Global Investment Portfolios Undergo Significant Shift

Global investment portfolios are being reshaped, with reduced exposure to the United States. According to André Esteves, chairman and senior partner at BTG Pactual, major pension funds, sovereign wealth funds, and emerging-market central banks are diversifying away from U.S. Treasuries and the dollar.

Brazil Regains Investor Attention

Brazil has reentered investors’ focus, particularly between February and May. Mr. Esteves noted that Brazil had been out of the loop but is now considered a viable option due to its cheap valuations, good companies, and potential for risk migration out of the U.S.

Shift in Global Portfolios

While U.S. equities remain part of global portfolios, Mr. Esteves noted that the market feels flat, and despite higher interest rates than in other G10 countries, the U.S. dollar has weakened. This shift is significant because the U.S. has acted as a financial "black hole" over the past two years, drawing in capital thanks to its reserve currency status, leadership in generative AI, and advanced capital markets.

Economic Uncertainty

Mr. Esteves stressed that he doesn’t foresee the dollar losing its global reserve status, but added that a currency’s strength also depends on broader factors like economic predictability. "There’s a lot of uncertainty right now," he said. He questioned whether the shift will persist, stating that "the market is on pause."

Opportunities for Brazil

For Brazil, the global trade war presents more opportunity than risk. The country has regained attention due to its "cheap valuations" and the belief that "fixing what needs fixing" in the economy is possible. Mr. Esteves noted that it’s not hard to improve the economy, and that’s the perception investors have.

Private Credit on the Rise

Private credit is becoming increasingly popular, with Brett Collins, managing director at Nomura Corporate Research, expecting 2025 to be favorable for fixed income, including high-yield assets. He predicts U.S. economic growth to slow to 1%–1.5% this year, down from the 3% average of the past two years, while a recession remains unlikely.

Growth and Inflation

Collins expects growth to be strong enough for most companies to continue generating cash and servicing debt. At the same time, it may slow enough to ease inflation and allow the Fed to gradually resume monetary easing this year and next. Tim Sloan, vice chairman of Fortress Investment Group, echoed optimism, believing the private credit market remains sound despite concerns about its rapid growth.

Opportunities in Private Credit

Sloan noted that large banks have exited the private credit segment and now finance asset managers instead. He cited a looming $4.5 trillion in maturing U.S. commercial real estate loans next year, which most banks say they won’t roll over. This presents an opportunity for private credit firms to step in and offer bank-quality loans, typically yielding 9% to 10%, which can be leveraged to generate 15% to 20% returns for those willing to take on mortgage risk.

Biotech Gains Traction

Biotechnology is gaining traction despite U.S. policy risks. According to Sean Carroll, portfolio manager at Janus Henderson, biotech offers high upside, and valuations are at 25-year lows. He noted that healthcare, particularly biotech, has never been this compelling, with over 150% increase in new drugs reaching the market over the past two decades.

Breakthroughs in Biotech

Carroll highlighted breakthroughs in treating obesity, cancer, and rare genetic diseases. Janus Henderson manages $15 billion in healthcare assets, and in 2022, while the S&P 500 dropped 18%, the healthcare sector declined just 5%. Rogério Stallone, partner and head of credit at BTG Pactual, noted that infrastructure debt has attracted significant investor interest, and the bank maintains a cautious approach to bond selection, favoring sectors with stable cash flows, recurring margins, and low leverage.

Conclusion

In conclusion, global investment portfolios are undergoing a significant shift, with reduced exposure to the United States and increased interest in emerging markets like Brazil. Private credit is on the rise, and biotechnology is gaining traction despite policy risks. As investors navigate this changing landscape, it’s essential to stay informed and adapt to the evolving opportunities and challenges in the market.