By SteveGarmhausen

Judging from today's headlines, it might seem that artificial intelligence is the only thing worth investing in. Investors have flocked to chip makers, power companies, businesses with AI transformation stories -- anything that smells like artificial intelligence has drawn interest. For this week's Barron's Advisor Big Q, we thought we'd ask investment professionals which non-AI investment themes deserve more attention. Below, they make compelling cases for everything from emerging markets to structured products in ETF packages.

Leah Bennett, chief investment strategist, Concurrent Asset Management: Emerging markets are really interesting, for multiple reasons. They've obviously had a move this year, but they're still trading around 14 times trailing earnings, which is much cheaper than U.S. stocks. [ Editor's note: The S&P 500's trailing price-to-earnings ratio was recently around 31.] At the end of the year they were trading close to 12 times, so we're off the bottom, but still historically low. In addition, we have an administration that I think is committed to having a lower-dollar policy for a longer period, which tends to help emerging markets. And then China has said they plan $1.3 trillion in AI spending to develop independence from the U.S. between now and 2030, and all that spend is going to be a positive.

In addition, new technologies in general have been helpful for emerging markets. Think about Africa. Africa never had the infrastructure to really build out ATMs and bank branches back in the day. When mobile phones came out, they leapfrogged everyone and started using mobile-phone banking. That grew significantly as a percentage of banking volumes, and they're still a leader in that space. So as new technology is embraced across the world -- and not just AI -- I think emerging markets have the ability to have much quicker growth than developed markets in the next few years.

Will Sterling, chief investment officer, TritonPoint Wealth: Lower-middle-market private equity, specifically lower-middle-market buyout, is an interesting opportunity right now, especially as it relates to the wealth channel. As alternative assets have been democratized, a disproportionate amount of retail flows have gone to the large, typically publicly traded, managers. Those managers have significantly more uncommitted capital than do smaller managers. This creates an environment ripe with pressure to deploy capital in large deals, potentially at higher entry multiples, with significantly more competition. Smaller managers in the lower-middle-market space are not seeing that kind of competition. They're seeing more inefficient pricing, easier value creation opportunities, lower-multiple entries, more optionality on exits, and the opportunity to monetize the steepest part of the value-creation curve. Performance also suggests the variance among smaller managers is larger, but the opportunity to generate portfolio alpha through manager selection is higher in the LMM space.

Capital raising has been more challenged for these smaller managers, which has created an environment with less competition to deploy, especially in the lower-middle market. Businesses that are founder-led or family owned tend to have less competition and more inefficient pricing. From a performance perspective, easier value creation opportunities include business professionalization: operational improvement, strategic positioning, looking at higher-margin segments or new verticals or different geographies to focus on. They can also platform strategies, essentially adding acquisitions. All of that translates to the ability to monetize the steepest part of the value-creation curve, where you're moving a company from one Ebitda [earnings before interest, taxes, depreciation, and amortization] level to another.

Brent Coggins, chief investment officer, Triad Partners: The ETF industry has really taken notice of the demand for structured products. We've noticed a groundswell of ETF sponsors developing strategies that seek to replicate the investment experience and payoff profiles of the legacy structured-note space. Lots of creative funds are coming to market -- auto-callable income, dual-directional growth, full principal protection, etc. Previously this had been an opaque and closed-off portion of the financial markets. Most adoption was in the wirehouses, and many advisors wrote off -- literally -- structured products when major banks ran into trouble during the Great Financial Crisis and some notes went to zero. But lately, structured notes have had a renaissance of sorts that may be challenged by ETF innovation.

Most investors, unless they work with an advisor who invests in them, have no idea what structured products are. When you explain it to them, they're like, "I feel like I could use something like that." So there's a bit of an education gap. Part of the issue with structured products is that they're hard to get access to and hard to understand. I think that's where the ETF industry can step in and explain, here's what these things are, here's the use case, here's how you can get access to them. [Structured-note ETFs] balance what I think a lot of clients may want and need. A lot more people are trying to solve for the distribution phase of life. They want growth potential as well as a consistent high level of income. Structured products in a more digestible wrapper can provide that.

Jeanne Sun, head of portfolio advisory, Citi Wealth: One sector we like is the banking sector. A lot of that is both because of deep liquidity, as well as a bias toward large-cap here, but also the deregulatory tailwinds. It's one of the places where we feel really confident; it's an anchor in how we're thinking about portfolio positioning. While the bank sector has done well year to date, it's actually underperformed the S&P on a three -year basis or even going back to the pandemic. And now I think we're setting up for a dynamic where uncertainty continues to fade from a policy perspective, where you've got the Fed tailwind, and where loan books, despite headlines around defaults and things like that, look very strong. So it's a sector that we've liked for all those reasons.

That's one idea. Another one isn't something necessarily a recommendation to take positions in, but something we're watching. From a macro perspective we're in a good, solid recovery, but could we be heading into a regime where inflation is persistently above the Fed's target, and all the things that are supportive for the banking sector accelerate growth into overheating? In that case, you might want to have exposure to more real-economy type sectors. It's not our base case, but it's one of the things we're watching that we don't think is particularly well talked about in the marketplace.

Write to advisor.editors@barrons.com

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November 05, 2025 14:19 ET (19:19 GMT)

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