Members of the Group of Boutique Asset Managers (GBAM) are squaring up to 2025 by focusing on their usual ‘bottom up’ approach. But regardless of where they are on the globe, it’s clear that consistent themes are emerging at the macro level as well as some distinctly local ones in their 2025 outlooks.
They spot concentration risk in the US, Geopolitical risk raising prospects of ‘grey swans’, and inflation risks ongoing. There are fiscal and trade policy decisions that remain unknown, and an incoming Trump administration. Valuations remain elevated in certain equity and fixed income markets.
Local developments to watch include a possible ending to the conflict in Ukraine, equity opportunities in Hong Kong and Japan, and where fund investors in Norway will put their money amid a struggle with regulation and tax policies. France and Germany face ongoing economic challenges.
In Stavanger, Norway, The Chairman of GBAM and Chairman of SKAGEN Funds, Tim Warrington, highlights that it has been another good year for equities, with 56 new all-time-highs in the S&P. However, half of returns were driven by valuation expansion, meaning earnings growth will have to do more of the heavy lifting for markets to maintain their upward trajectory in 2025.
“Concentration risk remains the evident challenge with the US constituting two-thirds of the MSCI ACWI and the ten largest US stocks being more than one fifth of the global index. While opportunities will always present for active managers, especially in the EM, making the case for diversification against such a narrow bull market will continue to challenge advisors. It’s a cliché to cite geopolitical risk as heightened, but persistent volatility and war and the threat of war in several regions is generating an excess of grey swans – high-impact low probability risks. Many of these cannot be as easily overlooked as they were in the past. And this will further complicate the case for diversification.”
In Norway, regulation and tax are creating an unlevel playing field causing an exodus of products to foreign domiciles and the trend will continue going into the new year, Warrington predicts.
Tim Warrington | Members (gbammanagers.com)
“The consensus tail risk remains inflation so, here in SKAGEN, our advice remains much the same; diversify sensibly, know where and in what you are invested, and follow it up regularly.”
Also in the Europe region, MAPFRE’s Chief Investment Officer Juan Bernal in Madrid, Spain, echoes increasing uncertainty likely to face investors through the coming year.
“First, political developments (in particular economic policies) remain pivotal, with the US government’s new policies expected to reshape global trade, capital flows, and potentially bolster domestic growth. Economic policy challenges are particularly tough in France too, but also Germany and China are adding to market concerns. Globally, fiscal and trade decisions will play a decisive role in shaping the economic outlook, in a still unknown manner.”
“Secondly, inflation could regain prominence over growth as a key investor focus. Recent US data on prices, fiscal deficits, and liquidity suggest a potential inflationary wave. Such a scenario would significantly alter expectations for interest rates, the USD, and asset classes across the board. In any case, CPIs will remain volatile based on energy prices developments.
“Lastly, liquidity remains a critical but underappreciated driver of asset prices. Despite central banks pausing balance sheet expansion and a strong USD signaling tighter conditions, markets are counteracting with heightened optimism, creating a net liquidity boost. While this supports asset prices in the short term, it risks fueling inflation and, more worryingly, leaves markets vulnerable to a sharp liquidity reversal if sentiment shifts.”
Juan Bernal | Members (gbammanagers.com)
“While risks dominate the outlook, not everything is negative. Potential positives include an end to the Ukraine conflict or stronger-than-anticipated European growth.”
In Edinburgh, Scotland, Andrew Ward, Chief Executive Officer at Aubrey Capital Management, the specialist global manager, points to the opportunities amid the risks, particularly in mind of the US.
“Much depends on a successful transition of power across the Atlantic in the White House. The US election result and resultant surge in the US market gave us a glimpse of greater confidence in corporate America. Despite the rhetoric around tariffs, the form of the president elect is that he is probably more likely than his predecessor to pick up the phone and negotiate with the Chinese leader; it is rumoured that president Xi has been invited to the presidential inauguration in January. Trumpian diplomacy might yet provide a boost to Emerging Markets, considering that close ally Elon Musk relies heavily on China as a manufacturing base for roughly half of all Tesla EVs, so that link might be more important than is immediately obvious. With around 50% of our Emerging Markets portfolio invested in China, Taiwan and other Asian countries, this gives us a measure of reassurance that the geopolitical view is not as bleak as it can sometimes seem.”
A peaceful resolution of the conflict in Ukraine would provide some much-needed stability in continental Europe and near-Europe (including the UK) as effects go beyond the obvious oil and gas issues.
“Ukraine was traditionally Europe’s ‘bread basket’ and the supply of a number of important grains and plant oils has had an impact on food price inflation across the continent and beyond. Again, there is a feeling that Trump/Putin relations could be productive, a solution might be negotiated and a cessation (at the very least) to the hostilities brought about.”
Andrew Ward | Members (gbammanagers.com)
“As recent events in the Middle East have shown, globally strategic twists can occur without warning and we feel that we should remain nimble and locally well informed to best react to changes across the globe, be they macro or micro.”
The blend of risks is also seen across Asia, in both emerging and developed markets, also in mind of their links to the US.
Shifting to the view from Hong Kong, Ronald Chan, Chief Investment Officer and Founder of Chartwell Capital, the independent asset manager focused on China’s Greater Bay Area and the Asia-Pacific region, says Hong Kong and Japan each offer unique opportunities despite global uncertainties.
Hong Kong stands out for its low valuations and sustainable income opportunities, making it attractive for long-term investors amid signs it may have found a bottom.
“While investor confidence remains fragile, its depressed valuations and income potential make it a compelling market to watch despite a challenging recovery path.”
Japan, on the other hand, benefits from fund flows from the Western world and promising growth in the small and mid-cap space, supported by the regulator’s ongoing push for corporate reforms to improve return on equity. The Japan 225 has shown resilience, driven by optimism for equity market recovery and improving fundamentals. However, risks remain, including potential Bank of Japan interest rate hikes, US-China trade tensions, and domestic political instability, which could increase market volatility.
Ronald Chan | Members (gbammanagers.com)
“Despite macroeconomic headwinds, such as China’s slowing growth and regional uncertainties, Hong Kong’s valuation-driven opportunities and Japan’s reform-driven growth in 2025 position these markets as my top picks for both sustainable income and long-term capital appreciation.”
As outlined, the concentration risk in the world’s biggest equity market (US) is helping put the spotlight on diversification.
Paulo Del Priore, Partner at Farview, the global multi-strategy investment manager with offices in London, UK and São Paulo, Brazil, highlights that price-to-earnings (P/E) ratios are at elevated levels, for instance, as of December 6, 2024, the S&P 500 Index had a trailing P/E ratio of 25.41, up from 21.74 a year earlier. Similarly, the Dow Jones Industrial Average’s P/E ratio increased to 28.03 from 26.24 over the same period. “These figures suggest that equity valuations are relatively high compared to historical norms.”
In the credit markets, spreads have tightened considerably. Investment-grade corporate bond spreads in the US narrowed to 82 basis points over Treasurys on November 12, 2024, marking an all-time low. High-yield spreads also tightened to 214 basis points on November 14, 2024. “Such compressed spreads may indicate that investors are not being adequately compensated for credit risk, potentially signalling overvaluation in credit markets.”
“These conditions underscore the importance of constructing portfolios that are decorrelated from traditional asset classes. We are therefore avoiding managers who cannot exploit inefficiencies in low-dispersion markets and are favouring those with the flexibility to navigate higher-dispersion environments. Strategies such as long/short equities, macro, and systematic approaches appear promising due to their adaptability. Conversely, long/short credit strategies seem less attractive given the tight credit spreads.”
Paulo Del Priore | Members (gbammanagers.com)
“In the event-driven space, we are paying close attention to potential opportunities in the US, particularly as shifts in M&A policies under Trump’s administration could lead to heightened volatility and larger dispersions. We already have allocations to Europe in event-driven strategies, and the US presents an interesting area for expansion.”
