks. Digital assets, while volatile, have long-term drivers in place including growing institutional adoption and regulatory clarity.

Small allocations to higher-volatility assets can actually reduce overall portfolio volatility when those assets don't move in sync with your stocks and bonds.

What This Means for Your Portfolios

We're maintaining exposure to technology infrastructure development while managing concentration risk through geographic diversification. We're building fixed income allocations with emphasis on that 3 to 7 year maturity range and sourcing income from multiple channels. We're also continuing the integration of alternatives and commodity exposures to rebuild portfolio balance, and adding exposure to value stocks and international markets as their fundamentals improve.

We're optimistic that 2026 may bring continued opportunities, even as we navigate periods of market volatility. Our approach emphasizes quality investments, thoughtful diversification, and maintaining perspective when short-term market movements inevitably occur.

As always, we welcome your questions about your portfolio or our market outlook. Thank you for your continued trust in our firm.