Q1 2025
A Conversation with CBIS Co-Chief Investment Officers Thomas Digenan, CFA, CPA, and John W. Geissinger, CFA
It’s early in the year, but so far non-U.S. stocks are performing relatively well. Is it possible investors are starting to rotate more toward opportunities beyond the U.S.?
Mr. Digenan: World markets in 2025 are indeed dramatically different than 2024, but not so much in size as in shape. Returns are starting to come from different places than the Magnificent Seven. Diversification is the new player at the party.
Mr. Geissinger: We don’t want to extrapolate the last two or three months, but it does look like we’ll be seeing a more balanced source of return going forward. No more buying a few U.S. technology stocks and going home.
Isn’t the CBIS investment approach built for this kind of environment?
Mr. Geissinger: Our actively managed strategies are rooted in sound fundamental analysis and valuation principles. I believe they are well positioned, both in terms of security selection and allocation.
Mr. Digenan: Our disciplined process maintains exposure to managers that demonstrate conviction in their articulated process, particularly during periods of short-term underperformance. We believe this approach will generate competitive returns over the long run.
What kind of effects are tariffs having on the markets?
Mr. Geissinger: The level of uncertainty around tariff policy has been a strong driver of volatility, particularly in the U.S. markets. It’s difficult for companies to plan for the long term without consistent policy.
Mr. Digenan: Tariffs can turn into a long-term phenomenon if they impede CFOs in planning their capital expenditures. Right now, there’s no real trust in the way policy is being communicated.
Do you think the resulting uncertainties around trade and global growth might be marking a turning point for investor capital away from the U.S.?
Mr. Geissinger: Given the vagaries of current economic policy, it’s clear that risk premiums are increasing in the U.S. But I don’t believe investors are abandoning the U.S. What they are doing is diversifying more into the world markets.
After 10 years of outperformance, portfolios are likely to be overweighted in U.S. stocks. Is now a time for investors to reassess their asset allocation strategies?
Mr. Geissinger: I hope investors are constantly reassessing their asset allocation mix. We do. It’s not a calendar or a quarterly exercise. It’s constant.
In all this talk about global investments, where do emerging markets fit?
Mr. Digenan: When we talk about a great diversifier and an area with high growth potential, emerging markets offer a nice addition to portfolios, both on the equity side and the debt side.
Speaking of fixed income, what are your thoughts about bonds?
Mr. Digenan: While diversified investors should always have some fixed income exposure, I think there are two good reasons why it’s as important as ever. One, you’re getting a decent return from bonds, and two, there is heightened uncertainty in the equity markets.
Mr. Geissinger: I also think it’s important to talk about the benefits of active management in the fixed income market in this environment. I’ll suggest the opportunities to rotate through different sectors and issuers are going to be more ripe than active management on the equity side.
These must be busy times for the Catholic Responsible Investments Committee. How do you keep up with world events?
Mr. Digenan: Our committee is a well-resourced global investment committee with a global philosophy and perspective. I honestly believe we’re positioned well to manage through the market’s uncertainties in a way that’s unavailable to most investors.
Important Information
All material of opinion reflects the judgement of the Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.
Q4 2024
A Conversation with CBIS Co-Chief Investment Officers Thomas Digenan, CFA, CPA, and John W. Geissinger, CFA
What surprised you most about the markets across the last 12 months?
Mr. Digenan: If there was a surprise, it was the solid equity performance of sectors outside the technology space. While everyone was talking about artificial intelligence (AI) stocks, utilities were actually the best performing sector for the period, in large part due to AI’s growing demand for electricity.
Mr. Geissinger: We were also a little surprised that the concentration in the equity markets continued to be as strong as it did for the better part of the year. I was encouraged to see the markets broaden out a bit toward year-end.
You mentioned AI. What’s your high-level view on AI and what it means to the marketplace?
Mr. Digenan: The beneficiaries so far have been the companies that produce semiconductors that help generate AI. The runup in those stocks is analogous to the tech bubble 25 years ago. But unlike those tech companies of the late nineties, AI companies are making tremendous amounts of money. And they’re changing the world. I’d say we’re still in the early stages of the AI revolution.
Mr. Geissinger: On a different note, AI server centers, in addition to their staggering electricity demands, also need an enormous amount of water for cooling. I anticipate we’re going to be quickly pivoting to how companies will manage water as it relates to cooling the AI computer centers.
Is it fair to think that the developed markets have enjoyed a relative advantage over emerging markets in this technology rich environment?
Mr. Geissinger: With regard to AI, sure. But remember, the world is also moving towards full electrification. A large number of raw materials are required for this development, and those raw materials tend to be in emerging economies.
Mr. Digenan: Over time, market leadership inevitably swings back and forth, which is why you always want to have exposure to emerging markets, whether equity or fixed income, in your portfolio.
What, exactly, is an emerging economy?
Mr. Geissinger: We think of an emerging economy as one that’s moving towards the path of industrialization and further development of its financial market and legal system.
Mr. Digenan: I’ll add that since these economies are earlier in their path, they have a much steeper slope in terms of growth rate. So therein lies the opportunity. There is risk there, but there’s great reward potential as well.
Sounds like something that might favor good money managers that pick stocks around the world.
Mr. Geissinger: As returns from the interest rate market and the equity market begin to normalize, I would expect to see the benefits of diversification continue to emerge in 2025. And not only between equity, fixed income, convertible bonds, and infrastructure investments but also diversification within an equity portfolio to begin with.
Mr. Digenan: That’s where the opportunity for active managers that have a well-defined process comes in. I’d rather someone be disciplined than occasionally clever.
What are your thoughts on 2025?
Mr. Digenan: We’re looking at strong global economic trends and a favorable interest rate environment going into the new year. I think the change in 2025 will not be in size, but in shape. Single-digit returns in a low-inflation environment will really be good for a long-term investor.
Mr. Geissinger: I couldn’t agree more. It sounds somewhat boring, but let’s remember that a bullish year is high single-digit market returns and mid-single-digit fixed income returns.
Important Information
All material of opinion reflects the judgement of the Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.