Four interesting asset classes in 2025

As we look ahead to 2025, certain asset classes could play an important role in investment portfolios. These include US equities, UK equities and gilts (also known as UK government bonds), and gold. 

Here we unpack why we believe these investments could be important components of your portfolio and also highlight the potential risks you should be aware of.   

While we’ve identified four interesting asset classes to watch in 2025, it’s important to remember that investing in any asset carries risks and you may get back less than you initially invested.

We’ve referred to the performance of US equities as ‘exceptional’. This is because the US stock market has consistently outperformed its global peers for more than a decade. But remember, past performance isn’t a guide to the future. The main reasons for this exceptionalism and our continued positive outlook on US equities include: 

• Strong economic growth: The underlying US economy has grown faster than any other developed market economy since the Global Financial Crisis (GFC) in 2008¹. This has been driven, in part, by consumer confidence and healthy household incomes
• Solid company earnings: Since the GFC, US listed companies have, on average, increased their earnings per share (EPS) by around 6% per year more than non-US equities¹ 

But will US equities maintain their dominance over international equities? We believe this is likely to continue but there are risks too. 

This means that if any of these companies experience downturns (and some have had recent wobbles) chances are the other Magnificent Seven companies won’t compensate and lift up the overall performance of your portfolio because they are exposed to the same sector. It’s important to have a balanced portfolio and this is why we highlight the benefits of diversification away from the Magnificent Seven. 

What could put some investors off in the short term is that the US market is more expensive than other developed stock markets (non-US equities) based on price multiples. However, this is partly due to the strong performance of the Magnificent Seven, so there are more potential growth opportunities in the US if companies that are not related to the same sector as the Magnificent Seven start to perform well. Investing in the US could be justified if President Donald Trump’s policies of deregulation, tax cuts and tariffs boost local manufacturing. If these policies grow the economy it could result in a broadening out to other sectors, which again backs the argument for diversification. 

Since the GFC in 2008 the UK stock market has been largely out of favour with investors, but we believe that UK equities could warrant a place in portfolios for the following reasons:

• Bargain opportunities: The UK stock market has had a tumultuous time, but it has recovered from the lows following Liz Truss’s mini Budget, which wasn’t well received by the market. Despite some recovery, the UK remains cheap relative to its peers – particularly the US
• More potential income: The UK market (MSCI UK) currently offers a dividend yield of 3.8% versus 1.8% for global equities (MSCI All Countries World Index)¹. However, current or past yield figures provided should not be considered a reliable indicator of future performance
• The UK could profit from stronger global growth: Most of the large UK listed businesses operate internationally, which means most of their revenue (two thirds) is sourced from abroad and therefore not linked or too affected by what goes on locally¹

Whilst there are concerns over the outlook for the UK economy and fears the UK could end up in a period of stagflation (inflation and slow growth), it is important to remember that the UK stock market is more internationally focused and less reliant on the local economy.

Gilts are issued by the government to finance public spending and manage national debt, but their yields have risen (and prices have fallen) recently because investors are concerned about the government’s tax and borrowing plans and want a higher income in return. While there has been a recent sell-off the UK is not the only market to see investors selling bonds in favour of other assets. 

Government bonds could, in our opinion, still be a good addition to portfolios because they:

• Offer diversification – bonds generally have a low correlation to other asset classes, like equities
• Provide an income, especially now that the price of government bonds has fallen (pushing yields higher). Gilt yields (which represent the cost of capital the markets set for the government to borrow money) have surged to the highest levels since the GFC. At the time of writing, the benchmark for 10-year gilt yields is currently at 4.66% from 3.80% last year²
• Are considered a ‘safe haven’. All investments carry risks, but gilts are generally considered less risky than equities, for example, because the likelihood of the UK defaulting on its debt obligations is slim

In 2024, gold rose by nearly 27% and is up nearly 800% since 2000³. But remember, past performance is not a guide to future returns. This shiny metal’s value has risen due to demand from central banks and private investors seeking alternatives to the US dollar. This shift was driven initially by Russia’s invasion of Ukraine and subsequent sanctions. Countries like China have subsequently increased their gold reserves to reduce US dollar exposure. 

There are advantages to including gold in a portfolio: 

• Gold can offer protection against geopolitical uncertainty as it’s not tied to any single country’s economy  
• It also offers a hedge against inflation as it tends to maintain its value over time

There are downsides to investing in gold too. One of its biggest disadvantages is that it doesn’t yield an income, nor produce anything, so there’s an opportunity cost to you as you could’ve obtained an income (or return) from investing elsewhere – such as from bonds. The price of gold can also be volatile and it’s less liquid meaning it cannot be easily or quickly converted into cash. 

For now, we have a positive long-term outlook on gold as it could still benefit further from continued central bank investment.

If you have any questions about these four investment options and how they could play a role in your portfolio, please speak to your usual Evelyn Partners contact.  

1. LSEG Datastream/Evelyn Partners, January 2025
2. Tradingeconomics.com, January 2025
3. MSN.com; Gold price soars with 27% gain in a year…but will it continue its stellar return in 2025?, January 2025