April 10, 2025
Riding the wave: building resilience amid volatility
The threat of escalating tariffs is fast becoming a reality, sparking wild swings in the financial markets. How should investors approach the markets? Read more.
Latest asset allocation views
April 2025
Manulife Investment Management's Multi-Asset Solutions Team is the multimanager and strategic asset allocator behind the John Hancock target-date funds and model portfolios. Every quarter, the team compiles a 5-year and long-term (20-year-plus) analysis of expected asset class returns. This analysis covers all asset classes globally that the team analyzes on a regular basis although not all asset classes are represented within all strategies managed by the team.
Asset allocation views: adapting to market turbulence
Heightened market uncertainty in the United States puts the spotlight on opportunities in global markets
Key global themes
Uncertain trade policies, central bank policy divergence, and slowing global growth can present diversification opportunities.
Uncertainty is a key factor driving markets
- 2025 began with increased uncertainty for investors, with U.S. government policy evolving quickly. Trade policy has been in focus, with proposed tariffs on key trading partners such as China, Mexico, Canada, and potentially Europe adding a measure of market volatility.
- Traditionally, providing stability has been a key tenet of government policy to allow businesses, consumers, and investors to plan and ultimately grow the economy, but that’s not currently the case. In the near term, potentially increased prices might affect consumers and companies alike, with the burden likely divided between higher costs and narrower profit margins. A lack of certainty might also make economic forecasting more challenging, likely making it difficult for central banks to act decisively.
- Over the longer term, tariffs may shift production domestically and alter global supply chains. Moreover, uncertainty around what the policy will ultimately look like could dampen consumer and business confidence and potentially slow economic activity.
- Amid rising uncertainty, we think it’s important to remain diversified while also incorporating defensive exposure such as defensive equities, high-quality bonds, or real assets such as gold. However, much of the uncertainty may already have been priced in, and any clarity, especially on trade policy, could provide a tailwind to markets.
Global central banks are nearing the end of their easing cycle
- The U.S. Federal Reserve (Fed) has been cutting rates since their rate hiking cycle ended in 2024, but an uptick in uncertainty has left them in wait-and-see mode. Further cuts would likely require clarity around government policy unless weak growth data or persistently high inflation force the Fed’s hand. We expect that over the course of 2025, some combination of a growth scare, a cooling labor market, or a further downshift in inflationary pressure will allow the Fed to continue moving toward its neutral policy rate.
- Globally, central banks are at different stages in their cycles. The European Central Bank (ECB) and Canadian central bank are nearing the end of their easing cycles, but tariff-related deterioration in the economy could prompt more cuts. The Bank of England is navigating still-firm inflationary pressure and weak growth, which could lead to gradual easing. Japan continues to gradually increase interest rates to normalize its monetary policy. Further easing by the Fed could provide more room for emerging-market central banks to continue easing, but foreign trade exposure will determine the extent.
- Moderately divergent central bank policy presents opportunities for investors. Within the United States, we prefer assets such as shorter duration bonds and financials and have become more supportive of equities outside, particularly in Europe.
Balancing U.S. equities with global prospects
- In recent weeks, U.S. market dominance has come into question as signs of slowing economic growth, fading consumer and business confidence, and policy uncertainty have dampened investor sentiment. Valuations remain stretched relative to global peers. However, the U.S. economy continues to offer relative strength compared with other regions as corporate earnings growth remains robust. While we’re not negative on U.S. equities, given increased potential risks, we feel it’s prudent to find balance in equity allocations.
- Outside the United States, while tariffs remain a clear potential headwind, opportunities may exist. For European equities, value-oriented favorable economic factors, including more accommodative monetary policy from the ECB, supportive fiscal spending plans, and improving investor sentiment, could provide a boost. In China, DeepSeek AI advancements have driven a strong rally since the beginning of the year. Stabilization in economic activity could broaden the rally beyond the technology sector to more domestically focused stocks.
- Within the United States, we think investors should look to balance their large-cap growth exposure with more value-oriented exposure in sectors such as financials and healthcare, while higher dividend equities could also help navigate volatility.
Source: Manulife Investment Management, April 2025. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. No forecasts are guaranteed.
Active asset allocation views
Asset class overview
Asset class overview
- Looking out 12 months, we've moved our stance on equity relative to fixed income to neutral amid continued uncertainty. In the near term, we've moved some portfolios modestly underweight equity and will look to opportunistically add risk should further volatility present opportunities. Within equity, our preference has shifted toward defensive stocks; we're adopting a more balanced stance between U.S. equities and international markets as well. Global economic and earnings growth provide a supportive backdrop for risk assets, but we remain mindful of risks associated with stretched valuations and uncertain policy developments.
- Subdued growth expectations offer relative upside for fixed income; however, inflation risks from trade disruption, which could lead to elevated yields, present a headwind.
Broad equity
Broad equity
- We moved our view on U.S. equities to neutral, down from overweight, reflecting the rapidly changing political climate and the signs of a slowdown in U.S. economic growth. However, there continue to be attractive opportunities and we prefer certain sectors, including financials, healthcare, and utilities.
- We remain neutral toward Canadian equities. In response to U.S. tariff tensions, businesses are likely to reassess their capital expenditures and production supply chains due to elevated risks of disruption and potential shifts in consumer preferences. However, supportive monetary policy could offer stability amid a muted growth backdrop.
- We upgraded our stance on developed international markets outside North America from underweight to neutral. Although there are signs of improving growth and benefits from positive fiscal policies, ongoing structural challenges persist, which is why we believe it’s prudent to stay neutral for now. We’re closely watching to assess whether recent outperformance suggests a sustained positive shift in the economic landscape, which could prompt a more optimistic outlook.
- While the valuation landscape for emerging-market equities is appealing, we maintain a neutral stance due to uncertainties in trade policies and potential slowdowns in global trade. However, we see opportunities emerging in Asian markets, particularly onshore Chinese equities, driven by attractive valuations and supportive government measures.
Regional/sector-specific equity
Regional/sector-specific equity
- We have a neutral stance on U.S. small- and mid-cap equities driven by a slowdown in economic growth and the lower-quality nature relative to large cap. Within these equities, we prefer higher-quality and more profitable mid caps to small caps. Valuations remain attractive and are supportive of the neutral positioning.
- We upgraded European equities from underweight to neutral in our portfolios in January, driven by an expected increase in fiscal spending, a potential cease-fire in Ukraine, a pickup in earnings revisions, and improving sentiment. That said, we believe caution is warranted amid ongoing uncertainties. Short-term opportunities may arise if fiscal initiatives and manufacturing improvements continue, while long-term risks persist from structural challenges and trade tensions.
- While we remain neutral on Asian equities overall due to ongoing trade and tariff uncertainties, we see opportunities within the region. Supply chain restructuring continues to create opportunities for select domestically focused markets, including Mainland China. While offshore equities have seen significant recent outperformance, we believe this may be ahead of actual earnings and macro improvements. Therefore, attractive valuations against offshore equities and improving earnings growth expectations, combined with anticipated government stimulus, could offer appealing short-term tactical opportunities in onshore China equities. Due to this, we’ve changed our stance on Mainland China to overweight, up from neutral.
- We’ve upgraded our view on broad commodities driven by favorable views for gold, copper, and, in the near term, oil. We expect demand for gold and copper to remain high, while weak fundamentals have already been priced into oil spot prices, providing upside opportunity.
Fixed income
Fixed income
- We remain neutral on U.S. investment grade overall, and within the asset class, we prefer U.S. investment-grade corporates over U.S. Treasuries. From a duration perspective, we prefer the belly of the curve while avoiding longer duration assets.
- We continue to favor leveraged loans over U.S. high yield as they offer more attractive spread and yield carry, providing a better risk/reward balance. While recent risk-off sentiment has widened spreads, high yield spreads remain relatively tight.
- Within Asia, we prefer high-yield credits over investment-grade credits due to more attractive valuations with favorable high-yield spreads compared against historical averages. Default rates are likely to normalize post years of credit stress. The recent rally in Chinese equities has been a boost to higher beta China credits.
- We maintain an overweight stance in emerging-market debt, although given tight spreads, we expect most of the return to be driven by favorable yields. The asset class offers strong credit fundamentals relative to history, and a weakening U.S. dollar could provide a tailwind. Trade uncertainties are a risk to monitor.
Private markets
Private markets
- We remain neutral on real estate, but that view has been shifting more positive, as evidenced by our upgrading of U.S. real estate from underweight to neutral back in 2024. A decline in interest rates has provided a tailwind for valuations and lowered borrowing costs, which should be supportive of a recovery in real estate markets. Rising rents and increasing transaction volumes are signs of improving sentiment. However, sticky inflation, government policy uncertainty, and structural shifts in office markets remain key risks.
- We remain optimistic about global infrastructure, particularly given strong secular trends in digitization and decarbonization. However, geopolitical tensions and supply chain constraints in power infrastructure development present challenges.
- Private credit remains attractive as banks continue to restrict lending. While competition in the space is increasing, the ability to secure higher yields in a still-restrictive credit environment remains compelling. Despite a recent decline in Secured Overnight Financing Rates, all-in yields remain in the double digits.
- We remain underweight in private equity due to ongoing challenges in the exit environment, compressed multiples, and higher financing costs. We’ll continue to monitor for a recovery in merger-and-acquisition activity in 2025.
Asset class focus
Europe: a favorable policy mix
A potential increase in defense spending and accommodative monetary policy makes Europe an intriguing opportunity outside the United States.
Heading into 2025, the consensus on European macro and assets was decidedly bearish. While we’ve been relatively less pessimistic, we haven’t been bullish about the region either. Tariffs remain a clear potential headwind, but over the past few months, there have been a series of constructive macro developments that suggest a more favorable policy mix ahead, which should support growth. This led us to upgrade our view from underweight to neutral in January.
These include the EU Commission’s ReArm Europe Plan, which is expected to increase defense spending across Europe at a time in which industrial and manufacturing activity has been weak. Separately, in Germany, a new leadership coalition is determined to push growth and economic reform, highlighted by a €500 billion special purpose vehicle, potential debt break reforms, and a more pro-business approach. We’d expect all of these to put upward pressure on our growth outlook.
After another rate cut from the ECB in March, from our perspective, monetary policy in the eurozone is more accommodative than peers such as the United States or the United Kingdom where neutral is still a ways away. The ECB’s 150 basis points of easing over the past nine months has and should continue to support credit conditions, which could be a tailwind to growth. Looking ahead, our base case is for two more cuts from the ECB this year, to a neutral rate of 2%.
A shifting macro narrative in Europe has been a major tailwind for European assets in 2025, including the euro. European equities have strongly outpaced the S&P 500 Index, leading to a material shift in flows. While we don’t form our macro views on flow dynamics, the move has been material; we think this momentum is encouraging global investors to consider ex-U.S. assets. While we see positive trends, we must wait and see the longer-term impact of policy changes on earnings.
EU’s defense spending push
Asset class returns
Asset class returns comprise the Multi-Asset Solutions Team’s expectations of how different asset classes may perform over a 5- and 20-year-plus time horizon.
Expected returns
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of January 31, 2025. Not all asset classes with forecasts are represented in every portfolio managed by the Multi-Asset Solutions Team. Data shown in the tables reflects the most recent data available. Asset class forecasts comprise inputs driven by proprietary Manulife Investment Management research and are not meant as predictions for any particular index, mutual fund, or investment vehicle. To initiate the investment process, the investment team formulates 5-year and 20-year-plus risk/return expectations, developed through a variety of quantitative modeling techniques and complemented with qualitative and fundamental insight. Assumptions are then adjusted for a number of factors. REITs refers to real estate investment trusts. USD, CAD, and CNY refer to the U.S. dollar, the Canadian dollar, and the Chinese yuan, respectively. This chart contains forecasts reflecting potential future events and is only as current as of the date indicated. There is no assurance that such events will occur, and the actual asset class return may be significantly different from that shown here. This material should not be viewed as a recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy. It is not possible to invest directly in an index. Past performance does not guarantee future results.
Multi-Asset Solutions Team
The global macro strategy team provides global economic forecasts and research for the firm and is housed within the Multi-Asset Solutions Team (MAST). The team’s analysis helps inform MAST’s positioning decisions as well as the investment views of other investment teams within Manulife Investment Management.
Nathan W. Thooft, CFA
CIO, Multi-Asset Solutions Team, Global Equities
Robert E. Sykes, CFA
Senior Portfolio Manager, Head of Asset Allocation, U.S., Multi-Asset Solutions Team
James Robertson, CIM
Senior Portfolio Manager, Head of Multi-Asset Solutions, Canada, Head of Tactical Asset Allocation, Multi-Asset Solutions Team
Luke Browne
Senior Portfolio Manager, Global Head, Multi-Asset Solutions Team, Head of Multi-Asset Solutions, Asia
Geoffrey Kelley, CFA
Senior Portfolio Manager, Global Head, Systematic Equity Solutions, Multi-Asset Solutions Team
Benjamin W. Forssell, CFA
Client Portfolio Manager, Global Multi-Asset, Multi-Asset Solutions Team
Eric Menzer, CFA, CAIA, AIF
Senior Portfolio Manager, Global Head of OCIO and Fiduciary Solutions, Multi-Asset Solutions Team
Related viewpoints
March 11, 2025
U.S. stocks falter, overseas stocks rally: start of a tectonic shift?
Last week's outperformance by non-U.S. stocks has many investors wondering if a new market trend has begun.
Important disclosures
Equities
U.S. large cap is represented by the S&P 500 Index, which tracks the performance of 500 of the largest publicly traded companies in the United States. U.S. small cap is represented by the S&P Small Cap 600 Index, which tracks the performance of 600 small-cap companies in the United States. Canadian large cap is represented by the S&P/TSX 60 Index, tracks the performance of the large-cap segment of the Canadian equity market on the Toronto Stock Exchange (TSX). Non-U.S. developed is represented by the MSCI Europe, Australasia, and Far East (EAFE) Index, which tracks the performance of large- and mid-cap stocks of companies in those regions. Emerging markets is represented by the MSCI Emerging Markets (EM) Index, which tracks the performance of large- and mid-cap EM stocks. United Kingdom is represented by the MSCI United Kingdom (U.K.) Index, which tracks the performance of the large- and mid-cap segments of the U.K. market. Japan is represented by the MSCI Japan Index, which tracks the performance of the large- and mid-cap segments of the Japanese market. Emerging Latin America is represented by the MSCI Emerging Markets (EM) Latin America Index tracks the performance of large- and mid-cap stocks in Latin America. China is represented by the MSCI China Index, which tracks the performance of large- and mid-cap stocks in China. Hong Kong is represented by the MSCI Hong Kong Index, which tracks the performance of large- and mid-cap stocks in Hong Kong. AC APAC ex-Japan is represented by the MSCI All Country (AC) Asia Pacific ex Japan Index, which tracks the performance of large- and mid-cap stocks across developed and emerging markets in the Asia-Pacific region, excluding Japan. Global REITs are represented by the FTSE EPRA Nareit Developed Index, which tracks the performance of listed real estate companies and real estate investment trusts in developed markets on a free float-adjusted basis. Global listed infrastructure is represented by Dow Jones Brookfield Global Infrastructure Index, which tracks the performance of pure-play infrastructure companies globally and covers all sectors of the infrastructure market.
Fixed income
U.S. investment grade is represented by the Bloomberg U.S. Aggregate Bond Index, which tracks the performance of U.S. investment- grade bonds in government, asset-backed, and corporate debt markets. Canadian investment grade is represented by the FTSE Canada Universe Bond Index, which tracks the performance of marketable government and corporate bonds outstanding in the Canadian market. Global investment grade is represented by the Bloomberg Global Aggregate Bond Index, which tracks the performance of global investment-grade debt in fixed-rate treasury, government-related, corporate, and securitized bond markets. U.S. high yield is represented by the Intercontinental Exchange (ICE) Bank of America (BofA) U.S. High Yield Index, which tracks the performance of below-investment-grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market and includes issues with a credit rating of BBB or below. U.S. leveraged loans is represented by the J.P. Morgan U.S. Liquid Index (JULI), which tracks the performance of a specific corporate bond or sector against the subset of the most liquid bonds in the investment-grade market. Emerging markets debt is represented by a combination of the J.P. Morgan EMBI Global Diversified Index, which tracks the performance of U.S. dollar-denominated Brady bonds, Eurobonds, and traded loans issued by sovereign and quasisovereign entities, capping exposure to countries with larger amounts of outstanding debt; the J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI), which tracks the performance of U.S. dollar-denominated debt issued by EM corporations; the J.P. Morgan Government Bond Index-Emerging Market (GBI-EM) Broad Index, which tracks the performance of local currency EM government bonds. Asia credit high yield is represented by the J.P. Morgan Asia Credit Index, which tracks total returns for actively traded U.S. dollar-denominated debt instruments in the Asia ex-Japan region. Asia investment grade is represented by the J.P. Morgan Asia Credit Index Investment Grade Corporate Index, which tracks the credit spreads of Asian investment-grade (IG) credit.
Private assets
U.S. real estate is represented by the MSCI U.S. Quarterly Property Index (Unfrozen), which tracks unlevered total returns of directly held property investments in the United States from one valuation to the next. European real estate is represented the MSCI Europe Quarterly Property Index (Unfrozen), which tracks unlevered total returns of directly held property investments in Europe from one valuation to the next. Private infrastructure is represented by the Burgiss Global Infrastructure Funds Index, which is calculated from the Burgiss Manager Index, one of the most comprehensive datasets of private capital funds, funds of funds, and their holdings. Farmland is represented by the NCREIF Farmland Index, which tracks the performance of farmland properties held by NCREIF members. Timberland is represented by the NCREIF Timberland Index, which tracks the performance of timberland properties held by NCREIF members. Private equity is represented by the State Street Private Equity Index (SSPEI), which tracks the performance of high-quality primary PE in a timely manner. Buyouts are represented by the State Street Private Equity (SSPE) Buyout Index, which is a subset of the SSPEI and is limited to the PE funds categorized as buyout. Venture capital is represented by the State Street Private Equity (SSPE) Venture Capital Index, which is a subset of the SSPEI and is limited to the PE funds categorized as venture capital. Private credit is represented by the State Street Private Equity (SSPE) Private Credit Index, which is a subset of the SSPEI and is limited to the PE funds categorized as private credit.
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