“As long as there are no signs that the United States has entered a recession, we will maintain an overweight stance on equities,” Parkinson said in a note.

Fixed income
Andrew Metcalf, head of fixed income and manager for the firm’s Sustainable Select Fixed Income fund, thinks that lower inflation, lower and falling Central Bank policy rates, and higher yields in risk-free bonds are a solid foundation for fixed income markets in 2025. “Just as important however is the increased certainty we can add to this already solid footing: elections in the UK, US, Japan and France have removed some of the major geopolitical unknowns facing markets in early 2024,” Metcalf said.

While forecasting the future is difficult given the huge number of variables involved, Metcalf takes comfort from the relatively benign macro-economic outlook in the UK, especially around target inflation; expectations of political stability under the Labour government and relatively attractive yields in low-risk government bonds. As a result – and coupled with his ability to discern corporate bonds with adequate yields – he enters 2025 in a cautiously optimistic mood.

US in good shape
Matthew Stanesby, head of collectives and James Davies, managing director, managers of the Close Managed Funds, highlighted how the US economy is in broadly good shape and there’s the potential for US companies to continue to grow earnings. They think the UK and Europe look relatively cheap compared to the US and present opportunities to allocate funds at relatively attractive valuations.

The Close managers are broadly positive on risk assets – meaning equities and credit (or corporate bonds); they think most developed markets should avoid recession. Davies and Stanesby aim to position their equity allocation to include a good spread of value and growth managers on the basis that while they want to benefit from the growth areas of the market, they are also cognisant that some sectors may be unjustifiably expensive to buy, including some tech.

In the US, the UK, and Europe, the managers have increased their exposure to small and medium-sized companies as these are cheap relative to their long-term valuations and should benefit from interest rates coming down, particularly if respective domestic economic growth accelerates.

Davies' and Stanesby's view of government bonds is a bit more cautious given the fiscal spending plans for governments across the developed world. They think the increase in supply of government bonds may keep yields on offer higher than in the last decade. They want to maintain a healthy position to select diversifiers/alternatives within their funds like infrastructure and gold, in addition to some hedge strategies. Historically these have provided alternative sources of return, as they did during the pandemic, and more recently the strong performance of the gold price over the last 12 months.

China and Asia
Weixu Yan, head of passives and manager for the Close Tatical Select Funds highlighted how he has greater certainty in 2025 – with Trump in the US, Labour in the UK, and major economies in decent condition. Even if economic worries reassert themselves in 2025, he knows most developed markets are equipped with monetary policy tools to ease and stimulate.

This peace of mind helps him to feel broadly positive on risk assets. Yan too is positioning his equity allocation to capture both value and growth factors, mainly through a relatively high weight in UK equities, which predominantly consist of more-traditional value sectors and companies. However, he remains overweight in tech in the US. Yan seeks more targeted exposures - whether sectors or thematic - that would benefit from Trump’s future policies, potential further China stimulus and an environment where company fundamentals drive stock market performance rather than sentiment.

In fixed income, Yan seeks lower duration or interest rate risk sensitivity to get closer to a neutral position by buying shorter-dated maturities. He also looks to take some profits on gold.

Yan has also made new exchange-traded fund (ETF) launches in infrastructure, growth assets in more concentrated mega-cap names as well as numerous small-cap exposures.

Alternatives
Alec Slater, head of alternatives emphasised how his diversifying/alternative investments offer low correlations to more mainstream asset-classes and repeatable patterns of returns relative to his equity and fixed income allocations.

“It has been a difficult environment for real assets with desired rates of return rising in step with, and closely correlated to, gilt yields,” Slater said. But he sees decent yields across assets which have been beneficiaries of inflation, thereby offering an increasingly attractive real return with inflation-linked contracts that are still feeding into their long-term defensive cash-flows.

“Across investment trusts, it is positive to see mergers creating larger, more economical and liquid options for investors which should make the sector more resilient for the future. We believe that we are now in a sweet spot where we see strong fundamentals yet discounts to fair value. We expect a continued acceleration in deal-making into 2025 with improving access to debt financing and record dry powder improving the significant lag in exit activity: pricing tension between willing buyers but reluctant sellers has resulted in ‘deal-freeze’ which we think is set to thaw,” Slater continued.

“Hedge Funds are set to continue to benefit from cross-asset volatility with alpha (a measure of out-performance against a benchmark) on the rise,” he added. “New survey data shows that hedge funds are now one of the most in-demand asset classes for institutional investors,” Slater concluded.