Daniel Nilsson

In the UK, the reaction to the hotly-anticipated November budget was more considered than the majority of political comment – with markets responding positively to messages of fiscal prudence. However, global markets closed the year with elevated volatility and uncertainty that defined much of 2025, with the S&P 500 posting a -1.5% return for December. Whilst valuations appear rich, macro indicators are favourable compared to this time last year and investor sentiment appears resilient, particularly amidst ongoing geopolitical developments.

We continue to remain underweight equities versus peers – a stance we believe offers a more favourable risk-adjusted return in an environment where valuations demand caution. The aim is to capture selective upside, while maintaining resilience in what remains a finely balanced global outlook.

Credit market spreads are at near historically tight levels, with ongoing compression driven by strong technical demand and a soft-landing scenario in the global economy. We think the compression of spreads has the most direct consequences for high yield assets and with spreads very tight there is little room for further tightening, leaving limited upside and increasing vulnerability to widening if economic data disappoints. As such, we are reassessing the relative value between high yield and investment grade rated assets.

Looking forward, we maintain our conviction in global small cap equities and we remain overweight EM, where we are positioned for strong global growth and the Fed easing further. We see active fixed income as essential in this current environment and we continue to believe asset-backed securities provide an attractive yield enhancer and portfolio diversifier with minimal interest rate risk.

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