Morgan Stanley’s asset allocation playbook for the next 5 years

Morgan Stanley’s asset allocation playbook for the next 5 years

Welcome to 2026, where bonds no longer diversify stocks, and inflation isn't going anywhere. Where AI CapEx is the driving force in markets, volatility remains elevated, and alternatives - while being the only real thing diversifying portfolios right now - also happen to have the widest dispersion of outcomes between funds that win and lose.

All this is to say that Morgan Stanley Wealth Management's Head of Investment Research and Solutions, Alexandre Ventelon, believes advisers must "diversify their diversifiers", leaning beyond traditional ballasts like bonds and gold into alternatives that are better suited to a world where inflation and interest rates likely stay above their long-run trend.

"It's very important to have managers and strategies that will fit in well with the current environment, as well as the environment we are expecting in the years ahead," he says. "So, my one piece of advice would be to really think through the things that are going to drive macro regimes."

After just completing a thorough review of Morgan Stanley's Approved Product List (APL), he's steadfast that advisers should be doubling down on alternatives in this new environment.

He points to hedge funds, particularly those with low correlation, low beta, and high alpha, as clear winners. He also argues that for Australian investors, currency is becoming increasingly important.

Ventelon also reveals a pattern across the majority of funds he's recommended in recent years - most were systematic rather than fundamental strategies. In a narrow market like the one we're in now, it's very hard for fundamental managers to add value, he says.

He's been reducing clients' exposure to Australian equities, where he believes growth will underperform relative to US peers. He thinks private credit and equity will likely disappoint on returns over the next six to 12 months, though he's not worried about broader contagion spreading through financial markets.

Most of all, he's convinced the market continues to underestimate the upgrade cycle coming for the hyperscalers (the major cloud and AI infrastructure giants like Microsoft, Google, and Amazon), arguing that this theme has much further to run.

5 learnings from Morgan Stanley’s Alexandre Ventelon

1. The 60/40 portfolio is dead (and advisers need a replacement)

In a bear market, Ventelon believes that the traditional 60% equities/40% bonds portfolio would get crushed. He argues the era of government bonds acting as a reliable safe haven is over, calling the end of a 30-year duration rally. He believes advisers need to be actively rethinking the construction of the "defensive" portion of client portfolios.

2. Within Australian equities, resources are a bright spot

While Ventelon is underweight Australia broadly, he's not zero weight, and he specifically calls out energy and mining as "second derivative winners" from the AI CapEx cycle. He also makes the case for active management in resources specifically, arguing the space is too complex for most advisers or investors to navigate alone.

3. Fund managers are good stock pickers, but they fall short on risk management

This was a nuanced point from the APL review: the differentiator between managers who perform across multiple cycles versus just one isn't idea generation - most managers find good ideas. It's sizing and risk management where the gap between top and bottom quartile managers really opens up. This is what advisers should be probing in manager due diligence conversations.

4. The return of the IPO market is a positive signal

When asked about landmark IPOs like OpenAI, Anthropic, and SpaceX, Ventelon was unambiguously positive. A healthier IPO market creates better liquidity exits for venture capital and private equity, which flows through the entire capital stack. He believes that a more active exit market is a meaningful tailwind that advisers with clients in private markets should be paying attention to.

5. Your APL review process should never end

Fund managers leave firms. New products launch. Shifting market regimes impact which styles are in or out of favour. Ventelon’s view is that advisers need both a real-time monitoring process and a formal review framework running simultaneously. He also believes that building an in-house fund research capability, rather than relying solely on third-party consultants, is what separates the best firms from the rest.

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This week’s chart

The most underappreciated development in markets is the scale and depth of the AI CapEx boom in the US, Ventelon says. Even Morgan Stanley underestimated the amount of money that would be ploughed into AI development - and it has since upgraded its estimates from US$450 billion in 2026 and 2027, to US$800 billion this year and over $1 trillion in the next.

“This is what gets us quite bullish on the AI thematic … because the investment community keeps underestimating the size and the ramifications through the US economy,” he explains.

“It's very important to keep in mind that, even if we are told that, ‘It's already maturing’, no, we are still in an upgrade and upwards revision cycle.”

In case you missed it

Last week, we were joined by acclaimed macro strategist Gerard Minack. He disrupts consensus thinking on everything from AI and global equities to the geopolitical environment and the world’s economic future. This episode is a must-watch for advisers and their clients.

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