Diversification gains prominence in significant investment shift, report reveals
The current investment landscape requires some strategic thinking including diversification and exploring alternative asset classes and international markets.
According to the latest Global Wealth Research report for July 2025, from FTSE Russell, there is a significant shift with a greater role for fixed income, alternatives, and international and emerging markets.
The report, authored by Indrani De and Zhaoyi Yang, identifies six key investment themes, including increased volatility, the growing importance of non-US markets, and enhanced diversification opportunities.
Macroeconomic conditions in early to mid-2025 have been characterized by elevated uncertainty and divergent paths for major economies. Policy uncertainty and tariff impacts have led to high volatility, with the US dollar and Treasuries failing to act as traditional safe havens during this period of stress, a deviation from their behavior during events like the Global Financial Crisis (GFC) or Covid-19.
This unusual performance is partly due to the combination of a US debt downgrade and tariffs.
Year-to-date, fixed income returns have been comparable to equities, with conventional government bonds returning 7.3% and Investment Grade corporate bonds gaining 8%.
Alternatives, particularly infrastructure, delivered returns between 6.9% and 8.9%. Over a one-year period, infrastructure (17.6%) even outperformed broad equity (16.9%), while also providing a high income yield of 3.4%.
Gold, high-yield bonds, and infrastructure offered risk-adjusted returns that were either higher than or comparable to equities over the past year.
Non-US markets are showing increased attractiveness and year-to-date developed Europe (25.1%), developed Asia Pacific excluding Japan (20.1%), and the UK (18.6%) were the top equity performers, significantly outperforming the US (6.6%).
The report highlights that valuations in non-US equity and corporate bond markets are generally lower than in the US, while non-US sovereign bonds may benefit from a duration tailwind in a falling interest rate environment, as the US Fed has lagged other major central banks in easing, and US Treasuries typically have shorter durations.
Emerging markets equities appear undervalued relative to economic growth, with IMF forecasts predicting EMs will increasingly outgrow developed markets post-2026, and these equities have recently become better diversifiers for portfolios, with their correlations to major equity and fixed income assets dropping significantly over the past year.
