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Monthly Asset Allocation Outlook

Multiple authors
January 2025
4 min read
2026-01-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

This is a monthly snapshot of Wellington’s Investment Strategy & Solutions Group’s asset allocation views as of December 2024. It covers global equities, bonds and commodities and complements the more detailed analysis we share in our Quarterly Asset Allocation Outlook.

Key*

1

*Please note that we use a more detailed key in our Quarterly Asset Allocation Outlook.

Equities

Overweight: no change

US

Overweight: no change

We maintain an overweight view on US equities. With pro-growth policies expected under the new US administration, the US economy is likely to continue outperforming. Despite high valuations and inflation risks, the US market is supported by trends in AI, strong consumer spending and a positive growth backdrop. Risks to our view include significant policy shifts relating to tariffs and trade and any resurgence in inflation, which would add uncertainty to the interest-rate outlook.

Europe

Underweight: down

We still have an underweight view on European equities. Despite attractive valuations and signs of a potential economic recovery, the outlook for the region’s equities remains negative due to earnings and growth headwinds, potential tariffs and an unfavourable index sector composition. Potential US tariffs would be harmful to Europe's medium-sized, open economies. Germany's economic weakness and political uncertainty in France and Germany provide further headwinds. Currently, we do not see a compelling catalyst for outperformance in the region.

Japan

Neutral: no change

We maintain a neutral stance on Japanese equities. While we remain constructive on Japanese equities structurally, domestic policy uncertainty and global macroeconomic challenges, such as potential US tariffs, add a layer of near-term risk. We expect the Japanese equity market to perform in line with other developed markets, with governance improvements and structural changes providing support. Overall, while our long-term outlook for Japanese equities is constructive, we see better medium-term opportunities elsewhere in global equity markets.

Emerging Markets

Neutral: no change

We still take a neutral stance on emerging markets (EM) equities, with no significant changes from last month. While recent fiscal stimulus in China has not fully addressed weak private sector confidence, it has helped reduce equity market downside risk. The threat of higher tariffs from the incoming US administration will likely induce significant volatility in EM assets over the coming months, presenting opportunities for tactical asset allocation.

Government bonds

Neutral: no change

US

Underweight: down

We maintain an underweight view on US rates. The Federal Reserve (Fed) has delivered multiple rate cuts but signalled a hawkish shift due to stalled progress in bringing inflation towards the 2% target, leading to higher bond yields and a steepening yield curve. The combination of persistently strong economic growth and rising concerns around debt sustainability on the back of a Republican sweep present upside risks to US rates.

Europe

Overweight: no change

We retain our overweight view on European rates. The European economic outlook appears more fragile relative to the US — weaker growth and more progress on inflation in the region suggest greater potential for rates to decline across the curve, supporting bond prices.

Japan

Neutral: no change

We still have a neutral view on Japanese rates, given our expectation that the Bank of Japan’s normalisation cycle will be prolonged. Deflation risks have now firmly given way to a reflation story driven by positive wage growth, imported inflation and changes in consumer behaviour. With ongoing domestic policy uncertainty following the recent election, we are comfortable in remaining neutral.

Credit spreads

Neutral: no change

Investment-grade credit

Neutral: no change

We maintain a neutral stance on investment-grade (IG) credit. Our outlook is for IG credit spreads to remain range-bound in 2025, as we see no clear catalyst for widening from current tight levels. We expect active management in credit to add value, exploiting potentially compelling bottom-up sector and security selection opportunities. We remain tactical in our credit allocation views, taking advantage of spread volatility to upgrade our view.

High yield

Neutral: no change

We remain neutral on high-yield credit. After being overweight in our views for much of 2024, we think rich valuations warrant a more cautious and neutral stance in 2025. Historically, attractive yields have enticed yield-motivated buyers to the market, providing strong technical support for the asset class. We also expect the default rate to remain low. Nevertheless, at current spread levels, the upside potential relative to equities is marginally unfavourable. 

Emerging Markets

Neutral: no change

We maintain our neutral view on EM debt. The backdrop is reasonably favourable for EM sovereign debt given decent global growth, slower (but not recessionary) Chinese growth, softer global inflation and Fed easing. However, the downside risk is a significant trade war escalation and/or a Fed that cuts too slowly, while the positive upside scenario is more pro-growth policies and a lower inflation environment. Given the balance of risk, we remain neutral. 

Commodities

Neutral: down

Energy

Neutral: no change

We remain neutral on energy markets. The combination of healthy global growth and OPEC+ extending their expected supply cuts is supportive of energy markets. However, there is an increasing risk that supply may rise following the US elections, which could negatively affect prices in the new year.

Gold

Overweight: no change

We maintain our overweight view on gold. Central banks are expected to continue buying gold to diversify their foreign exchange holdings and hedge against geopolitical and stagflation risks. The Fed’s easing path, despite potentially shallower rate cuts, should be supportive of gold prices. In addition, geopolitical and inflation risks could reassert gold’s safe-haven status. The downside risks include the potential for a higher US dollar and higher real interest rates under the Trump administration. 

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These asset allocation views are produced by Wellington’s Investment Strategy & Solutions Group, which provides client-centred investment solutions, research and advice ranging from whole portfolio solutions to bespoke single asset class and advisory partnerships. Our solutions platform incorporates expertise across multi-asset strategies, fundamental factor investing and thematic approaches to deliver a range of client outcomes and objectives. If you wish to discuss your investment needs, and how iStrat can help, please contact your Wellington relationship manager or email #solutions@wellington.com.

Disclosure

For professional and institutional investors only. All investing involves risk. Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment. If the strategies do not perform as expected, if opportunities to implement them do not arise, or if the team does not implement its investment strategies successfully, then a strategy may underperform or experience losses. Past performance is not a reliable indicator of future results and investments can lose value.

This material is prepared for, and authorised for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorised by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund.

Any views expressed herein are those of the iStrat Multi-Asset Team, are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. While any third-party data used is considered reliable, its accuracy is not guaranteed.

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

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