All insights

The final stretch of the year is always a good time to pause and reflect. What’s gone as expected? What’s surprised us? And what does that mean for portfolio positioning?

As investors return from the summer break, we’re seeing signs of renewed market momentum. Liquidity is improving and, while there have been occasional bouts of volatility and mixed headlines, sentiment remains cautiously optimistic. Equities have continued to rally throughout July and August even as economic growth slowed and political uncertainty lingered. Much of this resilience has been supported by expectations that the Fed will cut interest rates sooner than previously expected.

A widening budget deficit and an increasing debt level in the US pose a risk to US Treasuries. Therefore, we’ve decided to further reduce our US Treasury exposure and reallocate part of the proceeds to Japanese government bonds and part to US equities.

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.