No professional investor will say it out loud, but an AI bubble and a closed Strait of Hormuz are now pulling almost equal weight on the market. Yet that is exactly what this month’s numbers show. Measured by breadth and portfolio action among the 39 managers scanned for this report, the AI capex cycle and the Strait of Hormuz conflict score a mathematical tie. Only on the number of managers touched by the theme does AI capex narrowly beat Hormuz, making it this month’s lead theme.
Even so, the 69 reports read this cycle leave little doubt about how asset allocation is being positioned. Despite the tension between growth optimism and geopolitical risk, it remains decisively risk-on.
Asset allocation is the decision that makes the biggest difference to a portfolio’s eventual return, more than security selection or timing within a category. This report therefore sets out not only what the consensus among asset managers is, but why: through the eight macro themes driving positioning this month among the 39 managers scanned for the underlying research.
The signal
The table accompanying this article covers all 25 categories tracked by the AAC (Asset Allocation Consensus), the key moves follow below. Equities stand at 74.1% overweight versus 1.9% underweight. Of all 166 months since this survey began, only 27 were more optimistic. Cash shows the mirror image: 61.1% underweight versus 11.1% overweight, the gloomiest reading ever recorded for the category. Real estate and the broader bond category remain mildly unattractive, and commodities hold a moderate overweight, though less pronounced than last month.
Within regions, the preference for emerging markets is outright historic this time: 64.6% overweight versus 3.1% underweight, the highest reading ever recorded. America also remains firmly overweight, despite all the talk of an AI bubble, holding exactly the same tilt score as last month. Japan sits at 31.7% overweight, just over the line into overweight territory, a position resting mainly on the Japanese market’s sensitivity to oil imports and a structural AI tilt. Europe and Pacific ex Japan share the role of least-wanted region. Both tilt scores still fall just within the neutral zone, but they form the bottom of the ranking.
Within fixed income, emerging market debt is the standout, the strongest of the five categories at 52.7% overweight. Only 30 of the 166 months measured scored higher. High yield sits at the other end of the spectrum and, since government bonds moved to neutral this month, is now the only category still classified as underweight. For high yield, only 25 months were ever gloomier, a reading that puts the category close to a multi-year low.
Technology remains the most overweight sector: 78.6% overweight, and the only sector at 0% underweight. Industrials trails as the second-strongest sector, at 50.0% overweight, with a tilt score that has climbed steadily this year. Financials holds a stable overweight. Consumer staples is technology’s mirror image, structurally the least-wanted sector on the board. Utilities, healthcare and consumer discretionary are this month’s sectors in motion. More on that below.
AI capex: the lead theme, with a vocal minority against it
The AI capex cycle is not only the most broadly held theme this month, it is also the theme with the most direct portfolio action: 34 of the 35 managers who flag it also translate it into an actual position. Strong second-quarter results and repeatedly upgraded capex plans from the major hyperscalers are fueling confidence in what has become known as the ‘AI trade’. That translates into broad upgrades across technology, semiconductors and software, and into a structural preference for America, Japan and emerging markets. Precisely the regions sitting at the top of this month’s AAC figures.
At the same time, unease is building. Valuation and concentration risk are named by a substantial share of managers as the cycle’s biggest risk. There are concrete concerns about a correction in semiconductors and memory chips, and doubts about how quickly AI investment will pay for itself. A small but vocal minority goes further and holds a tactical underweight equity position, backed by negative free cash flow at one of the largest AI names and by a South Korean technology index trading 40% below its peak. The same minority warns that a wave of AI IPOs has historically been a late-cycle signal, not a sign of an early one.
That tension, a consensus sitting almost unanimously overweight against a small group doing the opposite, is what gives the theme its edge. Not the question of whether AI is driving the market, that much is settled. Rather, the question of how late it already is in that cycle.
The theme also reaches well beyond equities. Rising bond issuance by hyperscalers to fund those capex plans is compressing investment-grade spreads in that corner of the market, reinforcing the appeal of corporate bonds within an otherwise unattractive fixed income category. Real assets benefit too: energy, industrial metals and data-center infrastructure are explicitly cited as spillovers from the same capex wave, which helps explain why industrials has climbed steadily this year to the second-strongest sector position.
Hormuz: the risk that will not go away
The conflict between the United States and Iran flared up again in July, after a memorandum of understanding in late June brought only temporary relief. Transit through the Strait of Hormuz was disrupted once more, Brent climbed toward and above $100 a barrel, and the energy price shock fed renewed inflation fears and higher bond yields. Most managers now treat this as a recurring background risk rather than a one-off shock, and are responding to it concretely. Trimming equity and oil overweights. Higher demand for gold and the dollar as a hedge. Caution on government bonds and on European and Australian equities.
That explains much of why Europe and Pacific ex Japan, which includes Australia, are this month’s least-wanted regions in the AAC figures, while oil-poor, import-sensitive Japan benefits from any sign of de-escalation.
Not everyone shares the gloom. One party notes that the odds of the most disruptive scenarios have actually fallen, and that geopolitical risk is no longer the dominant market driver. A reading that stands out sharply against the broadly defensive tone of the rest of the field.
Central banks: hawkish, but the numbers say otherwise
Under new Fed chair Kevin Warsh, the market has flipped from expecting rate cuts to a hawkish ‘hold’, with heightened uncertainty as Warsh pulls back from explicit forward guidance. That pushed up the term premium and long-end yields: the 30-year US Treasury yield reached its highest level since 2007, the 10-year German Bund yield its highest since 2011. The ECB and the BOJ are also widely seen as tightening further, reinforcing caution on government bond duration and support for the dollar.
What stands out here: government bonds are actually moving from underweight to neutral this month, not further the other way. That is less contradictory than it looks. The category was already sitting so deep in the unwanted camp that even a hawkish repricing cannot push it lower. It is a sign of how low the bar already was, not of renewed enthusiasm for government paper. One manager goes against the grain entirely and holds a neutral, rather than defensive, duration position, arguing that the market is pricing in a rate hike as more likely than the manager itself believes.
Oil: the best-performing sector of the month, with a catch
The oil price rose sharply in July, from just above $70 to more than $100 a barrel at its peak, driven by renewed Iran tensions and disrupted transit through Hormuz. That made energy the best-performing sector of the month and pushed inflation and rate expectations higher still. At the same time, a substantial share of managers expect this price shock to be temporary, with a gradual normalization toward $75 to 90 a barrel later this year. Chinese strategic reserve drawdowns and alternative pipeline routes are cited as buffers.
ING Investment Office has already drawn a conclusion from this: lowering the weight of Europe, hit by both the oil price and a lack of its own growth drivers, while raising the weight of tech-sensitive Japan.
That expected normalization may also explain a figure that does not add up at first glance. Despite the month’s strongest sector performance, the Consensus Tilt on energy actually declined slightly, from a small plus to a small minus. If the price shock is expected to be temporary, there is no need to pull the sector weighting up with it. One party takes the relativizing view further still, noting that the feared second-round effects on core inflation have largely failed to materialize.
Four smaller themes that explain the rest of the board
Inflation remains stubbornly above central bank targets, driven mainly by the renewed rise in oil prices. That limits room for rate cuts and puts further pressure on the appeal of government bond duration. UBP breaks clearly from the consensus here: in the manager’s view, the peak in inflation is probably already behind us, with a gradual decline in the second half of the year if Middle East tensions ease on a sustained basis. Even UBP, though, does not see a return to the 2.0 to 2.5% target zone before spring 2027.
The dollar is fighting its own two-front battle.
In the near term, supported by safe-haven demand around Hormuz and by higher US rates. Over the medium term, a majority expects gradual weakening instead, driven by de-dollarization, with central banks rotating reserves away from the dollar and toward gold. That explains in part why emerging market debt is the strongest fixed income category this month: local-currency EM debt benefits from exactly that scenario, while hard-currency EM debt is approached more cautiously as long as the dollar stays strong in the near term.
China is widely seen as a two-track economy: weak consumption and an ongoing property crisis offset by strong exports in high-tech and green manufacturing. That export strength reduces the urgency for large-scale stimulus, so most managers stay neutral on China specifically while building the broader EM overweight mostly outside China. A nuance that makes this month’s record regional preference for emerging markets more precise than the headline figure alone suggests.
Trade tariffs remain the weakest of the eight themes, by far the least tied to direct portfolio action. In early August, the US government replaced its expiring universal tariffs with broader sectoral levies. Some see that as renewed escalation, others as a shock that is largely behind us. Few managers attach their own position to it.
What actually changes this month
Of the 25 categories the AAC tracks, only four change classification this time. Government bonds move from underweight to neutral, as described above. Within sectors, utilities steps from neutral to overweight, the month’s strongest improvement and the sector’s highest reading in nearly its entire measurement history. Healthcare moves the other way, from overweight to neutral, after its biggest decline of the year. Consumer discretionary slips from neutral to underweight.
None of the eight macro themes explicitly explains why utilities and consumer discretionary are moving now. That remains an open question for now, though for utilities a link to the power hunger of AI data centers seems plausible, given the same cycle already lifting industrials. Consumer discretionary keeps sliding while consumer staples, the structurally least-wanted sector, has actually improved slightly this year, which at minimum suggests that consumer caution is becoming more selective: not away from the consumer, but away from discretionary spending.
At the asset class level and the regional level, nothing changes. America, Europe, Japan and emerging markets hold exactly the same tilt score as last month. This cycle’s movement sits entirely in fixed income and sectors, not in the big strategic calls. That distinction is itself informative: the broad shape of asset allocation holds, the professional investor is currently adjusting at the edges, not the foundation.
What could turn this picture around? The Strait of Hormuz itself is the candidate most likely to move things fastest: an actual reopening could flip the oil price, inflation fears and the regional stance against Europe in a single move.
The margin between AI capex and Hormuz was razor-thin, and that is exactly what makes the takeaway for the professional investor razor-sharp: the scale still tips toward risk-on this month, just less convincingly than the equity positioning suggests. It is not whether that balance eventually tips that should occupy the market. It is when, and who moves first.
New to this?
Every month, 69 reports from professional asset managers are distilled into one clear signal about where money is flowing and why. This month that signal is extreme: confidence in equities and technology has never been higher, and confidence in cash never lower, and that is worth knowing before you look at your own portfolio.