FinanceAsia recently announced that Edward “Ted” Maloney, Chief Investment Officer (CIO) and incoming CEO of MFS Investment Management, a $576 billion asset management firm founded a century ago in Boston. I heard the story.
The CIO began his role as CEO on January 1, 2025, and spoke to the FA on a wide range of topics, from fixed income to emerging market equity trends, global equity valuations and artificial intelligence (AI).
FA: What are your thoughts on bonds amid the current volatility?
Maroney (pictured): There’s a significant amount of cash sitting on the sidelines, with returns exceeding 5%. As central banks around the world begin to ease monetary policy, customers are increasingly interested in reallocating funds from cash to bonds and risk assets. There is a growing focus on duration, suggesting that it makes more sense to focus on bonds rather than holding excess cash at this stage.
Our approach is guided by two key elements. It helps reveal the fundamental outlook for different regions and the value of what the market is or is not discounting.
Our views on the key market drivers are consistent with the broader consensus and result in a more conservative risk stance, particularly with respect to credit and duration. We are managing risk more carefully than usual. For example, in credit, we maintain neutral duration risk with an overweight in Europe and an underweight in the US to balance risk and seek alpha for our clients.
Asia is diverse and includes both highly developed countries and emerging markets.
We believe the inherent volatility in emerging markets presents ongoing opportunities. Our clients rely on us to manage this volatility rather than focusing on specific emerging markets, so we currently do not have many high-conviction recommendations for specific intra-Asia markets. ”
FA: What do you think about global stocks?
Maloney: Global equities are difficult to define right now. Over the past three to five years, a small number of stocks have driven most of the global stock returns, resulting in a highly concentrated market. We advise our clients to be cautious about overall stock market returns, as we believe index-level returns exceed long-term sustainable returns.
However, as markets move from these levels of concentration to more normalized conditions, we see significant opportunities to create value in global equity markets. Opportunities have been limited in recent years, and success has depended on a few major stocks.
FA: What possibilities does AI have?
Maloney: We believe this is the most meaningful technological change ever and one that presents significant opportunities. Some companies are creating significant value in the AI space, but the stock market is pricing in as much, if not more, of it. As a result, we believe that many companies currently leveraging AI are overvalued.
Despite recognition of their potential, market valuations seem to outweigh even their significant achievements. We see more value outside of our AI-focused areas.
A stock-specific approach is important. Within the sector, some stocks look expensive and face fundamental risk, while others are cheap and have upside potential.
Right now, we believe that value-oriented sectors are more valuable compared to growth sectors, and small- and mid-cap stocks are more valuable than large-cap and mega-cap stocks.
FA: Is it the right time to invest in small and mid-cap stocks?
Maloney: While we see opportunities in the small- and mid-cap space, it’s important to note that these categories are not monolithic and are relative to megacaps. Now is not the time to blindly invest in every small- and mid-cap stock in the world. Because along with some winners, there are also many losers.
While the low-end consumer segment faces economic challenges, the luxury consumer segment remains strong. This disparity makes it possible to strategically identify winners and losers through basic economic analysis and valuation assessments.
FA: Can you name any regional trends or preferences in equities?
Maloney: In our global portfolio, we are underweight U.S. stocks, particularly because performance is concentrated by a small number of powerful stocks, often referred to as the Magnificent Seven (Mag-7).
This concentration creates a risk because historical trends indicate that high concentration levels are unsustainable. As markets become less concentrated, we believe that actively managing your investments or adopting an equal-weighted strategy will result in superior performance.
Our approach focuses on skillfully selecting well-positioned companies while avoiding overvalued companies, and emphasizes the importance of looking to the future rather than relying solely on past performance. I’m doing it.
FA: Outside of the US, what do you like about the index?
Maloney: When we think about Japan, we see it as a market that presents both great opportunity and risk. Asynchronous monetary policy compared to other countries around the world creates a unique situation for investment. One particularly interesting aspect of Japan is the ongoing shift in corporate governance toward a model closer to Western practice, which brings both potential benefits and risks.
From a Generation Alpha perspective, we find the Japanese market particularly attractive. Overall, to answer the larger question, our geographic position reflects a significant underweight in the US, while overweight in nearly every other region. However, it is important to note that this arrangement is rather a residual effect. Within these other regions, we recognize that there are significant opportunities in various countries, but we do not intend to meaningfully categorize our stance as overweight or underweight in any particular area.
FA: What do you think about the European indices?
Maloney: The global index, especially outside of Japan, is very focused on Europe. Europe is not a monolithic economy, but a collection of nuanced markets. Growth is expected to slow in Europe due to a variety of country-specific challenges, but companies are growing in global sales and are excelling in leveraging fast-growing sectors in the region. There is also.
Our investment strategy prioritizes not only growth rates but also the potential value relative to the price of stocks and bonds.
FA: How does this play into the Asian narrative?
Maloney: My perspective focuses on specific stocks and bonds and highlights the growth potential of different regions in Asia through development cycles. However, some regions and stocks are already reflecting this growth in their valuations.
For example, we are optimistic about India’s growth and recognize its good companies, but high valuations make direct investment less attractive. Instead, we recommend identifying global multinationals or companies based in low multiple regions that generate significant revenue from India. This strategy allows investors to benefit from India’s growth while paying a lower valuation.
It aims to reduce downside risk without relying solely on multiple interest rate hikes. Rather than recommending specific funds or stocks with India relevance, we encourage a broader global investment approach seeking similar opportunities.
Conversely, there is a value opportunity in Japan, where some undervalued stocks can generate big gains from small positive moves, and valuation risk is minimal. This creates a barbell scenario of high growth companies with high multiples on the one hand and low growth, low multiple stocks with significant upside potential on the other. This dynamic has been strengthened by changes in monetary policy and the evolution of corporate governance in Japan.
China remains an important player in the global economy. While recent geopolitical shifts toward protectionism, particularly between the United States and China, pose challenges, they also present new opportunities. We view China’s financial market intervention as a positive step to address certain risks and are encouraged by the market response. Despite challenges, China continues to have potential for growth.
FA: What do you think about private markets?
Maloney: There’s a lot of interest in private investments and alternatives, and we think that’s important to our clients’ portfolios. However, we focus only on public bonds and stocks to achieve superior performance. We see opportunities in private credit in line with our expertise, but currently see this market as overheated with excessive inflows diluting any potential benefits.
Due to the opacity of private credit markets, rates of return are difficult to assess accurately and are likely to be low compared to public market spreads. The sector is expected to face challenges as the credit cycle turns. At this time, we are providing liquid alternatives to our customers as we monitor the situation.
Some clients are attracted to the illiquidity of private investments, believing it cushions day-to-day market fluctuations. However, the underlying volatility of private and public assets is comparable. The main difference is that public assets are marked daily. This misconception drives flows into private investment, but ultimately distorts market values.
Although there is widespread interest in alternatives for a variety of reasons, we argue that long-term investors should not assign inherent value to illiquidity. Companies with similar time horizons for public markets should not be swayed by daily pricing.
We hope that investors will reassess their focus during a market correction, recognizing that the essence lies in the asset itself, regardless of its classification.
Please note that quotes have been edited for brevity.
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