Benoit Anne, Senior Managing Director and Head of Market Insights Group of MFS Investment Management, shares his thoughts on Kevinomics, fixed income, and building an anti-fragile portfolio in equities.
We need to talk about Kevinomics
The new Fed Chair believes that there is room for policy easing, but perhaps not in the most traditional way. No, the US economy is not subject to a severe demand shock that would warrant the Fed to step into policy action. Instead, Kevin Warsh, the newly nominated Fed Chair, is of the view that the U.S. is going through a productivity miracle, which will not only boost the country’s long-term growth potential but also create some major disinflationary pressures.
With inflation correcting lower, the Fed will have more room for further rate cuts, which the White House will be happy about. Here lies some potential contradiction, however. Listening to our Chief Economist, Erik Weisman, the productivity-driven higher growth trajectory would normally tend to be associated with a rise in the neutral rate. This means that, on this basis, the Fed’s monetary policy room under that macro scenario would be smaller, not larger over the long term. Besides, it is also worth pointing out that cutting rates in an accelerating growth scenario may raise the risk of tipping the US economy into overheating.
Moving on to Kevin Warsh’s view about the Fed’s balance sheet, it is clear to all of us that the new Fed Chair is in favor of some restraint. But if implemented, a reduction in the balance sheet could impact liquidity and rate volatility in a way that may be perceived to be contradictory to the initial objective of bringing rates lower. Overall, the jury is still out about the prospects for policy easing, which probably warrants a cautious approach to US duration.
We do not anticipate a reduction in the volatility of the Fed’s policy signals in the period ahead, especially with the possibility of high dissention within the FOMC. Away from duration, the Kevinomics macro scenario is in our view quite supportive of exposure to risky assets, including US equities and credit.
The importance of alpha in fixed income
2026 is lining up to be a pretty respectable year for expected returns in fixed income, but not a great one. Why not a great one? Because the case for being long duration is weaker now that central banks are done – or almost done—with their policy easing. Meanwhile, credit spreads are quite tight, leaving little room for spread compression. This means that carry is likely to play a major role as a contributor to total returns. More importantly, we believe that alpha is going to be particularly important given the diminished prospects for beta returns, at least compared with the past couple of years.
Macro volatility remains quite elevated these days and is unlikely to subside. More than ever, we therefore favour security selection as the key source of potential alpha. Interestingly, when analysing data from EVestment, it transpires that the group of asset managers that disclosed security selection as their main source of alpha in their active global Agg mandate beat their benchmark more often (96%) than the rest (84%) and registered an average excess return that was higher than their peers (84bp vs 71bp).[1] This is a critical time for security selection, in our view, given the tightness of spreads and spread dispersion—ie the narrow spread differentiation within the index. Fundamental risks are mispriced and this is a macro environment that in our view will favor the asset managers with a strong research platform.
Building an antifragile portfolio: equity positioning for a changing world
The investment landscape is undergoing a structural transition. For much of the past decade, markets were shaped by predictable policy, abundant liquidity and until recently low inflation. Today, those anchors are shifting. We are not in a traditional late‑cycle environment; we are navigating a world defined by fiscal dominance, multipolar geopolitics, resource security and a once‑in‑a‑generation AI investment cycle. These forces are reshaping how economies grow, how risk is priced and where equity opportunities emerge.
Growth has proven more resilient than expected. In the US, sizeable fiscal incentives continue to offset the drag from higher policy rates (with more stimulus expected in 2026 from consumer tax cuts to full expensing of R&D). In Europe, the delayed monetary impulse is finally feeding through, particularly in construction and industrial activity. As a result, global growth surprises remain consistently positive, and recession risks have declined meaningfully.
Policy, meanwhile, is becoming more interventionist and less predictable. Governments are “running it hot,” with structural deficits and targeted spending on defense, industrial policy, and digital infrastructure. The growing use of levered instruments like options and single‑stock leveraged ETFs can distort price discovery and accelerate short‑term moves in already crowded areas of the market. In this environment, a margin of safety becomes essential, both in valuation and in business quality. Momentum can persist but not delivering on expectations risks is being severely punished by the market.
We believe this reinforces the value of high‑quality, resilient companies: firms with durable competitive advantages, strong balance sheets, pricing power and predictable free‑cash‑flow generation. But quality today requires more than strong fundamentals on paper. It increasingly depends on execution, how management teams allocate capital, deliver ROIC, and scale growth opportunities. This is especially true in the AI‑linked data-center buildout, where winners will be those capable of converting capex into sustainable earnings rather than simply participating in the hype. Equity leadership is broadening, with improving earnings revisions and a healthier contribution from cyclicals.
As AI matures, fundamentals, not narratives, are driving dispersion. In our view, this environment rewards investors who remain selective and connect the dots between valuation, fundamentals, and long-term durability. In this new world, antifragile portfolios combine quality, resilience, disciplined valuation, and diversification, enabling investors to navigate regime‑level uncertainty with greater confidence (contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).
