Growth at reasonable yield (GARY) shows defense is the best form of offense

Macro Cycles

US mega techs are expected to push for DeepSeek’s addition to the China tech blacklist, but this has only driven China to innovate and surge ahead. DeepSeek exposed US mega techs’ complacency and overspending in the AI bubble. Now, they must invest even more to catch up, leading to mass layoffs. OpenAI, ChatGPT’s owner, will need substantial capital to stay competitive. Major industrial AI firms struggle to sell overpriced solutions that are costly to integrate while delivering minimal gains. AI overspending will accelerate corporate downsizing amid a weakening business cycle. Like the internet during DotCom cycle, AI will succeed with more players but rising expectations and shrinking timelines create pressure. History shows picking the eventual winners and losers are hard during the early part of the cycle due to market optimism always expecting a select group to own the space.

Policy Outlook

The US has launched a trade war, targeting Mexico and Canada first, despite market expectations that China would be the main focus. Eventually, the US is likely to impose more tariffs on China and escalate tensions with the EU, as budget blowouts prevent tax cuts for the wealthy. Policy uncertainty and trade wars will keep historically stretched markets at elevated risk in the short to medium term.

Data Analytics and AI takeaway

Global funds leveraged seven-year high inflows in January to offset rising macro risks, but that momentum is fading with trade wars. Elevated market risk favors value, dividends, and profitability over growth, momentum, and size.

Investment Strategy

Yield investing in today’s high-risk macroeconomic environment requires a data-driven, balanced approach—especially as U.S. policy decisions continue to fuel inflation and interest rate uncertainties. Factors such as weaker government spending, shifting policies, and geopolitical tensions have heightened economic volatility, making the Federal Reserve’s hawkish stance on interest rates a key driver of fixed-income investments and yield-bearing assets.

In this landscape, investors face a critical challenge: balancing income generation with capital preservation. While high-yield bonds and dividend-paying stocks offer attractive returns, they also come with heightened exposure to market fluctuations and default risks. Meanwhile, conservative options like Treasury bonds provide stability but may struggle to keep pace with inflation, particularly if price pressures intensify.

The Growth at Reasonable Yield (GARY) strategy remains a compelling approach in this uncertain environment, catering to investors seeking a balance between income and risk management. By prioritizing adaptability and strategic positioning, Deep Data Analytics’ GARY strategy delivers consistent premium outperformance over the long term—helping investors navigate elevated interest rates, slowing growth, and geopolitical uncertainty with confidence.

Portfolio Strategy

U.S. policy uncertainty is set to dominate as the new government attempts to justify unsustainable tax cuts through trade wars. The challenge is that the math doesn’t add up, and budget-conscious Republicans have historically opposed large spending plans like tax cuts. More trade wars are likely, and the tax cuts could even be reversed. This signals a year of uncertainty with rising debt and deficits. As a result, gold has reached new all-time highs in both US$ and A$. The belief that the AI boom was limited to select U.S. mega-tech firms has been debunked. DeepSeek will introduce more players, though monetizing AI for complex industry improvements will take longer than expected, with many solutions being advanced versions of existing data analytics. Market concerns over data center and energy demand are likely short-term. The food sector will benefit from trade wars, while high-risk remains for expensive growth and consumer-spending-linked assets.

Model Portfolio

The best performers over the last three months in the Growth at Reasonable Yield (GARY) Top 10 are: Austal (ASX:ASB), Regis Resources (ASX: RRL), Evolution (ASX: EVN) and Sonic Health Care (ASX:SHL).

Note: DDA may or may not have made changes to the model holdings since last update. The data driven model portfolios will continue to evolve with the economic and market cycles.