The Big Picture: Global asset allocation 2025 outlook

US assets usually perform well in the year after an election. Hence, given that we expect less inflation, easing central banks and more growth, we think 2025 should be a good year for financial markets. However, we embrace risk cautiously after strong price gains in 2024. We reduce cash to zero and government bonds to Neutral within our Model Asset Allocation, while increasing investment grade, bank loans and REITS (all Overweight) and high yield (still Underweight). Across regions we prefer European and emerging market (EM) assets. 

Model asset allocation 

In our view: 

• Cash rates are falling and we think there are better options. We reduce to Zero.
• Government bond yields unlikely to fall much at the long end of the curve. We reduce to Neutral.
• Bank loans offer the most attractive risk-reward trade-off. We remain Maximum allocated.
• Corporate investment grade (IG) preferred to government bonds. We increase to further Overweight.
• Corporate high yield (HY) usually does well in an economic recovery. We increase but stay Underweight.
• Real estate (REITS) could benefit from falling rates and stronger economies. We increase to Overweight.
• Commodities could be helped by economic acceleration and a weakening dollar. We boost to Maximum.
• Equities are handicapped by an expensive and concentrated US market. We remain Underweight.
• Gold may be helped by a weakening dollar but is expensive. We remain at Zero.
• Regionally, we favour Europe and EM (embracing risk).
• US dollar expected to weaken and we partially hedge into JPY.

Our best-in-class assets for 2025 (based on projected returns in local currency) 

• European bank loans
• UK IG
• Commodities