Five Themes for ’25 and their SAA Implications for US Equities, TIPS and Crypto

What You Need to Know

This note outlines five investment themes for 2025. These are not necessarily trades for the coming year, but rather issues that asset owners need to think about—even if some implications are longer term. They are topics which we believe necessitate a change in investors’ expectations and in their asset allocations.

The key allocation conclusions of this note are as follows. We maintain our overweight recommendation on global equities, and within that we have shifted to be explicitly overweight the US. We think exposure to private assets has more room to increase (although not private equity). We are explicitly overweight Treasury Inflation Protected Securities (TIPS) versus a strategic underweight on duration via nominal government bonds. We were already positive on gold, and now add a strategic position in crypto in our strategic asset allocation.

In our view, expectations of medium-to-long term inflation need to rise, and we suspect that questions of fiscal sustainability are likely to be a constant refrain in upcoming meetings. The broad investor tilt toward real assets has further to go. Tactically, we think that equities will deliver positive returns over the coming year.

This note outlines five investment themes for 2025. We are not trying to specify a series of trades for the next 12 months; instead we address issues that investors and allocators will need to think about in 2025, even if some of the implications are longer term. We think these topics will form key talking points in our meetings with clients over the coming year and represent areas where there may need to be a change in investors’ asset allocations.

The strategic backdrop that we have laid out in previous research is one of higher equilibrium inflation and lower real growth rates, requiring a reallocation by investors into a higher weight for real assets. The underlying motivation for this view is that the large structural forces that drove a decline in yields in the decades prior to the pandemic have run their course—and in some cases are now acting in reverse. These forces are demographic change, globalization evolving into deglobalization, and the energy transition and climate change. AI could possibly temper this decline in growth somewhat, but we think it is unlikely to fully offset the downward forces on growth. 

A key topic that investors need to address in their forecasts and positioning for 2025 is the effect of the new US administration under president-elect Donald Trump. We are writing this before we have full clarity on the policy agenda, but in the near term we see expansionary and regulation-cutting policies as pro-growth. However, over the medium to long term, we think a Trump administration accelerates a shift to an investment regime of higher equilibrium inflation and ongoing concern about fiscal sustainability.

The fiscal sustainability issue already came up in a large number of our meetings with investors over the last year, and we don’t think it will go away. The question is: What are the implications of this for portfolios? There is the possibility of markets pricing in a higher term premium, which we discuss later in this note. But we think the more likely impact is a change to long-term inflation expectations.