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

Author: Steve Gambrasson; Source: Barron’s

Just as overseas stock markets are about to start outpacing the U.S., an oil shock triggered by the Iran war is making many American investors consider bringing assets back home. Joseph “JP” Bowles, chief investment officer of 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 international markets, it’s now about carefully picking the right opportunities.

“I think keeping an offshore allocation is certainly necessary, but right now if you’re only doing index investing in international markets, it’s getting very hard,” he said. “Now that we’re allocating overseas, we have to actively select specific holdings.”

In an interview with Barron’s Advisor Edition, Bowles discussed what this war could mean for U.S. stock investors. He believes that companies that can make it through the so-called “SaaS doomsday” brought on 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 clearing, it will ultimately produce some quite attractive opportunities.

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

Bowles: From the perspective of U.S. investors, the best scenario is that the fighting ends as quickly as possible. I think what’s truly concerning is not overcommitting in either direction, because every day, it could come down to just one Truth Social post before a real ceasefire appears. At the same time, it could also be just one post away from ground forces being brought in. Investors have to face this kind of black-and-white, sharply polarized market risk.

What would the worst case look like? It’s difficult to forecast with precision. But clearly, if the situation escalates further, other countries could get pulled in; over the long term, energy markets would be severely disrupted, and the time required for rebuilding would be much longer. I don’t want to make it sound even more severe than that. There could be many other worst-case scenarios as well, but that’s roughly the range of what’s more conventionally likely in real life.

Barron’s: Economists have already built upside inflation factors into their forecasts. What’s your view on where things go from here?

Bowles: I think we have to do that. There’s no doubt inflation will be higher. But on core inflation—if we strip out food and energy first—I think it will likely still sit in a range close to the Federal Reserve’s target. The prior process of core inflation coming down had already stalled. Service-sector inflation itself has a lot of stickiness. I’m not sure that this war alone would make it ease. If this war lasts for months rather than weeks, then you might start to see that people’s energy spending exceeds what they can spend on other parts of the economy, which may ultimately pull down some inflation at the core level. In any case, overall inflation data will definitely be higher.

I think that over the long term, there’s still a lot worth staying optimistic about. For example, if I absolutely had to pick the best house on this block, I’d still want to put the money in the U.S. International markets do concern me. Over the past roughly 15 months, parts of Europe and Asia have kept outperforming the U.S., but that momentum has now completely stopped. It’s not that they’re showing astonishing GDP growth, but we’ve seen valuation multiples between the U.S. and international markets regain some balance. This repricing has already happened, and maybe some people are expecting: if a ceasefire is reached, we’ll immediately go back to February’s levels. I don’t see it that way. I think in a sense the damage has already been done. And regardless of whether it’s good or bad, the U.S.—especially parts of Europe and Asia, particularly Japan and South Korea—is better positioned to withstand this energy shock. So we’re bringing more capital back to the U.S.

Barron’s: So the war is creating reasons to drive investment back home?

Bowles: That’s right. After decades, international stocks are finally having their moment in the spotlight. But now that this war has broken out, I think the damage to international markets will be greater and last longer, and the impact on the U.S., by comparison, will be less severe. I think it’s still necessary to keep those allocations, but right now if you’re just doing index investing overseas, it’s difficult. When we look overseas now, we’d rather take a very proactive approach to investing.

Barron’s: The disruption brought by AI and its impact on private credit are still evolving. Given that, how are you positioning yourselves?

Bowles: Yes, especially the pressure from AI disruption hitting the software industry. There’s clearly a kind of “sell first, ask questions later” mindset right now, possibly because we still find it hard to see what the real impact of AI will be on these SaaS (software as a service) companies. Some companies will undoubtedly disappear as AI solutions roll out. We’re seeing that happen almost every week. But some established vendors are already deeply embedded in enterprises—whether on the data layer or within workflows—so in the near term they’re very hard to replace. That’s why I think that if you can carefully pick and choose, and give these companies time to embrace their own AI solutions, it may actually improve their profit performance. There may be some undervalued opportunities in this space right now.

Barron’s: You’ve said that one potential headwind for the fast-moving AI machine is political pushback. Do you feel any clear rebound from Washington on that front?

Bowles: A little. I think we definitely are seeing this: Democrats are getting involved, trying to slam the brakes on the arrival of AI, and also trying to slow down the pace of continued expansion in this space. That’s concerning because if we aren’t at the front of this technology, then elsewhere in the world—if it hasn’t already happened—will step in. There’s no question that in the foreseeable future, this market segment will dominate everything. Every company is trying to figure out how to leverage it, hoping to boost productivity and improve profit performance. So we want to be leaders in this area. As of now, I don’t think the Democrats have had any substantive impact, because they don’t control Congress. But you do hear some noise around this, and I’m wondering whether—close to the midterm elections—those voices will get louder.

Barron’s: Do you still like those large-cap technology leaders? Would you make any opportunistic buys?

Bowles: If we take a long-term perspective, then yes—these are still among the best companies in the world. They support this kind of growth and capability building largely through their own resources, so I don’t think this modest pullback creates any kind of systemic risk. I do think there are opportunities to look at some of the investment openings within them. However, beyond the possibility that the AI narrative may not live up to expectations, there are other risks. For example, Meta’s problems: in the future, they may face higher regulatory penalties [Meta and Google lost a lawsuit about whether social media harms children]. We want to make sure our positioning in them is appropriate, but I still think these are the best companies in the world—and we want to own them.

Barron’s**:** Are there any undervalued areas that you’re actively moving into because they’re being “discounted”?

Bowles: I think the opportunities are on the private market side—quite a number of things have gotten a bit stalled. Because private credit hangs over everything like a dark cloud, everyone has become somewhat cautious and hesitant. We’re focusing on a bit more downward, more “submerged” private equity niche—on the end of small and midsize businesses: they’re likely a good fit to use AI tools to improve, but they don’t really know how to use them.

So some new funds are showing up with investment theses like this: they can invest in these companies and become true value-adding management partners. They move into the businesses, introduce their own technology platforms, and help these mid-market firms compete with much larger companies—where previously these mid-market firms might have only been hoping to be acquired and absorbed by the bigger players. I think some AI tools will enable these businesses to grow without needing to staff at the same level as before, and will give them the ability to compete with large players—while possibly also making them more flexible. This is an area I like: if they can deliver differentiated products, then this corner may also be somewhat better able to withstand macro shocks.

Barron’s**:** What about fixed income? What’s the best option for avoiding risk?

Bowles: Right now, there aren’t many safe havens. Everyone’s focused on inflation, and nobody dares to extend duration, or reach further out on the yield curve, to chase higher yields. But U.S. Treasuries are showing the liquidity advantage they provide. That’s also exactly why the private credit market is under pressure right now: once you remove liquidity, suddenly everyone wants it at the same time.

Barron’s**:** Then where are the best yield opportunities?

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

Barron’s**:** Speaking of defensive assets, after the war began, gold was supposed to play that role—but it didn’t. Are you surprised?

Bowles: Yes, that’s true. When a country gets pulled into a war like this and everyone is looking for a safe haven, you would think gold would be at the top of the list. Maybe in “normal” times, it is. But when we entered this conflict, gold had already gone through a very sharp rally beforehand, so it was always going to see some pullback.

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

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

Barron’s**:** What else are you paying attention to?**

Bowles**:** Over the past few years, I’ve been fairly skeptical about private credit. Since these funds really took off, we haven’t yet experienced a truly real credit cycle. The field has grown from nearly zero after 2008 to more than $2 trillion today. As private credit expanded over the past few years, software and AI also enjoyed a boom. So it’s not hard to understand why many funds may have too much exposure in this area. But some institutions have stuck to higher standards of risk management. Maybe they sacrificed some returns during the upswing, but in the end they could get paid back on the other side. Over the next several quarters, we’ll watch which institutions are worth considering for long-term allocation. Because unless they change the regulatory rules for big banks, I think private credit is here to stay long term.

Barron’s**:** The war haze seems to seep into everything. For example, I think the forecasters now have no idea where the S&P 500 index will end up this year. You know?

Bowles: I don’t know. But I’ll say this: the president treats the market like a “voting machine,” and this is also a pretty key election cycle—so if he doesn’t do something toward the end of summer through the election period to try to give the market a boost, I’d be surprised. Because it helps a lot with voter confidence.

Barron’s**:** Thank you, JP.