HeatMap
MPS provider investment teams are asked how they expect to change their asset allocation over the next quarter.
Global markets extended their rally in Q3, supported by moderating inflation, resilient corporate earnings, and signs of monetary easing. Emerging markets led the way, helped by a softer dollar and improving sentiment but after years of being undervalued, premiums have started to narrow. Developed markets also posted strong gains with the Technology sector continuing to be a key driver, though late-quarter volatility reminded investors of concentration risks. Corporate credit markets also posted positive returns, as credit spreads tightened, reflective of broader positive risk sentiment and strong investor demand for yield.
We remain underweight equities versus peers – a stance we believe offers a more favourable risk-adjusted return in an environment where valuations demand caution. We are happy to explore niche areas of credit as a return generator and our portfolios maintain a low-duration profile, limiting exposure to interest rate volatility, which has been advantageous during recent yield fluctuations. Diversification remains critical; with markets appearing frothy and uncertainty lingering, we are focused on downside protection. Leveraging our institutional heritage, we continue to explore alternative asset classes that can capture selective upside, whilst maintaining resilience amid heightened political and macro uncertainty.
Looking ahead, the UK Autumn Budget introduces an additional layer of uncertainty for UK investors. While investors broadly expect tax changes, the scale and scope of these measures could shape fiscal stability and sentiment well into 2026. One of the key features of our portfolios is the underweight exposure to UK equities versus the peer group, which we believe is the right approach in a finely balanced market environment.
The AI trade continues to dictate the pace at which the US (and indeed global) equity market progress. But as US cyclically-adjusted valuations move to levels not seen for 25 years, we are increasingly looking to other regions to find value.
Despite strong performance earlier in the year, the UK and Europe have their own structural issues which weighs on the prospective earnings growth outlook.
Meanwhile, in Japan and the wider Asia Pacific region, valuations are relatively cheap, and a weaker US dollar combined with the avoidance of an breakdown in the global trading system has injected optimism into the region.
For this reason, we continue to "own" the US while "renting" the regions.
Risk assets held firm through August, with global equities edging higher despite increasingly mixed macro signals. Robust earnings momentum kept markets buoyant, particularly in cyclical and smaller-cap names, but valuations leave little meat left on the bone. The resilience of risk assets belies a more unsettled backdrop in rates, where fiscal worries and divergent central bank paths drove notable dislocations. In the US, the labour market was the decisive swing factor. A deeply disappointing July jobs report, amplified by heavy downward revisions, underlined a clear weakening trend. That shift pushed the Federal Reserve (Fed) decisively towards a more dovish stance. By Jackson Hole, Chair Powell acknowledged that risks had tilted, paving the way for a September rate cut. Bond markets responded in force: US Treasuries rallied, the curve steepened, and two-year yields dropped to 3.6%. Despite some mid-month inflation noise, the balance of evidence points to easing ahead. Across the Atlantic, the UK presented a striking contrast. The Bank of England cut rates again, but only after an unprecedented split vote that revealed the Monetary Policy Committee’s (MPC) reluctance. Inflation remains sticky, with services still running hot and wage growth entrenched. That “hawkish cut” dynamic saw gilt yields grind higher, with the 30-year rising to 5.6% – the highest level since the 1990s, and above the peaks of the Truss turmoil. Markets are demanding a premium for financing Britain’s worsening fiscal arithmetic, where stubborn deficits and the exodus of high earners point to the wrong side of the Laffer curve. Elsewhere, global data was a patchwork. Eurozone business activity surprised positively, Japan faced upward pressure on bond yields, and China’s policy tweaks lifted its equity market in fits and starts. Oil markets softened as demand forecasts were repeatedly downgraded, highlighting the fragility of global consumption. Taken together, August underscored two realities. First, equities remain well-supported by earnings and liquidity, but upside is looking increasingly capped. Second, the bond market is diverging: Treasuries have turned decisively positive on looming Fed easing, while gilts stand out as a pressure valve for fiscal credibility.
We think concerns over the impact of tariffs have been a little overdone and we expect global growth to be around 3% over the next couple of years, led by Asia and the US. We also believe that inflationary pressures will remain relatively comfortable, allowing central banks to adjust rates as appropriate to support economic growth. As such, we think the macroeconomic environment remains supportive for risk assets. Looking at equity markets, we have seen corporate earnings estimates pared back since the beginning of the year however earnings growth expectations remain comfortably in double figures globally looking into 2026/7 and, on that basis, we think current equity valuations look reasonable. We also believe that US rates may come down slightly less than the market is expecting, while UK rates may come down slightly more as the economy continues to struggle. This should support some recovery in the US dollar versus sterling and also suggests that UK gilts are currently attractive.
Markets had a strong Q3, despite ongoing concerns over geopolitical and political risks. Global equity indices climbed, some reaching all-time highs. Gold rallied while the US dollar remained weak. There was a continuation of the major themes, as markets rose with rate cuts from the US Federal Reserve and AI investment driving sentiment. We remain positive on risk assets in the short term. We retain a diversified approach to our models. In fixed income, we remain focused at the short end of the curve and maintain a small allocation to alternatives for diversification. In equities, we retain a global exposure, with thematic exposures in technology and gold miners. We use a currency hedged fund to mitigate US dollar weakness.
From Trump’s Tax Cuts to the UK’s ‘Black Hole’ and looming budget, there are an array of questions to be answered as we head into Q4. In Blackfinch’s latest CIO Outlook, Chief Investment Officer, Dr. Dan Appleby, explores the implications of budget announcements on both sides of the Atlantic, and what they mean for portfolios going forward.
Key Takeaways for Financial Advisers and Paraplanners:
Fiscal Fireworks in the US - Trump’s sweeping tax cuts passed with minimal market disruption, but they’ve pushed the US deficit deeper, raising questions about long-term sustainability.
The UK’s Balancing Act - With the Autumn Budget scheduled for 26th November, all eyes are on Chancellor Rachel Reeves. Following 2024’s record tax hikes, the pressure is on. But with sluggish GDP growth and a rising tax burden, the government faces tough choices.
Japan Reforms Deliver Results - Japanese equities outshone US and emerging market peers in Q3, boosted by regulatory reforms, strong corporate governance, and rising shareholder returns. Structural shifts suggest long-term opportunity.
Emerging Markets Reignite - A weaker US dollar and supportive demographics are helping emerging markets regain momentum. With solid performance in Q3, they’re once again contributing meaningfully to diversified portfolio returns.
Why Read the Full CIO Q4 2025 Outlook?
If your clients are asking:
• “Are the UK’s tax hikes going to continue?”
• “What does Trumps tax cuts mean for portfolios?”
• “Where are the growing opportunities outside the US?
…then the Q4 2025 CIO Outlook provides the clarity you need. Backed by rigorous analysis and data-driven insight, this article gives you the chance to offer forward-looking advice in a world where markets are always on the move. To read our full quarterly CIO outlook visit our website https://blackfinch.com/market-updates/
Our AiQ investment process has called for profits to be taken in our overweight position in gold. Cash holdings are therefore at a relative high as equity markets continue the thematic battle between potentially hugely over-priced Ai led tech and more value oriented situations. We will maintain something of a middle ground status, but always with a slant toward achieving growth for investors with lower levels of volatility.
We expect US growth to moderate but we do not expect a significant downturn. Meanwhile, growth in other developed markets should remain resilient, narrowing the gap with the US. Global growth faces headwinds from US tariffs, though we believe the impact will be limited. Inflation in the UK, US, and Japan is likely to stay modestly above target, while Europe presents a more benign outlook. Given this, we see the ECB holding rates steady, while the BoE and the Fed may cut further. The latter driven by political pressure and labour market concerns. Against this macro backdrop, we reaffirm our neutral outlook on developed market equities.
We remain underweight EM and Asia Pacific but are positioning for a bull case if global growth proves resilient and the Fed eases further. Our core Asia Pacific holding is India, with significant allocations to Korea and Taiwan. We remain underweight China despite the recent market rally, which we view as disconnected from deteriorating fundamentals. We maintain our conviction in EU small caps. As multi-asset portfolio managers, we see active fixed income management as essential to portfolio construction. In lower-risk portfolios, we see short-dated pan-European credit as an attractive yield enhancer without too much additional interest rate risk. Actively managed high yield can still deliver equity-like returns with fixed income volatility, enhancing risk-adjusted performance. In higher-risk portfolios, we favour UK and US sovereign bonds at the 10-year point as risk anchors to diversify equity exposure in the event of a downturn.
We hold a constructive outlook on global equities. While US payroll data has softened, broader employment indicators remain stable. The Federal Reserve's more dovish stance has led to a repricing of rate expectations, resulting in lower real yields. Combined with solid corporate earnings and supportive fiscal policy, this creates a favourable backdrop for equities—particularly in the US and Emerging Markets. We remain cautious on duration, as recent rallies have pushed US Treasury valuations into expensive territory, with inflation risks still underappreciated. Credit remains neutral; valuations are stretched, especially in US investment grade, but technical support persists. Commodity demand is weak, though we continue to favour gold for its defensive qualities. We also retain a negative outlook on the US dollar, reflecting medium-term fiscal concerns.
• We have seen a rebound in tech stocks over Q3 thus far and positive Aug based on good tech earnings as well as market pricing in fed rate cut in Sept, which has supported equities as well as FI.
• We stress investors portfolios are well-diversified across both regions and assets, to protect against trade-related slowdown, geopolitical tensions and inflationary pressures as tariff rises may feed through to consumer prices.
Our framework remains in a contraction regime which is defined by a period of below-trend and decelerating global growth. We therefore maintain a cautious asset allocation, overweighting fixed income relative to equities. Within equities, we remain committed to ensuring our portfolios are not overly dependent on the US, thus maintaining a diversified exposure to global markets. In fixed income, we underweight credit risk and overweight duration, favouring investment grade and sovereign fixed income relative to high yield. Given the decelerating growth environment and credit spreads at cycle lows, we believe the risk-reward in this position is attractive.
The third quarter was marked by an uneasy balance between resilient growth and persistent inflation pressures. Tariff headlines have faded slightly from the front pages, but their impact on supply chains, corporate margins, and central bank policy remains a live issue. Markets have rallied in places, but beneath the surface, positioning has been more cautious, with investors rotating regionally and reassessing valuations.
In the UK, inflation has stayed stubbornly high in services, leaving the Bank of England cautious despite mounting political and fiscal pressures. Public borrowing is overshooting forecasts, and while rate cuts are expected, the pace of easing looks set to be gradual. UK equities have struggled in this environment, and we have reduced exposure, moving back towards a more neutral stance relative to our long-term benchmarks.
In contrast, the US continues to be the global bellwether. Growth has moderated but remains broadly resilient, and corporate earnings have held up better than many feared, even as margins feel the strain of higher costs. Valuations remain demanding, but the risk of being materially underweight has diminished as market leadership broadens. We have therefore added modestly to the US, trimming our underweight, reflecting a more balanced risk/reward profile.
Europe and Asia remain important diversifiers. German fiscal expansion, stronger sentiment indicators, and more attractive relative valuations have made Europe an area of renewed interest. In Asia, China’s incremental stimulus, Japan’s tariff exemptions, and a more constructive stance from global investors have supported regional allocations. These exposures continue to provide balance and opportunity within portfolios.
Fixed income has been more complicated. While yields remain elevated, inflation progress has been patchy, and government bonds have struggled to deliver consistent protection. We have shifted away from a UK-heavy gilt weighting in favour of broader global bond allocations, with particular emphasis on US credit, where yields remain attractive and fundamentals solid.
Looking forward, the environment is likely to stay challenging, with inflation easing only gradually and geopolitical uncertainty persisting. Yet corporate balance sheets are broadly healthy, earnings momentum outside the US is improving, and valuations in Europe and Asia remain supportive. In this context, we continue to favour diversification, balanced equity exposure, and active regional allocation.
Our overall stance is cautiously constructive. We are no longer materially underweight the US, while reducing UK exposure, and continue to favour opportunities in Europe, Asia, and global credit. The aim is to capture selective upside, while maintaining resilience in what remains a finely balanced global outlook.
The tides have been turning: after a pretty choppy first half of the year, markets started to rise again. This has been great news for our portfolios which have successfully captured that rebound. The question is: where will the winds blow next, and how should we chart the forward course for our portfolios? Our view is that there will be three key themes driving markets over the coming months:
• A sunny economic horizon: our positive view on economic growth has worked this year, and we are staying that course. Companies profits are buoyant, activity indicators are positive, and governments are stimulating growth. To capture this trend, we’re maintaining an elevated exposure to equities and high yield bonds, which tend to perform well when companies are healthy, and inflation and interest rates are elevated
• Fundamentals take the helm: last quarter we broadened our equity allocations to help steady the portfolios as shifts in U.S. policy created choppy markets. That worked well, and we benefited from the wave of strong returns in the UK, Asia, and Japan. However, as the fog of policy uncertainty starts to clear, we believe that markets will once again be driven by fundamentals, with returns focused in the strongest companies. We have added to US equities, where profits remain high, and Emerging Market equities where earnings are strong and companies look cheap. We reduced our UK and European equity exposure, as the ‘catch-up trade’ that we saw earlier in the year has mostly played out in our view.
• Mind the debt iceberg: rising government borrowing, particularly in the US, could undermine the performance of government debt, as well as the dollar. To address this, we remain anchored to shorter dated bonds and are steering away from the greenback. Additionally, in September, we added to our ‘debt diversifiers’: gold and emerging market bonds. Gold offers valuable downside protection while emerging market governments are showing spending restraint and their bonds are providing really attractive levels of income.
We expect markets to be driven by three main dynamics: the Fed's policy stance, the trajectory of the labour market, and the evolving impact of tariffs. The recent cooling in job growth and wage pressures suggests a gradual rebalancing in the labour market. This supports the growing narrative of a soft landing — where inflation moderates without triggering a sharp rise in unemployment. Such a scenario would give the Fed greater flexibility to begin easing rates. We see inflation on a downward path, while tariffs may introduce temporary upward pressure on prices, their impact is likely to be contained. Beyond the US, the global growth outlook has shown signs of improvement. Manufacturing PMIs across Europe and Asia have strengthened, pointing to a potential rebound in industrial activity. This recovery could provide an additional tailwind to risk assets, especially if it coincides with central banks lowering interest rates.
We have more in equities and less in bonds in our shorter-term tactical asset allocation. Global growth continues to be robust, supported by a resilient US consumer and ongoing investment in artificial intelligence infrastructure. Meanwhile, the Federal Reserve is cutting interest rates again. We think rate cuts in an environment without recession and strong company earnings growth is supportive for US stocks moving forward. We are paying close attention to valuations given how far equity markets have moved since the trough in April this year.
While a lot of political headlines have emerged from Europe, we still think equities can move higher in the region: rising economic growth, ongoing government spending and a central bank that has been cutting interest rates over the past year should be supportive for markets. In Asia, equity markets can benefit from solid global economic growth and more trade if tariffs stay low. We have less in bonds as we think high government spending without taxes to match means long-term bond yields need to move higher to entice investors to buy government debt.
We are still constructive on equities, but see more value in Europe, Asia and especially Japan compared to higher priced US equities. Gilt yields look attractive but face a difficult fiscal backdrop. Alternatives continue to do well for the portfolio.
We would describe our current market outlook as cautiously optimistic. Equity & Credit market valuations are relatively full, but in the US, Europe & China we continue to witness supportive fiscal and monetary policy, which is likely to support positive asset class returns into year end.
Apollo has long championed the benefits of absolute return investing. In today's environment, this message is resonating more widely than ever. Both BlackRock and J.P. Morgan have recently advocated that investors should increase their allocation to liquid alternatives – recognising that traditional portfolios, heavily weighted to equities and bonds, are no longer sufficient for diversification and risk control. We are increasing our allocation to liquid altnernatives as we advocate that superior outcomes to traditional fixed income allocations can be achieved.
Our Q2 rebalance, executed near market lows after the "tariff tantrum" in April, and our addition of gold equities in our Q3 rebalance in early September both proved well timed and are helping portfolios outperform peers / benchmarks. Within equities, we continue to hold high conviction in emerging markets, smaller companies and precious metals which offer excellent long-term opportunities for growth and, crucially, are under-owned by investors. Against this, we remain underweight Technology / AI given valuations leave little room for disappointment. We remain overweight Alternatives, which continue to provide strong uncorrelated returns, and underweight Fixed Interest which remain poor value. Overall, portfolios remain well diversified and offer something different to Advisers and their clients to navigate ongoing market uncertainty and volatility.
We remain positive on the outlook for equity markets which have continued to rise in GBP terms. The have been led by U.S. equities and the technology sector, where strong earnings and AI-driven momentum have buoyed investor sentiment. We do however remain mindful of emerging inflationary pressures and signs of labour market weakness which have contributed to expectations of further easing by central banks, particularly the Federal Reserve. Despite these crosscurrents, risk assets have held up well, suggesting investors remain focused on corporate fundamentals and the prospect of looser monetary policy.
Valuations have become more expensive across regions, while profit margins and EPS growth improved in the UK and US. On a relative valuation basis, Europe ex-UK and Japan remain attractive compared to the US. Relative earnings and margin signals also suggest that Europe ex-UK and emerging markets are more appealing than both the UK and Japan. Within our regional equity allocation, we maintain a large overweight to the UK and a small underweight to Europe although we recently reduced our overweight to the UK and reallocated to Europe ex-UK.
We remain underweight fixed income overall. Higher relative sovereign yields in the UK reflect sticky inflation (and concerns around second-round effects), a higher base rate, and supply/demand technicals—including QT and structurally changed long-end pension demand.
All eyes will be on the Federal Reserve in the months ahead. Any further interest rate cuts are likely to follow more strain in the labour market, as inflation is once again rising. It is difficult to see how markets would respond positively to such a scenario, unless they begin to look ahead to 2026. The US economy is expected to improve next year, supported by looser fiscal and monetary policy as well as deregulation. Closer to home, the upcoming UK budget and the uncertainty surrounding it are likely to weigh on stock market performance, following a strong run through most of 2025. We have been gradually taking profits on our UK overweight throughout the year and may do so again.
Our global multi-asset approach remains overweight in equities in aggregate, with a value style in Europe, Japan, Emerging Markets, and the UK. We are also focusing on both Growth and Value styles within the US as well as investing across the full market cap spectrum in our equity allocation. In Fixed Income, we maintain a barbell approach, balancing long-duration government debt with short-duration corporate credit to navigate varying market conditions and manage interest rate risk. To enhance portfolio diversification and resilience, we integrate alternative assets, including infrastructure, gold, and defined return strategies, providing potential protection against volatility while capturing diverse income sources. This multi-faceted approach aims to optimise returns across different market cycles, balancing growth potential with defensive qualities.
Whilst the AI infrastructure boom is rasing questions over a speculative bubble forming, this will only be evident in time, as investors look for signs of returns on the capital employed . Meanwhile, while the theme drives the US market, as well as the likes of Korea and Taiwan, returns have come from a broad range of assets. So global diversification is paying off and not forcing us into paying high valuations unnecessarily or reliant on the speculation in AI.
There are still pockets of relative value outside US large cap, even within the US itself. Bond markets remain challenging as governmental fiscal discipline is scrutinised by the market, so careful attention need to be paid to duration and increasingly alternatives are helping replace reliance here.
We remain cautious on the back of significant uncertainty around global trade, inflation, and geopolitical tensions. We see gold as expensive but still find good use as a diversifier and ballast in times of stress. We maintain overall allocations to equities (rotating slightly from our UK OW to global) and have reduced exposures to European rates on worries around French political turmoil, in favour of US duration. We are assessing allocations in alternatives, via real assets.
Our asset allocation is marginally overweight equities currently given a global macro backdrop which is relatively supportive in that interest rates are expected to be cut in the US and the UK in the next 12 months, as inflation gradually comes under control, while earnings growth is expected to remain positive across regions. There are pockets of global equity markets which look “expensive”, such as AI related stocks trading on high multiples, but that does not mean equities in general (nor all US equities) are unattractive. In fact, we are able to find many good ideas around the world. Being an active equity manager, W1M can choose to exclude stocks which our analysis suggests are too highly rated (in P/E terms, for example) and to hold stocks which we consider more attractive or underappreciated by the market.
Fixed income: We remain underweight in general, viewing bonds as a diversifier and noting yields these days are not unattractive. However, inflation has been more stubborn than many expected (UK inflation is still closer to 4% than its 2% target) and western governments are still borrowing to fund spending and pay what are already huge interest bills on outstanding bonds. In addition to this, the reversal of globalisation with new and high tariffs being imposed by President Trump and getting some retaliation is ultimately inflationary as prices will inevitably reflect those tariffs. With a somewhat uncertain inflation trajectory, we are comfortable being slightly underweight bonds but preferring UK gilts to relatively expensive “credit” or bonds issued by companies which normally tend to have to pay a premium over government bonds given greater risk of a company going bust than a government not paying its interest on debt held in bonds. Currently, credit is relatively expensive and we think the UK government’s woes may have led to an overreaction in UK bond yields; if interest rates can fall more than expected in the UK, there could be a decent return on UK gilts and we believe that is possible.
Alternatives: We remain positive about metals including gold (holding gold miners as well as having exposure to the metal) and also uranium for greater interest in nuclear energy around the world. We are also taking more “protected equity” exposure in terms of using hedging techniques which can give our portfolios some protection should markets sell-off. We see uncertainty regarding inflation given the impact of tariffs, and how they will impact consumers and companies in different sectors, as a potential risk for markets.
If tariffs lead to companies passing on significant price increases and consumers reacting badly, that could be a negative for both bond and equity markets (as interest rates may not fall as quickly as markets currently hope or may even have to rise giving sentiment a shock). But for now, bond markets are pricing in several US interest rate cuts in the next year and positive GDP and earnings growth numbers; we remain cautiously optimistically positioned.
The third quarter of 2025 was marked by persistent volatility in global markets, with political developments in the US continuing to dominate investor sentiment. The implementation and frequent adjustment of tariff policies by the Trump administration generated significant swings in equities and currencies, while concerns over US debt sustainability further pressured longer-dated bonds.
Nevertheless, global equity markets have seen continued strength, rising strongly over the quarter. This continues a rally that began in mid-April. There was limited dispersion between regions with the exception of European equities, which gave back the prior quarter outperformance. Encouragingly, while US tech saw strong momentum later in the quarter, smaller companies were an area of strength. This suggests a broadening out of the rally.
Fixed income assets that were more stable through the equity market volatility earlier in the year, were the centre of market volatility towards the end of the quarter. In particular, rising yields on US long-dated bonds reflected persistent fiscal concerns. The potential repayment of tariffs judged unlawful was viewed by the market as further stretching the US fiscal position. In the UK, pressure on the Chancellor to balance the books, triggered weakness in gilts, particularly those at longer durations. 30-year gilt yields reached their highest level this century, in the quarter.
Conversely, alternatives such as infrastructure and gold provided defensive qualities, with gold particularly supported by central bank demand and geopolitical risk. Furthermore, the perceived fragility of the existing global currency system appears to be driving precautionary buying.
Overall, our investment stance remains neutral, with a continued preference for higher-quality fixed income, selective non-US equities, and defensive alternatives. Looking forward, the sustainability of corporate earnings and the resilience of consumer spending will be crucial in determining whether markets can hold current valuations. We expect volatility to remain elevated, driven by geopolitical shocks, tariff announcements, and the direction of global monetary policy.
We remain cautiously constructive on markets and have a moderate overweight to equities, acknowledging that supportive fundamentals are tempered by elevated valuations. On government bonds, we hold a neutral stance given the attractive yields on offer. In contracts, we are negative on corporate bonds, where credit spreads remain tight and offer little compensation for risk. Gold stands out as a preferred allocation given its use for portfolio protection in a backdrop of heighten macro uncertainty.
Tariffs have dominated the narrative for 2025 but the US economy has proved more resilient than was feared. Even with the latest labour market weakness, there is little chance of a recession in the next few months. Coming into the end of the year, monetary liquidity should benefit from the US Federal Reserve’s interest rate cuts. As financial condition ease this will eventually support global economic activity.
In fixed income, we think there is room for long-term bond yields to fall even further as interest rates fall across the developed world. In Equities, the biggest differentiator in performance this year has been small versus large. Due to expectations of lower interest rates and hence cheaper borrowing, small cap stocks have performed better. If businesses are positive, investor optimism will be well-founded.
Concerns over economic outlooks and runaway government deficits, would appear at odds with the strength of global stock markets. However, despite the worries of tariff disruptions corporate earnings have held up well and the AI train continues full steam ahead. Equities are also buoyed by expectations of interest rate cuts, from the Federal Reserve Bank, and potential inflows from money market funds. Although markets are likely to be supported in this environment, we are alert to the elevated risks that might trip markets up. If inflationary data remains above target in the US, markets might have to revise their interest rate expectations. If any of the rosy assumptions around AI get called into question, valuations are very vulnerable. And the unprecedented level of market concentration creates index risk. We maintain our gold exposure and are skewed away from US concentration risk.
As we move towards the final quarter of 2025, the investment landscape presents a complex mix of opportunities and pronounced risks. Global asset prices have continued their climb since the tariff induced lows of April, largely driven by expectations of imminent interest rate cuts from the Federal Reserve and other major central banks. Yet, beneath this bullish momentum, a disconnect is growing between market optimism and a deteriorating macroeconomic backdrop, urging us at Rivers Capital Management to maintain our cautious and disciplined investment approach.
The global economy is displaying classic signs of a late-cycle slowdown. Unemployment rates are ticking upwards, a reliable indicator of weakening labour markets, while key leading indicators such as manufacturing data and consumer confidence metrics are trending downwards. These signals align with business cycle models that suggest a recession is a looming probability. Inflation, while off its peaks, remains stubbornly above central bank targets. A concerning possibility is that policymakers may become more tolerant of this persistent inflation as a mechanism to erode the real value of historically high debt burdens.
Indeed, the unprecedented level of global debt is a primary anchor on growth and a significant source of risk. In the United States, government debt stands at $37 trillion, or roughly 120% of GDP. For the first time, the nation’s interest payments on this debt have surpassed its defence spending, severely limiting fiscal flexibility. This challenge is not contained to the US. France, the Eurozone's second-largest economy, exemplifies the global nature of the problem, with its own debt-to-GDP ratio near 120% and bond yields recently spiking due to political uncertainty. This serves as a stark warning that even major developed economies are vulnerable to a sudden crisis of confidence.
Consequently, we anticipate that the effectiveness of monetary easing will be limited. While rate cuts may provide a short-term boost to market liquidity, they are unlikely to significantly reduce long-term borrowing costs in a world demanding a higher premium for holding debt. This creates a critical tension: the world’s debt balloon cannot expand indefinitely in a low-growth environment without consequences. Policymakers may attempt to inflate it away, which could support asset valuations for a time but risks triggering a sharper market correction and forced deleveraging.
In this complex environment, the Rivers strategy prioritises resilience and diversification. We have recently made tactical adjustments to position our model portfolios accordingly. Allocations to direct equities have been trimmed to manage exposure to potential volatility. Within fixed income, we have reduced duration risk by lowering the holding of longer-term bonds, which are highly sensitive to inflation and interest rate shifts. These steps are balanced by a maintained, material allocation to diversifier assets. This bucket includes alternative strategies and inflation-resistant securities designed to provide a non-correlated return stream, offering a buffer against economic uncertainty while still allowing for participation in market gains.
We believe that navigating the remainder of 2025 will require a dynamic and vigilant approach, favouring value and robust risk management over chasing stretched valuations.
August was a welcome quiet spell for financial markets, even though there were plenty of economic and political developments. In the US, the spotlight was on the Trump Administration’s ongoing pressure on key financial institutions. This included the removal of the head of the Bureau of Labour Statistics after a disappointing jobs report, followed by scrutiny of Federal Reserve Governor Cook over claims of mortgage fraud. A last-minute meeting between President Trump and President Putin made little progress toward ending the war in Ukraine. In Europe, political uncertainty increased as the French government looked likely to lose a confidence vote, which could lead to a new Prime Minister or fresh elections. Economic data was mixed: the US job market showed early signs of slowing, and inflation remained stubbornly high in both the US and UK. Still, broader indicators of economic activity stayed strong. The Bank of England also lowered interest rates, as expected.
Markets were quiet over the summer, with share prices showing very little movement. As a result, returns across asset classes were generally modest. Japanese stocks were the standout, helped by strong company profits and improving investor confidence. In the US, comments from Federal Reserve Chair Powell at the Jackson Hole conference led investors to expect fewer interest rate hikes, which helped support bonds and other interest-sensitive investments like REITs. Stock markets in the UK, Europe, and the US posted small gains. UK inflation concerns pushed up expectations for interest rates, which hurt inflation-linked government bonds. The US dollar continued to weaken, which was a headwind for international investors with US-based investments like emerging market stocks and commodities.
While there’s still a lot of uncertainty about the global economy over the next few years, our outlook for growth has improved. Forecasts for US economic growth in 2025 remain modest, around 1%, but that’s a noticeable improvement from the recession fears that followed the tariff changes in April. Even so, the longer-term effects of US economic policy, both directly and through the uncertainty it creates for households and businesses, are still hard to predict. There are many possible paths the global economy could take. Growth continues to be slow in Europe and the UK, while China is dealing with long-term economic challenges.
Given this backdrop, we’re keeping a balanced but slightly cautious approach. We’re neutral on equities, which could still rise if company earnings improve. We’re more cautious on corporate bonds, especially higher-quality US bonds, because prices have risen quickly and the potential for gains now looks limited. We’ve also become less positive on emerging market bonds after a strong run. For government bonds, we’re staying neutral: while current interest rates are appealing, the risk of sudden inflation, possibly from new tariffs, makes us less confident that bonds will always move in the opposite direction to stocks. With so many possible economic and political outcomes, we continue to stick to our core principles of diversification and focusing on preparation rather than prediction.
We remain neutral on bonds overall but overweight UK gilts and global index-linked bonds and underweight corporate bonds where we feel investors are not being sufficiently rewarded for the additional risk they take on. We also retain a small overweight to gold and equities. Company earnings continue to be robust and gold has continued to move higher this year on as central banks have continued to diversify reserves.
Three quarters of the way through 2025, and despite the negative headlines surrounding trade tariffs and ongoing conflicts, it's shaping up to be another positive year for stock markets. We enter Q4 with our MPS strategies positioned to reflect a modest overweight allocation to equities. While growth and earnings risks are to the downside, a recession looks less likely now than earlier this year, with individual stock opportunities continuing to materialise despite ongoing concerns regarding market concentration and elevated multiples.
From a regional perspective, the strategies are tilted towards opportunities within European (ex UK) and emerging markets (EM) equities. Loosening budgets and fairer valuations remain supportive for the former, while attractively valued EM equities look set to benefit from further stabilisation in the Chinese economy, exposure to Indian growth, as well as IT and commodity companies. Within the strategies' US allocations, we retain a broadly neutral weighting to large-cap technology stocks, albeit remain selective in the companies owned. Elsewhere, we are closely watching the fiscal situations in the UK, US and France given recent volatility. However, government bond yields remain relatively attractive, while index-linked gilts are currently offering an opportunity to lock in yields some 2.0%-2.5% above inflation for 20 years.
Finally, across the strategies' alternative investments allocation we remain positive on the UK real estate investment trust (REITs) sector, with this unloved segment trading at what we perceive to be an unjustified discount given a backdrop of improving fundamentals and appealing income opportunities.
We remain modestly optimistic on the outlook for risk assets in the near term as market momentum remains robust if wary of extended valuations in some parts of the market. We are cautious on longer dated bonds given high debt levels and limited indications of fiscal discipline by governments. Alternatives may well provide some cushioning should levels of volatility increase sharply. As such a balanced and diversified approach seems appropriate.
We believe maintaining a neutral risk position remains prudent as we look ahead to 2025 and beyond. A resurgence in inflation continues to pose a key risk to markets, with any further monetary policy easing will depend on a smooth and sustained decline toward target levels. Regardless of whether the Fed or BoE deliver additional rate cuts in the coming months, we see limited scope for yields to fall—unless significantly negative economic data emerges. Consequently, bond investors should expect the current yield on their holdings to comprise the bulk of total returns.
We continue to overweight small-cap equities, both through direct asset allocation and via our SMID-cap fund managers. Recent strong performance in the US was catalysed by the recent rate cut and could persist as the "One Big Beautiful Bill" begins to impact the economy. While aspects of the bill may be contentious from a humanitarian standpoint, it is broadly supportive of business activity.
We are also monitoring the recent strength in China’s onshore market, which we expect to continue. The retail-dominated investor base often drives sporadic performance, with valuations prone to sharp swings. As such, our overweight position remains in place.
We believe UK equities offer an interesting opportunity. The UK market has been out of favour with global investors since the Brexit vote. This negative sentiment has been further compounded by political uncertainty, the UK market’s bias towards defensive sectors and the relatively small number of technology companies listed in London.
Although the FTSE 100 is trading close to its all-time highs, UK equities remain inexpensive relative to global peers. The FTSE 100 is on a forward price/earnings multiple of just over 12 times, which is materially below the US market.
Rate cuts could provide a catalyst
We see several potential catalysts that could persuade global investors to take a fresh look at the UK, with one being interest rate cuts. We believe investors may be pricing in too few cuts by the Bank of England (BoE) in the months ahead.
After the US Federal Reserve’s September interest rate cut, investors are expecting at least one and possibly two more reductions this year. Inevitably, pressure will mount on the BoE to follow suit.
UK rates remain higher than most G7 peers and this gives the BoE greater scope to cut rates, once we have seen an easing of seasonal inflation effects, such as spikes in air fares and hotel prices.
Another potential catalyst is fiscal policy. When Chancellor Rachel Reeves provides greater clarity about the government’s tax and spending plans, we believe this could remove some uncertainty and benefit the UK equity market.
While we have trimmed our exposure a little after a strong run for UK equities, we continue to see potential in this market.
Strong US growth prospects
On the other side of the Atlantic, we continue to see strong long-term growth potential in US equities, which are still the largest equity component in our portfolios by a significant margin.
Valuations are higher, but one reason for this is the earnings growth achieved by US companies, many of which are world leaders and highly innovative businesses. The US leads the world in spending on research and development (R&D), investing around a trillion dollars a year, according to the R&D World website.
The return of Donald Trump to the White House caused considerable uncertainty, not least because of his trade tariff policies. However, the picture on tariffs seems clearer now and although Trump remains unpredictable, the overall political environment in the US appears more stable.
We expect measures by the president – including the extension of tax cuts, and new tax reliefs – to improve cash flows for US companies. We also see signs of artificial intelligence beginning to reward the huge investments poured into it.
Fixed interest
In fixed interest, while we continue to believe government bonds look attractive, we have trimmed our exposure. We have, for example, reduced our positions in longer-dated UK gilts, because of concerns about the impact of lingering inflation and questions marks about government tax and spending policy. We have selectively increased our exposure to global corporate bonds.
As we look ahead to the final quarter of 2025, the investment landscape continues to present both opportunities and challenges. At Binary Capital, our long-term, high-conviction approach remains always as our first principles approach. We believe that by focusing on fundamentally sound investments and maintaining a global perspective, we can navigate the current investment markets and deliver sustained returns for clients.
Our outlook for the next three months is particularly focused on growth markets, where we maintain exposure here but somewhat cautious in the short-term. The technology sector, a consistent engine of innovation and disruption, remains a key area of interest. Despite some volatility, we believe that companies with strong fundamentals and exposure to secular growth trends, such as artificial intelligence and cloud computing, are well-positioned for long-term success. The key here being long-term.
Within the technology sector, our conviction lies in several key sub-sectors. Artificial intelligence (AI) continues to be a transformative force, with advancements in machine learning and generative AI creating new innovation within many industries.
Emerging markets also present a compelling investment case. While acknowledging the inherent risks, we see attractive valuations and a favourable growth differential compared to developed markets. The resilience of emerging market economies, coupled with the potential for faster monetary policy easing, creates a supportive environment for equity investors. We are particularly optimistic about opportunities in Asia. Our optimism for emerging markets is rooted in their demographic advantages, growing middle classes, and increasing technological adoption. While China's growth trajectory is moderating, other regions are stepping up.
In line with our investment philosophy, we will continue to seek out the best investment ideas and strategies worldwide. Our portfolios are constructed with a focus on diversification across asset classes, regions, and investment styles. We are not swayed by short-term market noise and remain committed to always, in a narrow manner, to our best ideas.
Whilst we remain cautious in the coming months. We are optimistic investors and see longer-term the upside possibilities in markets more than we do on the downside.
Despite the plethora of attention-grabbing headlines highlighting poor economic conditions and scenarios, we remain broadly neutral on equity exposure and can see a path where momentum and earnings continue to grind higher over the coming 12 months. While momentum in markets is positive, we are keeping our finger close to the eject button in case data points start to turn. Ultimately, we don't know which drop of snow will start an avalanche, which is why we have kept a high exposure to gold assets (double digit %), which have not only provided safe haven status this year but have also been a source of growth with retail investors joining central banks in their purchasing.
The Trump administration has delivered on one of their agenda points, and that is devaluing the dollar. This has been a tailwind for sterling investors this year and while we expect the Greenback to trade rangebound for the next few months, there are clear signs of a structural bear market for the dollar and remaining underweight dollar denominated assets seems sensible. That also means a more positive environment for Emerging Market stocks, who have delivered good performance this year, and with current valuations relatively lower and fiduciary duty reforms in countries such as Korea being implemented, we see good reasons this can continue.
Uncertainty over the forthcoming budget, along with the significant rise in long term gilt yields, have undermined a previously positive outlook for the UK market. Whilst the market and economy are not the same thing, expectations of higher inflation and lower growth for the UK economy are undermining sentiment. A weaker pound would be supportive of a greater skew within UK allocations toward FTSE100, despite a significant valuation opportunity in UK small and midcap. Asian equities have experienced a welcome rally in recent months, with higher expected earnings growth and lower rating than developed markets. This supports a modest increase in our MPS weighing, which currently sits just below that of MSCI ACWI. The level of speculation in areas of the US market, such as unprofitable tech, is uncomfortable, and leading to highly polarised returns. Such periods help validate our blended approach of utilising active, passive and factor-based investments. Within alternative equity, the opportunity for structured investments is the most attractive for an extended period of time, with the potential for high single digit returns from an asset class that historically has exhibited around half the risk of broader equity markets. In fixed income we continue to favour short to medium dated investment grade, whilst using strategic bond funds to add in-built flexibility to overall duration. Returns over the last year are very supportive of active over passive in the core of fixed income allocations.
Following a volatile nine months in 2025, we maintain our conviction that American exceptionalism remains intact. While US dollar weakness has weighed on the relative performance of US equities year to date, we are more concerned about the global growth outlook than that of the US, and anticipate further Sterling depreciation against the US Dollar. Provided the US avoids recession, we expect US equities to outperform, supported by stronger earnings growth. To balance the higher valuations and growth bias inherent in US equity exposure, we complement it with UK equity income stocks, which offer lower valuations and a value bias. When risk is defined as volatility, near-term bonds offer protection but require acceptance of inflation risk; conversely, when risk is defined as inflation, long-term equities provide a hedge but demand tolerance for volatility. Dividend income growth tends to be more progressive from equities than from Gilts. We remain concerned about the sustainability of government debt levels and the fiscal outlook in the UK and other countries and therefore favour short-dated over long-dated bond exposures. Additionally, we continue to view gold as a strategic hedge against a potential bond market crisis, where debt and currency devaluation pose significant risks.
The summer months have done little to calm the volatility that has defined markets in 2025. Despite persistent geopolitical tensions and a sweeping overhaul of US trade policy, equity markets have continued to climb. Tariffs posing headwinds August saw the full activation of the US administration's new tariff regime, with country-specific duties now applied to over 70 trading partners. The average US tariff rate has surged to over 18%, the highest since the 1930s. We remain concerned as to who will pay for this and note signs that the impact is starting to show through in producer price inflation. This could pose headwinds to corporate earnings, broader inflationary pressures, and the expected path of interest rates to the end of the year. Geopolitical tensions remain elevated At the same time, geopolitical tensions remain elevated. This has added to investor caution, particularly as political interference in US central bank policy raises concerns about monetary independence. Focused on diversification Despite this, equity markets have remained buoyant. However, our enthusiasm remains tempered by the disconnect between valuations and the underlying risks. We continue to monitor economic data and policy developments closely, and have focused recent activity on profit taking, leaning into areas of weakness as well as ensuring the portfolios remain well diversified.
It’s quiet. Too quiet.
As we enter the final stretch of 2025, we’re seeing no signs that something nasty is lurking around the corner.
Economic indicators look reasonable. Interest rates are stable or falling (usually good for assets, outside of a recession). Inflation is steadying at long term levels, a little sticky in parts, but in the main on its way downwards. Company balance sheets are very healthy – with much of their debt put into place in the low-rate years, and a long way away from maturing. This balance sheet strength combined within continued earnings strength provides little reason to suggest something scary is incoming.
Valuations are high in concentrated areas of the market, which is why a diversified approach remains key. Having broad exposures to the global equity market, without a reliance on individual markets doing the majority of the heavy lifting, remains a sensible approach going into the back end of the year.
Inflation has returned, and while we have not altered our bond position, we do not intend to increase duration in the short term despite the potential for further rate cuts. The steeping on the yield curve over the past six months has implied a market shift in inflation expectations, and we currently see little chance of capital appreciation from the long end of the curve. Our best scenario is flat returns with coupons, providing some positive return. Increasingly we are worried about the lack of earnings globally, and while the US headline is positive on earnings we note that this is very concentrated. At these elevated valuation levels, earnings may not grow enough over the next year to justify these levels.
The summer was positive for risk assets as the trade war rhetoric faded, and investors refocused on the AI theme and corporate fundamentals. Although a lot of attention is still on the US equity market, it is interesting to observe the AI trend having a strong positive influence on Chinese equities, and indeed many other markets generating strong returns. The shifting equity market narrative has little impact on core strategic asset allocation decisions, where diversification and taking the appropriate amount of equity and credit volatility for a given risk appetite is key. The bond market has taken a less optimistic view over the summer, particularly in the US. Selective signs of weakness in the US economy have seen Treasury yields decline, however the gilt market remains on edge over inflation uncertainty and the fiscal scrutiny that will be heaped on ahead of the budget. Markets are coming round to our way of thinking on inflation. However, we continue to prefer a cautious approach to duration to ensure government bond allocations present minimised downside risk for portfolios.
Global markets remain shaped by policy uncertainty, shifting inflation dynamics and persistent geopolitical tension. Growth is proving resilient but uneven, with the US still leading while Europe slows and China's recovery struggles for momentum. Valuations are elevated and risk appetite remains sensitive to changes in monetary direction, trade policy and security developments. In this environment, balance and flexibility are essential. Exposure to quality assets, regional diversification and strategies that combine income with real-asset resilience can help navigate volatility. Against this backdrop, volatility is likely to persist as markets recalibrate expectations around earnings and liquidity. For long-term investors, the message is clear: diversification across regions and asset classes and disciplined risk management remain essential to weather shifting macro currents and capture opportunities in a world defined by transition.
Whilst we are very conscious that markets have moved a long way since the lows in April, we are maintaining a neutral stance towards equities. Rate cuts are supportive and growth remains fairly robust in most regions. However, valuations are clearly stretched in some areas and participation appears to be high, which gives us some ground for concern. We have recently reduced risk within Equities, adding Healthcare, a defensive sector with positive long term growth potential and attractive valuations.
As Q3 draws to a close, our attention turns to the opportunities and risks that Q4 may present. While much of the global focus has been on AI and the U.S. markets, China has quietly taken the lead. Year-to-date, China indices have significantly outperformed U.S. markets. Both regions are benefiting from substantial capital expenditure, and the latest iterations of Chinese AI have delivered not only comparable performance but also a notable step-change in efficiency. In the U.S., however, the macroeconomic backdrop, particularly on the employment front, remains a concern. The sharp downward revisions from employment data released in Q3 reinforce our cautious stance, as we see the risk of further deterioration ahead. We remain constructive on the U.K., but persistent political headwinds continue to act as a major obstacle to any meaningful reacceleration in growth at this stage. As we move into Q4, we remain underweight U.S. equities given high valuations and a softening economic backdrop. Europe also stays underweight in our positioning, with slow growth and no clear catalyst for reacceleration. By contrast, we see more compelling opportunities across Asia, led by China, where policy support, attractive valuations, and advances in technology provide a favourable environment.
We are neutral on equities, where we see risks as well as opportunities within the asset class. We have reduced exposure to US equities on (over) valuation concerns and concentration risks; the top 10 largest companies make up nearly 40% of the main US stock market. We have increased exposure to emerging markets where valuations are more attractive and the earnings outlook positive, as well as listed infrastructure, a defensive sector which has tended to perform well when interest rates have peaked.
We hold a lower risk (minimum volatility) equity strategy in case recession risks increase. We are overweight value, which helps diversify exposure away from the largest US companies and where valuations are compelling; at these levels value has historically gone on to outperform over the next five years. Given the rise in bond yields, we believe the case for bonds is more attractive now than it has been for years. Our preference remains for high quality bonds, a reduced sensitivity to interest rates and increased exposure to inflation linked bonds, given the uncertain path ahead for inflation.
Despite geopolitical tensions economic growth has been resilient in 2025. On a positive note, earnings momentum has remained robust and with central banks signalling a cautious approach to interest rates this has added some stability to the outlook for global rates moving forward. As the third quarter starts to unfold, and with economic and corporate fundamentals showing signs of resilience a well-diversified portfolio should continue to benefit in these circumstances. Within equities we remain neutrally positioned with a bias to US technology and areas outside the US e.g. Europe, Asia and Japan. Recent tariff announcements and political policy have led to higher levels of inflation in both the US and UK and we therefore remain shorter duration
Markets continue to climb the wall of worry with UK and US inflation readings crucial in determining equity and bond market performance for the last quarter. In line with expectations and equities and fixed income markets could continue September’s “goldilocks” environment. Higher than expected and we could see pressure on long duration bonds and a pull back in equities. A continuation of the macroeconomic backdrop and there is good reason to see smaller companies benefitting from part two of the rate cutting cycle. We continue to maintain shorter duration and prefer a diversified equity allocation.
It has been refreshing to see areas such as small caps, value stocks and emerging markets contribute alongside the broader equity market. Fixed income has continued to do its job of cushioning downturns and providing stability. Our approach remains consistent. We do not try to forecast short-term market movements but instead focus on maintaining globally diversified portfolios that give clients the best chance of long-term success. The lesson remains clear: staying invested and patient allows markets to deliver the returns that investors need over time.
