In the latest edition of the quarterly newsletter ‘The Future Strategist’, Mark Hawtin and the Liontrust Global Equities share their market insights on a range of topics across the following chapters.
Mark Hawtin: Head of the Liontrust Global Equities team, said:
“The outlook for the rest of 2025 offers an exciting opportunity for active management and alternative equity strategies. As we outlined in the review section of the first half of 2025, the path to the best returns will likely continue to lie outside the concentrated (passive) S&P trade of the last few years.
“The consensus trade has raised the level of US concentration in the World Index, rising from 47% in 2010 to 68% in 2025. Within the S&P 500 itself (being a proxy for US concentration), the Magnificent 7 represent 29% of that index, levels barely seen in the last 100 years. With concentration risk, valuation and profit margins all sitting at record high levels over many years, overall equity returns are going to be harder to achieve.
“This means that the way to generate acceptable returns will require more creative and thoughtful portfolio creation and stock picking. This might be in a long only context but we believe it will also shine a light again on long/short equity investing that has been sidelined by a combination of easy gains over the last 10 years as well as the rise of private equity as a portfolio diversifier.
“The world today is filled with higher levels of geopolitical risk, led by a US administration that is putting America first and rushing headlong into strategies that support onshoring and the development of its independence in all critical resources from energy to AI.
“The reserve currency status of the US dollar has been called into question with some of the highest foreign exchange volume days ever since April’s Liberation Day tariff announcements. From corporates to pension funds, investment teams have been mulling over the rise of economic nationalism and the impact this will have on the US dollar. Investment teams, realising that so much of their risk has been tied up in US dollar longs of various flavours, have moved from a SAA (Strategic Asset Allocation) approach to a total portfolio approach placing more emphasis on the risks inherent in the underlying assets. All of this is music to the ears of highly risk aware active managers. The status quo of the last 10 to 15 years is set to change.
“This backdrop requires a much more careful assessment of risk v reward. We believe that risk adjusted returns will be front and centre of investors’ minds running through the second half of the year and this will translate into a demand for strategies that both diversify risk and reduce volatility – again a potential recipe for the resurgence of long/short investing alongside carefully curated funds.
“Thematically, we remain positive about the potential for AI to drive significant benefits across all industries and work on identifying winners in the use cases that trump investing in the infrastructure providers which run a risk of running into a capacity glut.
“We have waited patiently for the crypto world to unfold, and the IPO of Circle Internet could act as a Chat GPT moment for stablecoins. This will benefit the entire blockchain/crypto supply chain and, together with fintech, remains a key theme for the rest of this year.
“Our base case is that equity markets globally remain little changed in the second half of 2025 but the polarisation of winners and losers will remain significant. For the first time in many years, geographical diversification will matter, as will stock selection outside the very biggest companies in the world. In this environment, the overall market returns matter less, but we worry that many investors will remain stranded in the trades that led the last 10 years rather than those that will lead over the next 10, leaving portfolios vulnerable to underperformance. Active equity strategies both long and long/short will play a vital role in cementing return profiles as well as risk mitigation.”
