We wish you a healthy, enjoyable, and prosperous Year 2025
As we step into 2025, the global economy continues to evolve, presenting both challenges and unique opportunities for investors.
Building on the lessons of 2024, this year promises a dynamic landscape shaped by macroeconomic and geopolitical shifts, technological advancements,
and may be a growing focus on sustainability.
2024 was a Year of Easing Inflation and Market Resilience
2024 was marked by a gradual decline in inflation, driven by central banks’ aggressive monetary tightening in 2023 and early 2024. However, regional disparities persisted:
- United States: Resilient consumer spending and steady wage growth kept inflation slightly above target.
- Eurozone: A sharper decline in inflation reflected weaker growth and energy price stabilization.
- China: Despite significant stimulus measures, inflation remained subdued.
Central Banks turned accommodative encouraged by the inflation trajectory:
- The Federal Reserve initiated rate cuts mid-2024, signaling confidence in managing inflation.
- European and UK central banks followed a similar trajectory but faced slower recovery prospects.
- Emerging markets capitalized on easing global financial conditions, reducing their interest rates.
Stock markets as well as fixed income markets had a strong year. Key narratives included a soft landing for the U.S. economy, contrasting with Europe’s stagnation, and increased investment in AI and green technologies.
- S&P 500: +25.02%, growth led by technology sectors
- Nasdaq: +30.15%, AI and innovation-led growth
- Euro Stoxx 50: +12.87%, supported by banking, industrials and energy recovery.
- Emerging Markets: +11.96%, with India and ASEAN leading the way.
- Global Bonds: +3.45%, rate cuts boosting fixed-income demand.
Investors balanced optimism from central bank easing against geopolitical uncertainties, including the Russia-Ukraine conflict, fightings in the Middle-East and U.S.-China trade tensions.
Elevated equity valuations and tight credit spreads posed allocation challenges in both fixed-income and equity markets.
2025, What Lies Ahead ?
Macro Trends
- United States: Robust growth underpinned by supply-side productivity and pro-growth policies.
- Europe: Modest improvement driven by rate cuts and recovering consumer sentiment.
- Emerging Markets: India and ASEAN are forecast to outperform, while China’s recovery remains uncertain.
Interest Rates and Structural Changes
Central banks are projected to continue easing, with the Fed likely to reach a neutral rate by late 2025. However, fiscal pressures and supply-side constraints could reintroduce inflationary pressures.
Fixed Income
Rate cuts are set to boost bond performance, presenting opportunities in short-maturity investment-grade bonds and emerging market debt.
Equities
Thematic and mid-cap equities in the U.S. and Europe are expected to outperform, particularly in AI and green energy sectors, which offer long-term growth potential.
Private Markets
Infrastructure and private debt are favored as stable income sources amid lingering uncertainty.
Currencies
The U.S. dollar is anticipated to weaken slightly as global growth converges, benefiting emerging market currencies like the Brazilian real.
Investment Themes
- Green technologies and AI remain central to innovation and growth.
- Sustainability is becoming an investment priority, with a strong push for net-zero transitions.
- Private markets, especially infrastructure and private debt, offer attractive opportunities.
Asset Class Sentiment: A Snapshot
| Asset Class | Sub-Asset Class | Positive | Neutral | Negative |
|---|---|---|---|---|
| Fixed Income | Short-Maturity Bonds | •••• | •• | • |
| Fixed Income | Emerging Markets Debt | ••••• | • | • |
| Equities | Mid-Caps | •••••• | •• | |
| Equities | AI and Green Energy | •••••• | • | |
| Private Markets | Infrastructure | ••••• | •• | • |
| Private Markets | Private Debt | •••• | ••• | •• |
| Currencies | US Dollar | ••• | ••• | ••• |
| Currencies | EM Currencies | •••• | •• | •• |
| Thematics | AI/Green Tech | ••••••• | • | |
| Emerging Markets | India/ASEAN | •••••• | • | |
| Sustainability | Net-Zero Transition | ••••••• | • |
Active Funds Selection at WSP
Once again last year was a period in active equity fund managers struggled to compete with passive investments such as ETFs, while active fixed income funds attracted strong interest from investors seeking to explore all opportunities to lock in high yields in an accommodative monetary policy framework implemented by central banks.
This resulted in outflows or, at best, a status quo for equity funds, whereas fixed income-related funds experienced robust inflows in various stratégies.
At the start of 2024, we undertook a significant reshaping and optimization of our master list of selected funds. This initiative was driven by our commitment to navigating a challenging environment of scarce alpha and ensuring we remain focused on fund managers who deliver genuine value to our clients.
As a result, we made bold adjustments, removing a record 30x funds and adding 18x carefully chosen new funds that align with our high standards for performance and value creation.
Top Picks from our Selection
We have highlighted a selection of funds from our list that we believe showcase some of the top portfolio managers well-positioned to capitalize on the anticipated market conditions in 2025. Naturally, our broader selection includes many other high-quality portfolio managers who are equally capable of delivering strong performance. We would be pleased to share additional names from our selection upon request.
Fixed income funds
For high quality rating portfolio our top picks would be:
- DNCA Alpha Bonds Fund for its nimble investment philosophy and for its ability to arbitrate within the yield curves and between yield curves of different countries. The fund aims to achieve positive returns regardless of market conditions (absolute return strategy). For that, the main sources of added value are a dynamic allocation using a wide range of bond strategies and an active duration management between [-3; +7].
- TCW Multi-Sector Fixed Income Fund will give you a relatively defensive exposure to the US aggregate bond market, according to macro-opportunities. The strategy focuses on high quality bonds with intermediate duration (between 2 and 4 years). The PMs continue to take profit from the relatively attractive ABS spread vs. IG corporate spread (which are also subject to a higher rate sensitivity), which remains a valid theme for us.
On the credit side, corporate spreads – particularly high yield spreads- remain historically tight. However, we believe there are some solid reasons supporting this dynamic. From a macroeconomic perspective, while recession and political risks are still present, they appear to be moderating, which is favorable for credit markets. Additionally, the high-yield market has undergone structural improvements, reaching its highest quality levels to date. Notably, BB-rated issuers – the highest-rated segment within the global high-yield bond index – now make up nearly 56% of the index, an all-time high. Furthermore, the distress ratio (the percentage of high-yield bonds trading with a spread over 1,000 basis points), which serves as a leading indicator of default rates, currently stands at just 4%. This points to a modest expected default rate of 1% to 1.5% for the coming year.
We believe that 2025 is likely to be a carry-driven environment, with limited potential for further spread tightening but also a low risk of significant spread widening. As such, high-yield strategies with shorter maturities should be prioritized. In the event of spread widening, carry should provide a buffer, creating an opportune moment to pivot toward strategies with longer maturities to take advantage of the spread duration.
- BNY Mellon Global Short-Dated High Yield Bond Fund has currently a similar carry than a traditional high yield strategy (around 7%). If spreads were to widen later, we would suggest switching into the Barings Global High Yield.
- Solitaire Global Bond Fund did very in 2024 (+16.0%) but it still has the highest yield among all our public bond funds. The portfolio is concentrated on EM and DM corporates with the most attractive Yield-to-Maturity / credit quality ratio (8,7% in USD for a BB+ rating).
- Vontobel TwentyFour Strategic Income Fund offers an active and flexible exposure to FI with an unconstrained investment philosophy. The strategy will offer exposure to relatively attractive niche FI assets such as subordinated financials or CLOs with limited duration exposure (around 4 years).
Equity funds
In 2025, equity market opportunities are likely to vary based on regional dynamics, sectoral trends, and dispersion in macroeconomic conditions, with a favourable bias towards US.
For European equities our top pick would be:
- Liontrust GF European Strategic Equity Fund. We believe this strategy is appropriate for navigating with flexibility within a European investment universe that remains highly uncertain. With a net long exposure higher than 80% the positioning remains constructive. The process focuses on companies with high cash flow generation and attractively valued. The fund has adopted a range of style biases over time, adding dynamism and allowing the portfolio to respond to the investment backdrop at any given time. It highly contributed to the consistency of returns since inception.
For Japanese Equities our top picks would be:
- SPARX Japan Fund. Loose monetary policy by the Bank of Japan and corporate governance reforms are still favourable to high-quality large caps, which is the main hunting ground of this strategy. The fund is managed by a very experienced investment team, managing a concentrated quality growth portfolio with low turnover but outstanding stock picking overtime.
For Emerging Markets Equities our top pick would be:
- Artemis SmartGARP Global EM Fund. The investment process is designed to deal with volatile market conditions combining quantitative screening with fundamental overlay. The fund displays an all-cap approach with a current value tilt which seems appropriate to take advantage of the dispersion within the opportunity set. Pessimism around EM stocks has reached extreme levels and it is now well reflected in prices. With low investor positioning, the risk reward is skewed towards a more favourable stance. Cyclical upturn should also presents opportunities.
WSP Selection of Funds
includes more than 105 best-in-class funds,
selected across 37 strategies in equity, fixed income, and alternative asset classes, including ESG/SRI compliant portfolios,
from a universe of more than 65 asset managers.
Our Watch List has still more than 80 funds of interest to us, either for their unique strategy or process.
Our Model Portfolios of active funds have delivered robust positive performances in line or above benchmarks
Unsurprisingly, the best relative performance came from our most defensive portfolio (Yield & Income), which benefited from our tactical positioning (duration and spread) coupled with the added value from active management. The portfolio outperformed its benchmark by +243bps. despite the negative contribution of active management by equity funds.
The Growth Portfolio posted a neutral to slightly negative relative performance (-35bps). Positive impacts from the bond market was offset by negative effects by active portfolios invested into equity markets. To notice, our selected US small cap strategy has performed particularly well in 2024.
Lastly, the Balanced Portfolio was exposed to the same negative and positive effects in equity and fixed income allocations as the two other portfolios, but in addition it was impacted by its exposure to alternative strategies (one-third of the portfolio) which, even though most of them performed positively well, tend to lag during favourable environments for the two other major asset classes. However, it should be noted that, since inception, the Balanced Portfolio’s annualized performance is similar to that of its benchmark (+6.2% vs. +6.1%), while its volatility is significantly lower (7.8% vs. 8.8%).
WSP Model Portfolios are built from a universe of selected funds
A Look Back and Forward: Driving Excellence Together in Portfolio Management
” A commitment to regulatory support and informed investment decisions”
As we reflect on the journey since our inception in 2016, our mission remains steadfast: to empower you, wealth and portfolio managers in identifying the best opportunities for your clients while navigating the evolving regulatory landscape in Switzerland, particularly with LSFin/LEFin requirements. From day one, we’ve been committed to providing independent, regulation-compliant analysis and research to support informed and confident investment decisions.
” The shift from operational focus to investment quality “
In recent years, supervisory authorities have primarily focused on operational risks and onboarding processes. As a result, the importance of demonstrating a well-documented, robust investment selection process has often been overlooked. While a few forward-thinking institutions embraced the need for advanced tools and methodologies early on, many relied on basic assessments that didn’t always account for risk considerations.
” Rising regulatory expectations and new opportunities “
This year marks a turning point. Regulatory authorities are now sharpening their focus on the quality of portfolio management among licensed wealth managers, including private banks. For us, this signals an opportunity to deepen our engagement with you, wealth managers and private bankers, assessing your current practices and offering tailored solutions to help you meet heightened regulatory expectations and deliver professional, well-grounded portfolio management services to your clients.
We’re proud of the strides we’ve made to support our customers’ success, including:
- Launching our online fund reports library to streamline access to key insights.
- Leveraging AI for due diligence to enhance the depth and accuracy of our analyses.
- Facilitating successful co-investment opportunities in private equity and private debt markets.
” Tailored solutions driving measurable impact “
Through tailored solutions in fund portfolio monitoring, risk management, and investment selection enhancement, we’ve helped our clients not only achieve compliance but also elevate their financial services. For many, this has meant significant improvements in their quaity of services, delivering measurable value to their clients.
“A shared vision for the future “
As we move forward into this new chapter, we thank you for your trust and collaboration. Together, let’s continue to set the standard for excellence in portfolio management.
Here’s to a successful and transformative year ahead!
We reiterate here again that we would like to bring to the community of investment professionals, institutional investors and private banks our deep knowledge and extensive experience with the aim to deliver cost effective due diligence, investments research, fund selection and portfolio consulting services in a true open architecture model.
In the current complex world, investment professionals will seek more and more to establish partnerships with knowledgeable, well experienced specialists able to understand and connect them to the world’s best solutions to grow their business successfully. We want to be one of those partners delivering with quality, value, and independence, innovative solutions.
Best Wishes
The WSP Management Team