Markets and investing

We’re buying gold as we think the US dollar is likely to weaken further. We’re funding this purchase by selling some European government bonds. Valuations for southern European sovereign bonds are expensive, and the increase in bond issuance to finance the fiscal plans of Germany and France is a risk.

During our recent rebalancing, we opted for a ‘roughly neutral’ equity stance in lower-risk profiles and a slight overweight in riskier ones instead of fully reinstating our previous overweight. This helped us benefit from the equity recovery in late April and early May. So, with equities appreciating, we are now slightly overweight. We are comfortable maintaining this overweight position, given the easing of trade tensions, including the recent US-China trade agreement to lower tariffs for an initial 90-day period.

The US recently introduced broad tariffs, triggering retaliation from China and the European Union. This escalation brings risks to growth and inflation. Uncertainty around tariff implementation, often driven by sudden announcements and reversals, has been more damaging to sentiment than the tariffs themselves. Still, with new rules in place, markets may start to recalibrate, especially when negotiations eventually begin. While this could change as things develop, exceptionally, we’ve decided not to adjust portfolios back to their long-term targets just yet. After the drop in equities and rise in government bonds, our current positioning is more cautious, with less overall risk. We’re not there yet, though lower valuations could eventually present selective entry points across equities and credit.

As we close the chapter on 2024, it's evident that our investment landscape is constantly changing. What lessons have we learned, and how can we better position ourselves for the opportunities and challenges of 2025?

US tariffs, market fundamentals and geopolitics have caused a change in leadership in 2025: European and UK equities are now outperforming their US counterparts due to improving corporate earnings relative to expectations, more attractive valuations and newly announced government spending including for defence and infrastructure.

The “Bundestagswahl” could result in a more growth-focused government led by a new Chancellor – but as it’s unclear how the next Berlin coalition will look like, hopes for meaningful, expansive adjustments could be disappointed.

As we turn the page on 2024, one thing is clear: the world we invest in continues to evolve. The past year defied expectations, surprising us with economic resilience even as markets braced for turbulence. So, what did we learn, and how can we better prepare for what 2025 might bring?

November is the time of the year when, together with the Investment Committee, I start preparing for our year-ahead market outlook. But, to tell you the truth, we do this continuously: as new research comes in and events unfold, we keep refining our market outlook, day in and day out.

While the US presidential election outcome isn’t confirmed yet, Donald Trump is in the lead at the time of writing. With three swing states – Pennsylvania, North Carolina and Georgia – already called for Trump by the US media, he’s also slightly in the lead in the remaining four key states of Michigan, Wisconsin, Nevada and Arizona.

In 2024, a monumental event is unfolding as 4 billion people across 74 countries cast their votes at national, regional, and local levels. Among these, the US Presidential, Senate, and Congress elections on November 5 are poised to be the most market-moving.

The past few weeks have been quite volatile. First, tensions in the Middle East continued to grab the headlines, pushing oil prices higher. Second, US job growth, services activity and inflation came in higher than expected, leading to markets expecting smaller, more gradual US Federal Reserve (Fed) rate cuts.

The adage “sell in May and go away”, referring to the historically weaker performance of stocks from May to October compared with the other half of the year, didn’t disappoint this time around, too.

Private markets were once the reserve of sophisticated and institutional investors but have experienced significant growth in recent years. Now, a far broader range of private market investments are available to clients.

A bit like the unpredictable weather we’ve had over the past few weeks, politics has been a rollercoaster. As expected, the UK election delivered a Labour win. While there might be tax and broader fiscal implications at the individual level, the outcome wasn’t unexpected, which is why it hasn’t moved markets that much.

The overall outcome of the French legislative elections came as expected: a hung parliament where no party/alliance managed to secure the absolute majority of 289 seats. But it came with a twist.

That Labour won a strong absolute majority, and the Conservative Party sank to the lowest result ever isn’t a surprise for markets, given the polls. The next government plans to follow the same fiscal rules as the outgoing one and so, in our view, it will have limited fiscal space. However, there could be modest effects on different groups of consumers and firms.

The French head to the polls on June 30 and July 7 to elect their members of Parliament. How does that work? There are 577 seats up for grabs, so a party needs 289 seats to have an outright majority to govern. Anything less, in general, would mean that several parties may try to work together to form a coalition. This has been the case since 2022, with a coalition supporting President Macron given that his party does not have an outright majority.

All eyes are on Europe this summer. It’s one of the most visited regions, time and again, by tourists from all around the globe. The European Football Championship also kicked off last week in Germany, the Summer Olympics in Paris starts next month and, for those more politically minded, we just had the European elections and there are key national elections in France and the UK on the horizon (and, Europe aside, the all-important US election in November).

Looking at how a currency behaves could reveal what direction an economy is trending in. In other words, a currency that appreciates often reflects an economy that’s doing well, and vice versa.

Spring is finally here, and it looks like the weather is gradually improving. We got so used to the gloom of Mach and April that it’s perhaps natural to extrapolate the same conditions for May. But the sunshine came unexpectedly. Put differently, in investment jargon, relative to our downbeat expectations, we got a surprise to the upside.

The arrival of spring means one can spend extra time exercising outdoors (at least when the weather cooperates). While one doesn’t need to run a marathon to get back in shape, we think active portfolio management is more like a long jog than a short sprint – the key is keeping the right pace.

First thing first, when we talk about small-cap equities (or small caps), it’s important to understand what “cap” refers to. Cap is short for capitalisation, which in turn is short for market capitalisation.

The first few months of 2024 have come as somewhat of a surprise to investors. For example, US growth has stayed resilient, continuing to defy the odds of recession, so markets have had to reevaluate their expectations for the year. And we are no different. Investing is about finding the right balance between having conviction in your long-term strategy and being conscious of the opportunities in the short term.

After three decades of globalisation, could reshoring change the global order?

In our 2024 Investment Outlook, released in December 2023, I mentioned the importance of building an investment strategy with multiple time horizons in mind. And, over the past two months, things have changed for the medium-term growth outlook. In January, the 2023 US growth figures came in better than expected, showing a resilience in the US economy that the market didn’t anticipate.

Speaking about foresight and perceptiveness in markets, John Maynard Keynes, likely one the most well-known economists ever, said that successful investing is anticipating the anticipations of others. Keynes was also an investor.

A traditional portfolio of stocks and bonds has been a popular investment strategy for decades. However, with market conditions changing and volatility increasing, investors are looking for alternative options to add value and, importantly, diversification to their portfolios. This is where liquid alternatives can play a role.

Striking a balance between wealth protection and growth is both science and art. Finance is a technical field, but it’s also driven by emotions.

2023 has been a year where big thematic trends have influenced markets for three reasons. Firstly, the rise of AI (Artificial Intelligence) boosted themes like Semiconductors and Cloud Computing, driving the big US tech stocks and major indices.

We expect the major central banks to pause their cycle of interest rate increases as global economic growth slows over the coming months. This makes high-quality bonds even more attractive.

There’s nothing better than catching up with market thinking and returning to old classics when on holiday; that’s what we all love to do, after all. Mark Twain couldn’t say it better: making our vocation our vacation is the secret to success.

Peak inflation is now well behind us, especially in the US, but interest rates continue to rise. Central bank messaging of late has been quite clear: the battle against inflation is not won. But, even though the peak in interest rates is a moving target, we believe it’s now in sight, just slightly delayed from our initial expectations.

Our thematic investing approach involves gaining exposure to companies and themes that benefit from major global trends over the long term.

The US is slowing, China/Asia is rebounding, and Europe is caught up between the two. We expect global growth and inflation to slow gradually, bringing the end of developed market central banks’ rate rises in sight.

The first quarter of 2023 saw a reassessment of global economic conditions by investors and policymakers. Asynchronous cycles are now beginning to emerge as China continues to re-open while the West battles with inflation and market volatility.

“When it comes to so-called market timing there are only two sorts of people: those who can’t do it, and those who know they can’t do it”, British investor Terry Smith famously said. Rather than timing the market, a better strategy is time in the market.

Following one of the worst years in recent memory for fixed income markets, high-quality government bonds are rebounding and now offer decent returns for relatively low levels of risk.

Any self-respecting investment strategist derives a fair amount of titles for research reports from Western films. If it’s scenario analysis, then The Good, the Bad and the Ugly does a good job. If it’s fiscal and political uncertainty we’re talking about, as we’ve seen in the UK recently (leading to Liz Truss’s resignation and the shortest government in the country’s history), perhaps The Wild Bunch. And, of course, A Fistful of Dollars refers to currencies.

Markets are full of sayings that somehow have to do with water: “one tide lifts all boats” when liquidity comes in; or, vice versa, “when the tide goes out, you find out who’s swimming naked”. Or they have to do with animals: are you a “bull” or a “bear”? Investors ask hurriedly.

The success of monetary and fiscal stimulus in cushioning the pandemic blow is well known. But the resulting demand surge, pressing against constrained supply, has also produced an excess of inflation and rising interest rates – a drag on equities.

“Why do economists use decimal points in their forecasts? To show that they have a sense of humour” is a joke that resurfaces in the marketplace every time volatility picks up. There’s some truth in this. Things rarely move consistently in one direction. So incrementally tracking how they’re unfolding is useful.

Our Counterpoint mid-year outlook, published a few days ago, goes from micro to macro and thematic. It talks about how geopolitical and supply shocks in the age of disruption are impacting companies, sectors, inflation and economic policy, our energy supply and technologies, creating risks and opportunities along the way.

As global financial markets work through a period of elevated volatility and increased risks, we prefer investment themes with robust structural growth characteristics but also stronger fundamentals, such as those with resilient earnings and some defensive qualities.

“Economists will know tomorrow why the things they predicted yesterday didn’t happen” is a joke that, in this fast-moving market cycle, has a deeper lesson. Rather than sticking to an all-knowing prediction, it’s more fruitful to use a transparent cause-effect framework to recalibrate the base case as events unfold.

Sales and earnings growth for Q1 2022 in both the US and Europe exceeded expectations, led by strong energy sector results. The percentage of companies beating forecasts is above the long-term trend, but the margin of surprise is lower than recent quarters.

In the mid-1990s, British Prime Minister John Major reportedly asked Russian President Boris Yeltsin to describe the Russian economy in one word. He replied “good”. Surprised by this assessment, Major asked Yeltsin if he could describe it in two words.

Following a poor start to 2022, Asia high yield (HY) bonds have staged a notable recovery since mid-March. We have been holding a tactical overweight position against USD investment grade (IG) bonds. What are the main features of the Asia HY market and our outlook for the asset class?

Some segments of the Treasury curve are now inverted. While investors see this as a warning signal, the reality is more nuanced. We explore what it means for the probability of US recession, and for equity and other asset class returns.

We believe the war in Ukraine – which is first and foremost a humanitarian tragedy – will spur some countries and businesses to reduce long-term risks that have emerged from that conflict.

On 10 and 24 April, France will elect its new president at a crucial time – a war raging on the fringes of Europe. Emmanuel Macron looks set to be re-elected for a second term. We explore the key implications for the economy and markets.

In The Economic Consequences of the Peace, published in 1919, John Maynard Keynes predicted that stiff war reparations would lead Germany to financial instability, with economic and political repercussions across Europe and the whole world.

While geopolitical uncertainty could keep them low for longer, bond yields are on the rise as central banks normalise policy. We expect them to move higher but, over the medium term, see lower rates than in past cycles.

It’s tempting to attribute the ongoing risk-off move to Russia’s invasion of Ukraine. That’s part of the story but, like Russian dolls, there’s a scenario inside a bigger one, which is inside an even bigger scenario, and so on.

As the post-pandemic recovery matures, corporate earnings are surprising by less but still exceeding forecasts. We are seeing a divergence in performance within sectors, but must be careful not to extrapolate short-term trends.

We see innovation continuing apace and even accelerating, despite high costs currently. We believe top innovators are likely to be long-term winners. We see the current weakness in ‘innovation equities’ as a buying opportunity.

At the beginning of the new year, we look back at the performance of our Quintet Group Strategic Asset Allocations (SAA). In this second edition of our biannual review we explore how our SAAs fared amid buoyant risk markets and macro volatility.

Once again, the rise in core bond yields is driving markets across geographies, asset classes, sectors and styles, with a sharp equity rotation away from growth and into value stocks. In the James Bond movie series, 007 eventually overcomes an improbable sequence of obstacles and makes it through.

While economic growth and stimulus should become less positive this year, inflation and the virus impact should become less negative too. We’re tactically overweight US equities and a range of credit exposures.

Economist and best-selling author JK Galbraith once quipped that there are two kinds of forecasters: those who don’t know and those who don’t know they don’t know. Turns out, it may be worse.

The world is changing rapidly, driven by technological and environmental factors, and these shifts could have profound long-term implications for investors. Our thematic framework can help navigate the evolving investment landscape.

Paraphrasing an old adage, a forecaster is a portfolio manager who never marks to market. There’s some truth in this. There’s a disincentive in rapidly shifting views back and forth – which is equal to not having a view.

In the third quarter of 2021, inflation rose in most countries and the global economy faced ongoing supply chain issues. Despite concerns about how these challenges would impact earnings, the results are better than expected and forecasts have been revised higher across most sectors.

In this latest note focusing on our strategic asset allocation (SAA), we explore our updated risk and return expectations for the next 10 years. What has driven the change in our capital market assumptions (CMAs) and how do they affect investment portfolios?

We’re often asked this question when discussing our current tactical overweight in equities over bonds, and understandably so. Many measures of equity valuations are high compared with history. But that doesn’t mean global stock markets can’t continue to rise.

Markets are grappling with two new(ish) facts. First, energy prices are surging. Second, central banks are diverging. Have investors seen this movie before?

Bond yields are rising following a more hawkish tone from central banks around the world. Monetary policy is becoming less accommodative but we don’t believe it’s the end of the game for credit in Europe.

Spending on infrastructure looks set to rise, mostly in the US but also in Europe. This is a structural trend to rebuild the economy in a sustainable way, with a focus on green and digital investment.

Asian high yield (HY) bonds have experienced a period of elevated volatility and rising spreads since June. The correction has accelerated in recent weeks, with the rapid deterioration of property developer Evergrande’s liquidity situation a major catalyst. We revisit the investment case for Asian HY bonds and confirm our conviction in the asset class over our tactical horizon of 6–12 months, despite near-term risks.

September is all about getting back to normal life now that the holidays are over. This sense of normalisation – if one could really call it that in the Covid world – is happening in the wider economy too.

On 26 September, Germany will elect a new Bundestag. The outcome will set the stage for the next coalition, headed by a new chancellor, with Angela Merkel set to step down after 16 years. The next government is likely to have a greener tilt.

The upcoming reduction in net asset purchases is likely to put upward pressure on Treasury yields, but only moderately as rate hikes aren’t yet in sight. Credit and equity markets should be able to cope.

In this latest note exploring our approach to strategic asset allocation (SAA), we answer some common questions. How do we arrive at our return expectations? How to deal with lower future returns when building globally diversified portfolios? What is the role of geopolitics and sustainability in our investment process?

The second-quarter earnings season has been better than expected. As the global economy recovers from the pandemic, consensus profit forecasts have been too conservative again, and are being revised higher for the rest of this year and into 2022

The past 18 months have been an exercise in humility for most forecasters. Even now, the typical thinking about the spread of the Delta variant is to highlight (so far) limited effects while quickly flagging that things could turn out worse than expected. The problem with this approach is that it’s unidimensional: it delivers variants of the same scenario, with slightly different assumptions.

Another month, another upside surprise in inflation. Yet the drivers appear the same: a handful of categories – such as used cars – are driving the spike, given strong demand pressing against constrained supply.

We introduce an indicator that captures economic and financial market dynamics in the US across different phases of the business cycle. This information is useful for making investment decisions.

Watching the Euro 2020 final this weekend reminded us of the expression “there’s no such a thing as a free lunch”. In markets, a few weeks ago the key worry was too high bond yields as rising inflation would lead to central bank tightening. Over time, this would weaken economic and earnings growth, negatively impacting equity prices.

Our Counterpoint 2021 mid-year update suggests that volatility could rise from here: there’s less policy ammunition left if things unexpectedly go wrong, such as new virus variants derailing the recovery; alternatively, stimulus withdrawal could prove difficult, potentially raising financial instability.

The fifth piece in a series exploring our approach to strategic asset allocation (SAA) looks back. In this inaugural edition of our biannual SAA performance review, we recap the first half of the year through the lens of our Quintet Group SAAs. How did they perform and what drove returns?

As the cycle matures, rate hikes approach and the yield curve typically flattens. We’ve seen this market dynamic playing out quite clearly following the latest Fed meeting. The central bank’s ‘dot plot’ – a graphical representation of the committee members’ economic and rate expectations – showed two hikes in 2023 rather than zero as previously, triggering a sharper selloff in shorter-dated Treasuries and, therefore, flattening the curve.

The key strategy for economists to get attention and avoid sounding ‘too consensus’ is to assign high probabilities to events without taking them as base case. Saying that something has a 30-40% probability of happening sounds high enough to make it an important risk to watch but, if it doesn’t happen, chances were always less than even to begin with. A better way is to frame a debate and look at the pros and cons of both sides’ arguments.

As economies reopen, we’re likely to see two overlapping patterns – a ‘bungee jump’ driven by a focal point created by the resumption of activity as mobility picks up, and a more traditional ‘cycle’. The bungee jump is about the short-term displacement of activity as governments closed down entire economies by decree and deployed massive stimulus at the same time.

The business of forecasting is a tricky one. This is because prediction and explanation are different things. Of course, this isn’t unique to the economy and financial markets: alchemists could predict that combining two elements would result in a third one, but couldn’t explain exactly why; geologists have great explanations for earthquakes, but can’t predict when the next one will happen.

An old saying about this or that economy trying to fix its structural problems is that it’s the opportunity of the future… and always will be. The opportunity never really materialises in full, or doesn’t last long enough. To strategists, sometimes the euro area feels like this.

A side-effect of prolonged lockdowns is that the entire Netflix catalogue gets nearly exhausted at some point. When that happens, classics come back in vogue – both films and economic topics. If The Postman Always Rings Twice, so does inflation: it makes the news both when it happens and then a year later, when it distorts comparisons that look back 12 months.

The pandemic has turbocharged a range of pre-existing trends that are changing the way of doing things across many economies. While quantifying the macro impact is highly uncertain, these shifting paradigms are already visible at the sector level.

Economists’ failure to accurately predict the magnitude of big events like booms and recessions and – perhaps more often than they’d like to admit – the timing of these events with sufficient foresight, inevitably makes them the target of all sorts of jokes: for example, how can you tell that economists have a sense of humour? Because they put decimal points in their forecasts.

The first-quarter earnings season highlights once again that consensus expectations for corporate profits have been too conservative as the world recovers from the pandemic. Near-term expectations are being revised higher.

"Nothing is certain but death and taxes" is a rather fatalistic proverb drawing on the inevitability of the life cycle to make a parallel with the inevitability of the fiscal burden. However, just like with Fed tapering, the key thing with any tax policy change is timing and thresholds.

One of the perennial dilemmas of strategists is figuring out when good news becomes bad news in the eyes of the market, and vice versa. Say the jobs report comes in stronger than expected. This would be good news and the market would go up. More people working means more tax revenues, less spending on unemployment benefits and an increase in demand.

The long-awaited inflation spike has come. Price cuts in the early months of the pandemic are now dropping out of the annual comparison. Surging commodity prices and temporary supply bottlenecks are doing the rest. But we don’t see the pace of wage growth and degree of tightness in the labour market that could result in a more long-lasting inflation spiral.

How should investors think about the price of gold following the pickup in real yields? What’s the outlook for oil versus metals such as copper now that economies are reopening?

Microeconomists are wrong about specific things – economist and comedian Yoram Bauman often says – whereas macroeconomists are wrong in general. Could it be different this time around? A critical look at both the micro and macro drivers of bond yields suggests that a large part of the move higher, at least in the short term, is likely to be behind us.

In the fourth piece in a series exploring our approach to strategic asset allocation (SAA), we look at what our capital market assumptions tell us about recovering losses when things don’t go as planned and why history is a useful but imperfect guide to the future.

The capital sins of forecasting are flip-flopping (rapidly switching from one view to another, back and forth) and salami-slicing (frequently making incremental, insignificant changes). Dealing with uncertainty is a key part of forecasting. There are two types of risks. Black swans, such as Covid-19, are unknown unknowns, high-impact but very rare events that investors often underappreciate.

The caricature of the strategist always painting a year of two halves, one bullish and the other bearish or vice versa, is partly true. What’s behind it is the impulse to stay current with macro developments. Timing turning points isn’t easy, but keeping an eye on how things are changing is healthy. We got strong US growth upgrades and higher interest rates lately. This is why the US dollar has strengthened and may continue to do so for some time.

Should investors worry about inflation? Is the upcoming spike temporary, a longlasting trend leading to central banks hiking rates or are bond yields ultimately overreacting?

Former US President Harry Truman once pleaded “give me a one-handed economist”, having tired of his advisers proclaiming “on the one hand, this” but “on the other hand, that”. The investor debate on whether rising bond yields and, potentially, higher inflation (however transitory) are signs of recovery and reflation or, rather, a market setback as central banks may tighten policy, feels a bit like this.

The third piece in a series exploring our approach to strategic asset allocation takes a closer look at our expected evolution for eurozone government bond yields and the role they play in optimising the risk and return balance in well- diversified portfolios.