Over 20 Billion in Assets Leader: How Investors Can Find Direction Amid the Fog of War

Author: Steve Gamhurson; Source: Barrons

Just as overseas markets are on the verge of overtaking the U.S. stock market, an oil shock stemming from the Iran war is causing many American investors to consider bringing assets back home. Joseph “JP” Bowers, chief investment officer at RWA Wealth Partners, a wealth management firm based in Boston with roughly $20 billion in assets under management, says that while opportunities still exist in overseas markets, investors now have to be very selective.

“I think it’s certainly necessary to maintain some overseas allocation, but right now, if you’re only doing index investing in international markets, it’s become very difficult,” he said. “Now when we position overseas, we have to proactively select specific underlying holdings.”

In an interview with Barron’s Advisor Edition, Bowers discussed the impact this war could have on U.S. stock investors. He believes that companies that can make it through the so-called “SaaS apocalypse” triggered by AI are, in the long run, solid value pockets. He also talked about a promising new private equity niche and said that after the private credit industry goes through a round of cleansing, it will ultimately produce some quite attractive opportunities.

Barron’s: The Iran war is currently intensifying. For American investors, what are the best-case and worst-case scenarios?

Bowers: From the perspective of American investors, the best scenario is for the fighting to end as quickly as possible. I think what’s truly concerning is not to go too far in either direction, because any day now it could be just a Truth Social post away from a real ceasefire. At the same time, it could be just a post away from ground forces being deployed. Investors have to deal with this kind of all-or-nothing, extremely polarized market risk.

What would the worst case look like? It’s hard to predict with precision. But clearly, if the situation escalates further, other countries could get drawn in. The long-term energy market would be severely disrupted, and it would take much longer to rebuild. I don’t want to put it any more severely. There could also be many other worst-case scenarios, but that’s roughly the range of what is more commonly plausible in the real world.

Barron’s: Economists have already factored inflation upside risks into their forecasts. What’s your view on the outlook?

Bowers: I think we have to do that. There’s no doubt inflation will be higher. But on core inflation, if we first strip out food and energy, I think it will most likely remain in a range close to the Federal Reserve’s target. Earlier, the process of core inflation rolling over had stalled; services inflation itself is very sticky, and I’m not sure that the war alone will make it soften. If this war lasts for months rather than weeks, then you might start to see that people’s spending on energy exceeds what they can otherwise allocate to other parts of the economy, which could ultimately pull down some portion of inflation at the core level. In any event, the overall inflation data will definitely be higher.

I think that, over the long term, there’s still plenty of reason to stay optimistic. For example, if I absolutely had to pick the best house in the neighborhood, I’d still prefer to put my money into the United States. International markets do concern me. Over the past roughly 15 months, parts of Europe and Asia have been outperforming the U.S., but that momentum has now completely stopped. It’s not that we’re seeing astonishing GDP growth, but we’ve seen some balance return between valuation multiples in the U.S. and international markets. That repricing has already happened. And maybe some people are expecting: if a ceasefire is reached, we’ll immediately revert to February’s levels. I don’t see it that way. In a sense, the damage is already done. And regardless of how it turns out, the U.S.—more than parts of Europe and Asia, especially Japan and South Korea—is better able to withstand this energy shock. So we’re bringing more capital back to the U.S.

Barron’s: So this war is creating reasons to move investments back home?

Bowers: Yes. After decades, international stocks are finally getting their moment in the spotlight. But now that this war has broken out, I think the damage to international markets will be greater and it will last longer, whereas the impact on the U.S. will be comparatively less severe. Of course, I still think it’s necessary to keep some of those allocations. But right now, it’s difficult to do only index-style investing overseas. When we go overseas now, we’re more looking to take a very proactive approach to investing.

Barron’s: Disruption driven by AI—and its impact on private credit—continues to evolve. With that in mind, how are you positioning yourselves?

Bowers: That’s right, especially the pressure from the software sector. Right now, there’s clearly a mindset of “sell first, ask questions later,” possibly because we still can’t clearly see what the real impact of AI will be on these SaaS (software as a service) companies. Some of them will undoubtedly disappear as AI solutions roll out. We’re seeing this happen almost every week. But there are also some established vendors that are deeply embedded in enterprises—whether at the data layer or within work processes—so in the short term they’re very hard to replace. So I think if you can be selective and give these companies time to embrace their own AI solutions, that could actually improve their profit performance. There may also be some undervalued opportunities in this space right now.

Barron’s: You’ve said one potential obstacle for AI’s high-speed advance is political backlash. Do you feel that Washington is pushing back on this noticeably?

Bowers: A bit. I think we really are seeing some of that: Democrats are starting to step in, trying to put the brakes on AI’s arrival, and also trying to slow the pace at which this sector continues to expand. That’s concerning, because if we don’t stay at the forefront of this technology, then the rest of the world—if it hasn’t already—will catch up and move in. Without question, in the foreseeable future this market segment will dominate everything. Every company is trying to find ways to leverage it, hoping for productivity gains and stronger profit performance. So we want to be leaders in this area. As of now, I don’t think the Democrats have had a material impact, because they don’t control Congress. But you do hear some noise around it, and I’m wondering whether that noise will get louder as midterm elections approach.

Barron’s: Do you still like the large-cap tech leaders? Will you make any opportunistic buys?

Bowers: If we look at it from a long-term perspective, then yes—these are still the best companies in the world. They’re largely supported by their own capital to sustain this growth and capability-building, so I don’t think this modest pullback creates any kind of systemic risk. I think there’s certainly an opportunity to focus on some of the investment opportunities within that group. But besides the AI narrative potentially coming in below expectations, there are other risks as well. For example, the issues at Meta: in the future, they could face higher regulatory fines [Meta and Google lost a lawsuit about whether social media harms children]. We want to make sure our positioning in those holdings is appropriate, but I still believe these are the best companies in the world, and we want to own them.

Barron’s**: **Are there any undervalued areas—because they’re being “discounted”—that would make you move in actively?

Bowers: I think the opportunities are on the private markets side—quite a few things have sort of stalled. Because private credit hangs over everything like a dark cloud, everyone has become a bit cautious and hesitant. We’re looking at more downward-leaning private equity areas—i.e., the end of small and mid-sized businesses. They’re likely the ones that could benefit from using AI tools to improve, but they genuinely don’t know how to use them.

As a result, some new funds are coming with an investment thesis like this: they can invest in these companies and become truly value-adding managers. They move into the companies, bring their own technology stack, and help these mid-sized businesses compete with much larger companies—where previously these mid-sized firms might have only hoped to be acquired and absorbed by the bigger players. I think some of these AI tools will enable these companies to grow without having to staff at the same headcount levels as before, and give them the ability to compete with large players, while possibly making them more flexible as well. This is a space I like. If they can offer differentiated products, this area could also, to some extent, be more resilient to macro shocks.

Barron’s**: **What about fixed income? What’s the best way to hedge or seek safety?

Bowers: Right now, there aren’t many safe harbors. Everyone’s focused on inflation, and people aren’t comfortable extending duration or going further out on the yield curve to chase higher yields. But U.S. Treasuries are showing liquidity advantages. That’s also why private credit markets are under pressure right now: once you take liquidity away, suddenly everyone wants it at the same time.

Barron’s**: **So what’s the best opportunity for yield?

Bowers: It’s a rather dull market. But there are some decent opportunities in the municipal bonds space. I don’t think we should go to the very long end of the yield curve. However, for taxpayers in the top tax bracket, some of the after-tax yields here are quite attractive.

Barron’s**: **Speaking of defensive assets, gold should have played that role after the war started, but it didn’t. Are you surprised?

Bowers: Yes, indeed. When a country gets pulled into a war like this and everyone is looking for a safe haven, you’d think gold would be at the front of the line. Maybe that’s true in “normal” times. But when we entered this conflict, gold had already gone through a very sharp run-up beforehand, so it was always due for some pullback.

Barron’s**: **I guess nobody is treating crypto as a defensive asset seriously anymore, even though that was part of how it was originally marketed. What do you think?

Bowers: They**** are still trying**** to market it like that,** but the data doesn’t support it.

Barron’s: What else are you watching?

Bowers**: **Over the past few years, I’ve been fairly skeptical about private credit. Since these funds truly developed, we haven’t gone through a real credit cycle yet. The sector has grown from nearly zero after 2008 to now more than $2 trillion. Over the past few years, as private credit expanded, software and AI also went through a boom. So it’s not hard to understand why some funds might have too much exposure in this area. But some institutions have stuck to higher risk-management standards; maybe they sacrificed part of their returns during the upswing, and eventually that may pay off on the other end. Over the next few quarters, we’ll be watching which institutions are worth considering for long-term allocation. Because unless they change the regulatory rules for large banks, I think private credit is here to stay for the long run.

Barron’s**: **The war haze seems to be seeping into everything. For example, I think the forecasters don’t really know where the S&P 500 will end up this year. Do you know?

Bowers: **I don’t. But I’ll say this: the president views the market as a “voting machine,” and this is a pretty key election cycle, so if he doesn’t do something by late summer through the election period to try to boost the market, I’d actually be surprised. Because it helps voter confidence a lot.

Barron’s: Thank you, JP.