Despite the December pullback, 2024 was a good year for asset returns overall. Precious metals and equities were the top-performing global assets, while commodities lagged due to weak demand in China. ‘Safe’ government bonds delivered low to negative returns in 2024 as bond yields rose. Lower-rated high-yield markets delivered strong income – a reminder that credit quality should not be the only criteria for bond investing. 2024 was the year when the US not only avoided a recession but also significantly outperformed other major markets. This resulted from a strong consumer, robust tech earnings, and Fed rate cuts.
Looking Ahead: In a Nutshell
Equities: Equities can continue to do well amid the current positive backdrop of a still resilient economy, and with the AI narrative expanding beyond mega-cap tech. In the US, potential tax cuts and de-regulation could also boost corporate earnings, justifying elevated valuations (for now) and allowing for further gains. Bonds: There could be limited upside to longer-dated bonds (outside of a recession) with their lower relative yields and volatile interest rate path. Within fixed income, we continue to prefer shorter-duration bonds that are still offering attractive yields for income investors.
New Year, New Target
Relying solely on forecasts for investment decisions can be risky, as they often differ from actual outcomes. 2024 showed how median forecasts predicted a 2.2% return but ended the year with a 25% return. Forecasts can still provide valuable insights if the underlying assumptions and market drivers are carefully considered. 2025 is a year of cautious optimism. Interest rate cuts and pro-growth policies are likely to support markets, but we are keeping an eye on stretched valuations and recession risks (though not a base case). A potential trade war also poses a risk to the more optimistic base case.
Shifting Gears On Income
Common income strategies, such as the 30/70 (equity/bond) portfolios and the popular investment-grade market faced challenges in 2024; even struggling to beat the 5.2% returns in Money Market Funds. High-yield markets stood out as an exception, with Emerging Market and Asia High Yield performing particularly well and driving our income strategies to close at nearly 10% returns. Given the strong performance of high-yield markets and their now lower yields, the focus shifts to securing profits and re-allocating towards higher-quality segments, offering a better risk-reward in generating income while mitigating default risk.
THINK DIFFERENTLY
Executive Summary
Market Review
Despite the December pullback, 2024 was a good year for asset returns overall. Precious metals and equities were the top-performing global assets, while commodities lagged due to weak demand in China. ‘Safe’ government bonds delivered low to negative returns in 2024 as bond yields rose. Lower-rated high-yield markets delivered strong income – a reminder that credit quality should not be the only criteria for bond investing. 2024 was the year when the US not only avoided a recession but also significantly outperformed other major markets. This resulted from a strong consumer, robust tech earnings, and Fed rate cuts.
Looking Ahead: In a Nutshell
Equities: Equities can continue to do well amid the current positive backdrop of a still resilient economy, and with the AI narrative expanding beyond mega-cap tech. In the US, potential tax cuts and de-regulation could also boost corporate earnings, justifying elevated valuations (for now) and allowing for further gains. Bonds: There could be limited upside to longer-dated bonds (outside of a recession) with their lower relative yields and volatile interest rate path. Within fixed income, we continue to prefer shorter-duration bonds that are still offering attractive yields for income investors.
New Year, New Target
Relying solely on forecasts for investment decisions can be risky, as they often differ from actual outcomes. 2024 showed how median forecasts predicted a 2.2% return but ended the year with a 25% return. Forecasts can still provide valuable insights if the underlying assumptions and market drivers are carefully considered. 2025 is a year of cautious optimism. Interest rate cuts and pro-growth policies are likely to support markets, but we are keeping an eye on stretched valuations and recession risks (though not a base case). A potential trade war also poses a risk to the more optimistic base case.
Shifting Gears On Income
Common income strategies, such as the 30/70 (equity/bond) portfolios and the popular investment-grade market faced challenges in 2024; even struggling to beat the 5.2% returns in Money Market Funds. High-yield markets stood out as an exception, with Emerging Market and Asia High Yield performing particularly well and driving our income strategies to close at nearly 10% returns. Given the strong performance of high-yield markets and their now lower yields, the focus shifts to securing profits and re-allocating towards higher-quality segments, offering a better risk-reward in generating income while mitigating default risk.
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