Model Portfolio Pulse: AI wave meets EM strength
December 01, 2025
-
3 min
October was a mixed month for performance. While Natixis models delivered positive absolute returns (gross and net), performance lagged benchmarks due to headwinds in active equity strategies and regional exposures. At the same time, macro conditions remain supportive, with the US economy showing resilience and the Federal Reserve (the Fed) pivoting toward rate cuts. Against this backdrop, we’ve made tactical adjustments to position for opportunity while managing risk in an environment shaped by AI-driven growth, shifting global dynamics, and evolving inflation trends.
Key takeaways
- Active equity strategies underperformed benchmarks.
- Macro backdrop remains constructive, supported by Fed rate cuts, AI investment, and easing trade tensions.
- Seasonal tailwinds and earnings momentum favor equities, but bubble-like behavior in artificial intelligence (AI) warrants caution.
- Portfolio positioning reflects balanced optimism, with an overweight in equities (US and emerging market [EM]), growth tilt, and neutral duration in bonds.
Active strategies face headwinds
October delivered positive absolute returns across our models on both a gross and net basis. However, gross performance trailed our benchmarks, largely due to underperformance in our active equity mutual funds. This continues a year-to-date trend that reflects the broader challenges facing active equity managers in 2025.
On the exchange-traded fund (ETF) side, our exposure to FXI, a Chinese large-cap equity ETF, weighed on results. FXI lagged the broader emerging markets benchmark, which benefited from strong showings in South Korea and Taiwan. In response, we exited FXI late in the month and reallocated to a broad emerging market ETF, aligning with our evolving view on regional dynamics.
Meanwhile, our asset allocation decisions added value: An overweight to EM equities and an underweight to investment grade fixed income proved beneficial.
Economic resilience amid transition
The US economy remains resilient, buoyed by AI-driven capital expenditures and a consumer base that continues to spend despite a cooling labor market. With financial conditions already loose and the Fed cutting interest rates, we expect continued support for both economic growth and financial markets.
A truce with China has shifted attention away from trade tensions and toward the stimulative potential of the One Big Beautiful Bill, expected to take effect next year. These developments are likely to bolster business confidence and growth.
That said, risks remain, particularly around the slowing labor market, where a deterioration in employment could threaten consumption. Fortunately, while hiring has decelerated, layoffs haven’t increased sharply yet. Plus, slowing wage growth and now declining shelter inflation may help contain broader inflation pressures, reinforcing the Fed’s dovish stance.
Seasonal strength meets AI caution
Seasonal trends are supportive of equities through year-end, and with earnings expectations rising and interest rates falling, we anticipate markets will grind higher. However, the AI sector is showing bubble-like behavior, and any slowdown in AI investment could trigger market disappointment. Encouragingly, Q3 earnings have so far supported continued momentum in this space.
Natixis model portfolio positioning
Our models reflect a modestly bullish stance, with several key themes:
- Overweight stocks vs. bonds
- Growth over value tilt
- Overweight EM stocks
- Slightly overweight US stocks
- Slightly underweight developed international stocks
- Overweight EM USD-denominated government bonds
- Neutral duration positioning
We recognize the tug-of-war between rich valuations and supportive monetary policy. While we’re not forecasting a recession, we remain somewhat cautious given the extended rally since April. A correction, if it comes, could be sharp, hence our measured equity overweight.
Recent changes include a slight addition to overall portfolio risk via equity ETF purchases, plus exits from US minimum volatility, Indian stocks, and Chinese stocks.
