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New ideas for a new year

Here are some alternatives to AI stock bubbles.

Key takeaways

  • A relatively small number of stocks have led markets higher over the past year. Some investors may be concerned about too much focus on a single investment theme.
  • A multi-asset investment strategy may offer attractive, alternative opportunities for capital appreciation, income, and diversification in the new year.
  • Professional investment managers have the research resources and investment expertise necessary to help identify opportunities and manage the risks associated with these investment strategies.

Stocks had quite a run in 2025—or at least some of them did. A relative handful of companies and the single investment theme of massive capital spending to build data centers to power artificial intelligence helped push the S&P 500 to record highs, despite rising policy risk and economic uncertainty.

For much of the rest of the S&P though, the past year was less special. Indeed, through December 16, 2025, the equal-weighted S&P 500 underperformed the S&P 500 Index by almost 1,000 basis points over the previous 12 months and just 5 stocks now account for more than 30% of the value of the index—and of the passive funds that track it. Nobody knows for certain whether this gap between the S&P’s leaders and everybody else will grow or shrink in 2026. Either way, though, you may want to consider how much of the foundation of your retirement should depend on a single emerging technology whose commercial potential remains to be seen.

Instead, you may want to consider diversifying your portfolio to potentially lower your risk and improve your returns.

But how? High-quality, investment-grade bonds issued by corporations and governments have traditionally been the first choice for smoothing out volatility in a portfolio, but over the past several years, inflation has caused bond prices to move up and down more like stock prices, which has reduced their ability to provide ballast against stocks.

Short-term investments may not offer much help either. Over the past 3 years, money market funds, CDs, and short-term bonds have offered attractive yields with very little risk, but those yields have come down and are likely to continue doing so. Even though inflation is expected to remain well above the Federal Reserve’s target range of 2% in 2026, the Fed has been cutting interest rates, which will bring down yields on those low-risk cash products.

And now some good news

Fortunately, you have options for your money where you can potentially enjoy attractive yields, potential capital appreciation, and reduced volatility. Adam Kramer manages Fidelity® Multi-­Asset Income Fund (FMSDX). He invests in a wide variety of assets and is finding opportunities in a variety of places.

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Opportunities in a golden age for convertible bonds

Kramer believes the proliferation of artificial intelligence presents a significant potential opportunity for investors and he is looking for—and finding—potentially less-volatile ways to invest in it. These include opportunities that AI is creating in the convertible bonds that an increasing number of companies are issuing to raise capital to fund their growth and operations.

Kramer says that besides delivering attractive coupon yields, convertibles can offer an under-the-radar way to get exposure to the growth of AI without buying expensive stocks. AI needs a huge amount of electricity and new power plants are hard to build. However, some companies whose businesses had been focused on mining bitcoin have surplus electric power under contract and are now converting themselves into operators of AI data centers and are signing contracts with hyperscalers. These data center companies issue convertible bonds and Kramer says those may offer significant opportunities.

Beyond AI, Kramer also sees potential opportunities in many other convertible bonds in the new year. “I like that the convertible bond market’s equity sensitivity is back below mid-cycle, and that lots of new bonds are being issued. I believe there are many new industries and themes that will come out in 2026.”

Convertible bonds are securities that pay interest like other bonds, but which also may be converted to shares of the issuing company’s stock. The conversion of a bond to a stock may take place at a predetermined ratio of stocks per bond, which effectively results in a predetermined stock price. That means you may be able to buy a company’s convertible bond and get paid an attractive interest payment—known as a coupon—while you wait to potentially convert the bond to stock in the future. As Kramer puts it, "Convertible bonds are unique because they pay interest like other bonds but their prices also move with the issuing company’s stock."

Kramer notes the supply-and-demand dynamics in the convertible market also are creating opportunity. Unlike other assets, previously issued convertible bonds are continually “leaving the market” as they convert to stock and new issues with different features are taking their places. Fourteen percent of convertible bonds currently in the market will mature by 2026, and almost 20% by 2027, creating demand for new issuance.

Small though it may be now, the convertible market is growing. “I wouldn't be surprised if convertible bonds are going to be a bigger part of the market in the next few years,” says Kramer. One of the reasons for his optimism is that more companies' leaders appear to be recognizing the helpful attributes of convertibles as tools for raising capital for an increasingly wide variety of purposes.

“I think now we've entered a golden age of convertible bonds,” says Kramer. “We're seeing some really interesting deals come to the market.”

Another benefit of convertibles is that they reduce some of the potential drawbacks of both stocks and conventional bonds. Convertible bonds generally are less sensitive than many other bonds to the risks that changes in interest rates may pose. Convertible bond prices can fall if interest rates rise and stock prices decline, but they are less sensitive to such changes than both stocks and traditional corporate bonds. Like other bonds, convertible prices are likely to rise when interest rates fall.

Before individual investors consider convertibles, they should remember that the convertible bond market is both small and specialized, and conditions in it can change quickly. Investors should also keep in mind that while convertible bonds may offer more predictable returns than the same issuer's stock, they also present credit risk, particularly if issued by smaller, less well-capitalized companies.

Opportunities in emerging market debt

Some bonds issued in currencies other than US dollars are another area where Kramer sees opportunity in the year ahead. “For example,” he says, “local currency bonds of Brazil, which mature on January 1, 2027, pay 10% in local currency, will pay their face value at maturity, and are currently paying around 96 cents on the dollar.”

The real yields are approaching 10%, because of concern about Brazil’s fiscal situation. Kramer says the country’s central bank has regained credibility in fighting inflation and as a result, interest rates in Brazil are quite high. There will eventually be an election in late-2026 and there is the potential for the currency to appreciate.

Opportunities in dividend-paying oil tanker stocks

Dividend-paying value stocks from oil and product tanker companies are another potential source of opportunity for both income and price appreciation. Says Kramer: "Oil tankers are floating pipelines, but the markets are still valuing their stocks as though they were boom-and-bust industries. A lot of these companies have improved the way they allocate capital: They’ve paid down their debt to below the scrap values of the fleets, reduced spending for new ships, and are now focusing on paying dividends.

Trends in global oil demand are also creating a favorable outlook for tanker companies and their stocks. Says Kramer: “Product is going to have to get delivered from one refinery to another around the world and the longer the distances of travel, the better that is for the rates that oil and product tanker operators can charge. Meanwhile, a lot of older oil tankers could possibly leave the world fleet, which would further help shift the supply and demand environment in these companies’ favor.”

More opportunities in 2026

Looking further afield, Kramer also sees opportunities in assets whose prices may be lower than perhaps they should be because of excessive pessimism about certain companies or industries.

As 2026 begins, he sees that in the dividend-paying stocks of natural gas producers, large-cap pharmaceutical companies, Master Limited Partnerships that own and operate oil and gas pipelines, small-cap stocks generally, and in the preferred stock of digital asset companies that hold Bitcoin. “These all have a lot of bad news priced in,” he says.

Investments in less-familiar opportunities

While emerging-market debt, convertible bonds of data center operators, oil tanker stocks, and more may provide alternatives to an increasingly narrow and concentrated US stock market, investing in these sorts of assets is not as easy as simply putting money into an S&P 500 Index fund.

Professional management and research can help you manage the risks that come from venturing into less-common income investments. Investors may want to consider gaining exposure to them through multi-asset income strategies that also invest in other income assets as ways to diversify away some of the risks posed by having concentrated exposure to a single asset class. You can do this by researching professionally managed mutual funds or separately managed accounts and running screens for these products using the Mutual Fund Evaluator, ETF/ETP Screener, and Stock Screener on Fidelity.com. Below are the results of some illustrative mutual fund screens that invest in convertible bonds as well as other income-generating investments (these are not recommendations of Adam Kramer or Fidelity).

Mutual funds

Fidelity® Multi-Asset Income Fund ()

Fidelity® Convertible Securities Fund ()

Invesco Convertible Securities Fund Class A ()

NYLI MacKay Convertible Class I ()

Putnam Convertible Securities Fund Class A ()

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

​As with all your investments through Fidelity, and in connection with your evaluation of the security, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, and financial situation. Fidelity is not recommending or endorsing this investment by making it available to its customers.

 The stocks mentioned are not necessarily holdings invested in by Fidelity. References to specific company stocks should not be construed as recommendations or investment advice. The statements and opinions are those of the speaker, do not necessarily represent the views of Fidelity as a whole, and are subject to change at any time, based on market or other conditions.

Past performance is no guarantee of future results.

The S&P 500 is a stock market index weighted by market capitalization that is made up of 500 of the largest public companies in the United States.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

High-yield/non-investment-grade bonds involve greater price volatility and risk of default than investment-grade bonds.

Preferred securities are subject to interest rate risk. (As interest rates rise, preferred securities prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Preferred securities also have credit and default risks for both issuers and counterparties, liquidity risk, and, if callable, call risk. Dividend or interest payments on preferred securities may be variable, be suspended or deferred by the issuer at any time, and missed or deferred payments may not be paid at a future date. If payments are suspended or deferred by the issuer, the deferred income may still be taxable. See your tax advisor for more details. Most preferred securities have call features that allow the issuer to redeem the securities at its discretion on specified dates, as well as upon the occurrence of certain events. Other early redemption provisions may exist, which could affect yield. Certain preferred securities are convertible into common stock of the issuer; therefore, their market prices can be sensitive to changes in the value of the issuer's common stock. Some preferred securities are perpetual, meaning they have no stated maturity date. In the case of preferred securities with a stated maturity date, the issuer may, under certain circumstances, extend this date at its discretion. Extension of maturity date will delay final repayment on the securities. Before investing, please read the prospectus, which may be located on the SEC's EDGAR system, to understand the terms, conditions, and specific features of the security.

While it may seem appealing to look at bonds that offer higher yields, investors should consider those higher yields to be a sign of potentially greater risk. Below are some of the potential risks involved with high yield investing.

Default risk - The risk of default on principal, interest, or both, is greater for high yield bonds than for investment grade bonds.

Credit risk - High yield bonds are subject to credit risk, which increases as the creditworthiness of the issuer falls. It’s important to pay attention to changes in credit quality, as less creditworthy bonds are more likely to default on interest payments or principal repayment.

Business cycle risk - High yield issuers typically have riskier business strategies and more leveraged balance sheets, exposing them to greater risk of default at times of a downturn in business conditions.

Call risk - High yield bonds are more likely to have call provisions, which means they can be redeemed or paid off at the issuer’s discretion prior to maturity. Typically an issuer will call a bond when interest rates fall, potentially leaving investors with capital losses or losses in income and less favorable reinvestment options. Prior to purchasing a corporate bond, determine whether call provisions exist.

Make-whole calls - Some bonds give the issuer the right to call a bond but stipulate that redemption occurs at par plus a premium. This feature is referred to as a make-whole call. The amount of the premium is determined by the yield of a comparable maturity Treasury security, plus additional basis points. Because the cost to the issuer can often be significant, make-whole calls are rarely invoked.

Event risk - A bond’s payments are dependent on the issuer’s ability to generate cash flow. Unforeseen events could impact their ability to meet those commitments.

Concentration risk - Excessive exposure to a specific market sector within any asset class could put investors at greater risk. It’s important to seek diversification across a wide range of issues and industries in order to reduce the negative impact of a default.

Equity correlation risk - The perception that high yield issuers may have trouble generating sufficient cash flow to make interest payments could make them behave like equities. In some cases, high yield bonds may fall along with equities during an economic or stock market downturn. This is a concern for investors using fixed income as a hedge against equity volatility.

Liquidity risk - High yield bonds that may have been easy to buy or sell when market conditions were calm can suddenly become very difficult to sell when volatility increases. Typically, the market for high yield bonds is less liquid than the market for investment grade or government bonds.

Interest rate risk - Although high yield bonds have relatively low levels of interest rate risk for a given duration or maturity compared to other bond types, this risk can nevertheless be a factor. As with all bonds, a rise in interest rates causes prices of bonds and bond funds to decline. Because credit and default risk are the dominant drivers of valuations of high yield bonds, changes in market interest rates are relatively less important. At the same time, a tightening in monetary conditions that usually accompanies a rise in the general level of interest rates may cause a lagging reaction by weaker credits because of their inability to find sufficient funding, which in turn weakens the balance sheet of the high yield entity.

Higher transaction costs - Due to a typically large spread between bid and offer prices, and higher transaction costs associated with less liquid securities, trading high yield bonds can be costly.

Research and monitoring demands - Current and accurate information can be more difficult to obtain for high yield bonds. Investors should conduct due diligence as they consider investment strategies and closely monitor the changing financial condition of the issuing company.

Foreign risk - In addition to the risks mentioned above, there are additional considerations for bonds issued by foreign governments and corporations. These bonds can experience greater volatility due to increased political, regulatory, market, or economic risks. These risks are usually more pronounced in emerging markets, which may be subject to greater social, economic, regulatory and political uncertainties.

 Investments in publicly traded MLPs involve risks and considerations that may differ from investments in common stock. Tax complexity risk: Master Limited Partnerships (MLPs) are generally considered pass-through entities for tax purposes and have special tax considerations. Pass-through entities may generate unrelated business taxable income (UBTI) that may have undesirable tax consequences for retirement accounts and other tax-exempt investors. If you hold MLP units, you are generally treated as a partner for tax purposes and will be issued a Schedule K-1 (Form 1065) rather than a Form 1099 form for use in filling out your tax return. A K-1 lists the partner's share of income, deductions, credits, and other tax items. If the MLP has operations in multiple states, you may need to file a separate tax return in each state. An MLP that is treated as a corporation in the United States rather than a pass-through entity for federal income tax purposes would be obligated to pay federal income tax on its income at the corporate tax rate. In this case, the amount of cash available for distribution by the MLP would be reduced and part or all of the distributions made could be taxed entirely as dividend income. In this case a Form 1099 would be furnished rather than a Schedule K-1. Please see the MLP’s website, SEC filings, or most recent shareholder report for further details about tax treatment of your investments. Legislative risk: The tax treatment of publicly traded MLPs could be subject to potential legislative, judicial, or administrative changes, possibly on a retroactive basis. Any such changes in tax treatment could negatively impact the value of an investment in an MLP. Concentration risk: Many MLPs are concentrated in the energy infrastructure sector. This narrow focus of MLPs may present considerably more risk than a diversified investment across numerous sectors of the economy. Market risk: MLPs may exhibit high volatility particularly during periods of economic stress or due to other events impacting the particular sector or industry in which an MLP operates. Interest rate risk: The market prices of MLPs are sensitive to changes in interest rates. As interest rates rise, the prices of MLP units may decline (and vice versa). Rising interest rates could also increase the MLP’s cost of capital which may limit potential growth through acquisition or expansion and reduce distribution growth rates. Distribution policy risk: All or a portion of an MLP’s distribution may consist of a return of capital from your original investment. MLP unit holders should not assume that the source of a distribution is net profit from the MLP’s operations. Liquidity risk: Despite the fact that MLPs are publicly traded, investments in MLPs may be relatively illiquid due to their unique investment strategy, asset concentration or other factors. Lack of liquidity can negatively impact your ability to sell MLP units. Additionally, should a secondary market exist, investors who need to sell MLP units may be subject to a significant loss. Commodity price risk: The price of MLP units may be negatively impacted by fluctuations in commodity prices. A significant decrease in the production or supply or sustained reduced demand for natural gas, oil, or other energy commodities would limit revenue and cash flows of MLPs and, therefore, the ability of MLPs to make distributions to unit holders. Regulatory risk: The assets of MLPs tend to be heavily regulated by federal and state governments. Changes in regulation can adversely impact an MLP’s profitability and therefore the value of MLP units. Conflicts of Interest: The general partners of an MLP typically have limited fiduciary duties to the MLP and may have conflicts of interest which could result in the general partners favoring its own interests over the MLP’s interests.

The securities of smaller, less well known companies can be more volatile than those of larger companies.

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