Outlook 2025: New ways to diversify

Following a decisive result in the US election, the outlook for risky assets seems positive with a soft landing in sight for the US and world economies despite the potential for volatility ahead. Risks remain as markets price in a rate cutting cycle that could still be derailed by re-emergent inflation. We think now is the time to reconsider asset allocation, by moving along the risk curve or adding illiquid assets such as private debt and infrastructure. As potential tariffs and trade wars loom, active management will be crucial to navigate a global economy where being selective is key.

Key takeaways
Our base case for the US economy is a soft landing, in which inflation slows and recession is avoided. This outcome is supportive for a range of risky assets, most obviously US equities, which in our view remain attractive despite high valuations.
Global economic divergence – in which the US accelerates ahead of Europe and Japan – could continue under a second Donald Trump presidency. Investors may need to navigate a geopolitical environment reshaped by tariffs and potential trade wars.
Expected interest rate cuts should support bond markets, although the danger that inflation resurfaces means investors should prepare for possible dislocations if rate cuts are delayed.
Investors might consider moving along the risk spectrum by reallocating assets that are currently held in cash or low-risk money market funds to “medium risk” opportunities in fixed income or private markets – counterbalancing high-risk exposure areas.
lliquid assets could be an increasingly important tool for diversification as growth in private debt and infrastructure is accelerated by new rules in Europe to increase retail investor inflows.