US corporates and sports franchises may be lucrative plays for 2025

AS THE old saying goes: “The markets are easy… they only go up or down.”

While there is a kernel of truth in this, it is a dangerously simplistic view. Betting on a 50-50 chance is little more than speculation dressed up as strategy.

The reality of investing is far more nuanced. It is not about attempting to predict the next move – whether it is up or down – but about carefully positioning yourself to thrive, regardless which direction the winds blow.

True investing is about understanding the inevitable shifts, preparing for them, and most importantly, knowing how to act when they come.

Take this as a case in point: Since the start of 2024, we have advocated for investors to be fully invested by moving cash to risk assets. With yields at their highest in two decades, increasing one’s exposure to corporate bonds over cash deposits was not just sensible, it was compelling.

We believe the US Federal Reserve is set to continue to lower rates and sight a soft landing on the horizon, resulting in potential capital gains on bonds.

Regime change

Donald Trump 2.0 is set to usher in an era of trade tariffs, likely triggering retaliatory actions from other countries and possibly escalating into a larger-scale trade war.

To hedge against this scenario, which could lead to a global economic slowdown, the Fed may respond with accelerated policy easing, enhancing the outlook for investment-grade credit.

To this end, we advocate positioning in A/BBB credit, while staying overweight in the two- to three-year and seven- to 10-year duration part of the yield curve.

But we would avoid the ultra-long duration (30-year) segment, as yields on the very long end would face upside pressure in the face of excess supply to fund the government’s ballooning deficit.

Tech dominance continues

In parallel, our unwavering conviction in technology equities continues to pay off, bolstered by the rapid and relentless rise of artificial intelligence permeating every industry.

Big Tech, we believe, is a fortress – largely insulated from the vagaries of economic turbulence, thanks to their robust free cash flow generation.

This is no small feat. Free cash flow is projected to surge by an eye-popping 142 per cent to a staggering US$345 billion by 2026, from US$142.8 billion in 2020.

Trump 2.0 policies will be constructive for corporate tax cuts and deregulation. These will also be supportive of the financials and consumer discretionary sectors.

Financials stand to benefit from the potential easing of capital requirements and more relaxed mergers and acquisitions regulations, while consumer discretionary will receive a boost should Trump’s pledge to expand the Tax Cuts and Jobs Act come to pass.

Not least, the US energy sector finds itself in a favourable position, fuelled by Trump’s preference for fossil fuels and his ambitious quest for “energy dominance”.

The potential ramifications are significant. The environmental regulations put in place by the Joe Biden administration could be rolled back, while a surge in federal drilling permits could open up vast new opportunities. This change in policy could prove a game changer for the sector, positioning it for growth as the landscape rapidly evolves.

In other words, the often-jingoistic refrain of “American exceptionalism” currently holds true. When stacked up against their global counterparts, US corporations continue to stand apart – and they are poised to widen that gap.

Unshackled by the regulatory burdens that weigh down their international peers, they are propelled forward by a powerful trifecta: relentless innovation, operational efficiency and the strength of robust domestic consumption.

This dynamic combination puts US corporates in a league of their own, with the runway for growth widening by the day.

Game changers

While we are on the topic of American exceptionalism, what better way to represent America than sports franchises?

With growing demand for live sports, coupled with the scarcity of US Major League teams, sports investing has become one of the most compelling themes in recent times.

Combined, the average franchise value of Major League baseball, basketball, American football, and hockey teams grew at a sizeable 11.8 per cent compound annual growth rate between 2002 and 2023.

Owning a professional sports team is not just the ultimate status symbol, it is a promising investment.

In line with our view that the private markets remain a good source of “alpha” returns, sports franchises such as Major League Baseball (MLB) and the National Basketball Association are increasingly becoming involved with private equity.

This is a recent phenomenon. MLB paved the way in 2019, allowing a franchise to sell up to a 30 per cent stake to private funds. The most recent entrant to this space is the National Football League, which in 2024 allowed the sale of up to 10 per cent of each franchise.

The sports industry has also delivered stellar performance in the public markets, with the Bloomberg Sports Index outpacing global equities by a massive 431 percentage points over the past decade.

A large part of the performance ties back to Big Tech’s increasing involvement in sports, with streaming players such as Netflix and Apple snapping up broadcasting rights. Other growing areas exposed to sports include video games, analytics and entertainment venues.

All lined up

When it comes to investing, I find myself deeply aligned with the words of Benjamin Franklin: “A place for everything, and everything in its place.”

This is the bedrock of a well-constructed investment portfolio – an ability to process the available data, elucidate the right mix of assets and allocate accordingly.

In times of heightened uncertainty, diversification is not just a strategy, it is a necessity – and not just any diversification, but one that is thoughtfully executed, with purpose and conviction.

With actual wars unfolding and the spectre of a trade war on the horizon, the time for action is now. Hesitation could prove costly.

The writer is chief investment officer, DBS Bank