Schroders Suggests Looking Beyond Recent Winners for Return Opportunities in 2025

On Thursday 21 November 2024, Schroders held its Crystal Ball 2025 Investment Outlook Webinar.

Schroders is a British asset manager with offices around the world, including Schroder Investment Management (Europe) SA in Senningerberg, Luxembourg.

Schroders described 2024 as a year defined by significant political and macroeconomic uncertainty, with certain challenges expected to persist in 2025. Nevertheless, the speakers at this online event presented a rather optimistic view. Johanna Kyrklund, Schroders Group Chief Investment Officer (CIO), and Nils Rode, CIO for Private Markets at Schroders Capital, identified what they believed to be encouraging investment opportunities on offer for the coming year.

"We think there are return opportunities to be had, even after the gains of 2024. But investors may need to look beyond recent winners," said Johanna Kyrklund. "Equity investors have grown used to a small number of large companies powering the stock market’s gains. But that pattern was already changing during 2024 and we think there is potential for markets to broaden out further."

Looking at the topic from a global investment perspective, she described 2024 as a "strong year" for markets. She said they did not expect a "hard landing" in the United States, which recently held elections and where the labour market remains resilient. Instead, potential further gains are to be explored in 2025. She also presented various risk scenarios.

"Different sectors and different regions may start to appear more attractive. An active approach will be needed to avoid overexposure to previous top performers, and to capture new return opportunities as they emerge," added Ms Kyrklund.

She continued: "Equity market valuations do not look expensive outside the US. And an environment of positive growth and lower interest rates should benefit corporate earnings, which is what drives shares over the long term."

The speaker also looked at the markets in 2025, noting that equities remain the main source of returns. She added that yields remain "very attractive" in bonds and that the diversification of commodities can improve one's portfolio resilience. She advocated diversification and a global approach in general.

Nils Rode subsequently presented a positive outlook for private markets for 2025. "We anticipate 2025 to be an attractive environment for new private market investments, offering potential for both return and income generation as several cycles align favourably. These include the private market fundraising, technological disruption and economic cycles," he said. "Simultaneously, considering ongoing geopolitical tensions and the elevated risks of escalating conflicts, the role of private markets in providing portfolio resilience remains crucial. Meanwhile, and despite political changes in the US, we expect the trend towards decarbonisation to persist, with private market investments playing a significant role in driving the global energy transition."

He also cited three reasons for private market resilience: structural, fundamental and technical reasons, and looked at the non-financial impact generated through private investments, for example renewables driving decarbonisation.

Moreover, Mr Rode pointed to the small/mid-buyout and venture capital space as being the most attractive in private equity, with real estate also expected to enjoy a good vintage year, while the private debt premium remains attractive across several strategies.

The second part of this live virtual event was a Q&A session, during which audience members asked the spokespeople various questions.

The webinar concluded with the speakers summing up their recommendations for 2025, which included taking a global approach to exploit this current period of disruption (on the equity side) and exploiting regional divergences through currency and bonds. Another tip was to invest continuously over different vintage years. As previously mentioned, next year is expected to be an especially attractive year to invest. They added that it was important to remain well diversified across strategies and regions.