The second half of 2025 is about to test the resilience of investment portfolios. After a volatile start to the year marked by tariff shocks, uneven growth and policy uncertainty, leading asset managers are calling time on the old investment playbook.
HSBC, Fidelity and Goldman Sachs all foresee an investment environment defined by fragmentation, fading US exceptionalism and the growing need to diversify.
For Xavier Baraton, global chief investment officer at HSBC, investment conditions are changing “in fundamental ways”, with volatility becoming “a defining feature of the current macro regime”.
“We are moving from a world of unipolar economic leadership to an environment where no single nation holds sway over the global order. Investors must be prepared to adapt tactically and lean into diversification to drive returns and manage risk,” he said.
Fidelity International echoed that theme and Henk-Jan Rikkerink, global head of multi-asset, real estate and systematic, urged investors to “actively rewire their allocations in line with structural moves”, as traditional safe havens such as US equities and treasuries “can no longer shoulder global portfolios alone”.
A combination of policy unpredictability, high valuations, weakening growth and shifting capital flows is challenging the longstanding assumption that US assets offer both safety and superior returns.
Fidelity expects US GDP growth to fall to around 1% this year, as tariffs push inflation up to an estimated 3.5%. This stagflationary risk, where prices rise even as growth slows, is seen as a particular threat to the appeal of US equities and treasuries.
“The first six months of this year have shown us how quickly narratives can change,” said Rikkerink, who added that the US dollar’s role as a global hedge is also starting to erode.
Goldman Sachs and Fidelity highlighted rising concerns around the US fiscal position and, although the region still offers depth and innovation (particularly in artificial intelligence and technology), the case for broadening out is growing stronger.
Regional shifts
One of the main regions that deserves attention, according to all three managers, is Europe (the region was already highlighted as an unintended beneficiary of US policies).
Goldman Sachs pointed to the increased fund flows into European equities in the first half of the year, which were driven by more than just US pessimism.
Performance of indices in the past six months
Source: Goldman Sachs, Bloomberg.
Positive drivers include stronger fiscal policy, especially in defence and infrastructure, as well as better valuations and lower concentration risk. Information asymmetry in European markets – due to lower analyst coverage and slower news diffusion – was also seen as a potential advantage for active managers.
However, as the US “catches down” to other developed markets, “the most dynamic opportunities are increasingly found in Asia and emerging markets”, according to HSBC’s Baraton.
In particular, China’s advance in artificial intelligence was highlighted as one of the key forces propelling the rest of the region (indeed, emerging markets managers have been waking up to the opportunity in China, as Trustnet recently reported).
But it’s not just equities. Fidelity noted that hard and local currency emerging market bonds (particularly in Brazil and Mexico) offer high yields and “have become more attractive as the dollar depreciates”. A number of managers, including Fidelity’s Mike Riddell, have been vocal about this opportunity since as early as April.
Asset class adjustments
Beyond geographies, fund managers are rethinking the asset classes traditionally used for diversification. HSBC and Fidelity both flagged the diminishing appeal of US treasuries as a hedge, citing high issuance, rate volatility and fiscal concerns. The response has been a turn toward European duration, higher-quality corporate credit and hard currency emerging market debt.
Alternatives are also moving closer to the core of portfolio construction. HSBC recommends infrastructure and private credit as sources of stable income and diversification. Goldman Sachs believes private markets will continue to benefit from investor demand and sees further opportunity in secondary market innovations that provide liquidity and rebalancing flexibility. Hedge funds are also back in favour as potential beneficiaries of volatility and uncorrelated alpha.
Private assets including real estate offer further diversification potential, according to Fidelity, as Rikkerink singled out European real estate as one underappreciated option.
“Investors may find alternative opportunities in real estate, especially through higher-income-yielding European markets which can protect against inflation and through the value-add of 'greening' previously unsustainable buildings,” he said.
A less central US
While agreeing US centrality in global portfolios is no longer guaranteed, all three houses are all still invested in the US, particularly in high-quality businesses with strong margins and balance sheets.
“There is no wholesale rejection of US assets,” the Goldman Sachs outlook read. But “improving prospects in other regions, coupled with concerns about US trade policy, fiscal trajectory and institutional integrity, are prompting investors to diversify”.
As Fidelity noted, decades of rising exposure to US assets have created portfolio concentrations that may no longer be justified. Rewiring those allocations – whether through geography, asset class or currency – has now become a priority.
“Diversification has always been important but now it is imperative for portfolios that have become increasingly reliant on US assets over the past 25 years,” Rikkerink concluded.
“Capital outflows and a dollar depreciation mean index weightings will look very different in the future. Those who get ahead of these structural trends may stand to benefit as portfolios rebalance.”