Multi-asset solutions team

Our latest asset allocation views

April 2025

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 forces 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

  • 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 provides 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.
As of March 31, 2025, from a broad asset class overview perspective, Manulife Investment Management’s Multi-Asset Solutions Team has a neutral stance on equities and fixed income.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of March 31, 2025.

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.
As of March 31, 2025, Manulife Investment Management’s Multi-Asset Solutions Team has moved its view on U.S. equities to neutral from overweight. The team has changed its stance on non-North American developed-market equities to neutral from underweight. It has a neutral stance on Canada and emerging-market equities.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of March 31, 2025. NA refers to North America.

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.
Taking a regional and sector-specific view, as of March 31, 2025, Manulife Investment Management’s Multi-Asset Solutions Team’s view on U.S. small and mid-cap equities is neutral. It has shifted its view on Mainland China, Hong Kong and commodities equities from neutral to overweight. The team has a neutral stance on equities in the U.K., Japan, non-Japan Asia-Pacific equities and real estate investment trusts. The team remains underweight emerging Latin America equities and overweight infrastructure equities.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of March 31, 2025.

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 on 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.
Within fixed income, Manulife Investment Management’s Multi-Asset Solutions Team has an overweight stance on emerging-market debt as of March 31, 2025. The team is neutral on U.S. investment grade, Canadian investment grade, Asian investment grade, Asian high-yield debt, and leveraged loans. It's underweight in U.S. high-yield debt.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of March 31, 2025.

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.
Within private markets, Manulife Investment Management’s Multi-Asset Solutions Team has an overweight stance to global infrastructure and private credit as of March 31, 2025. The team is neutral on U.S. real estate, Canadian real estate, European real estate, timberland, and farmland, and has an underweight stance to private equity.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of March 31, 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

This bar chart illustrates the European Union's defense expenditure from 2014 to 2024, with the target for 2030. The left axis shows the expenditure in billions of euros, which increased from €147 billion in 2014 to €326 billion in 2024. The right axis represents defense expenditure as a percentage of EU GDP, rising from about 1.2% in 2014 to 1.8% in 2024. The target for 2030 is set at €480 billion and 3% of GDP. This indicates a significant planned increase in defense spending both in absolute terms and as a share of GDP.
Source: European Council, Bloomberg, Manulife Investment Management, as of March 7, 2025. LHS refers to left-hand side. RHS refers to right-hand side.

Asset class returns

Asset class returns comprise the Multi-Asset Solutions Team’s expectations of how different asset classes may perform over a 5-year and long-term (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. 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 than 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 into an index. Past performance does not guarantee future results.

Multi-Asset Solutions Team

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

This is a professional head shot image of Robertson James.

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 Team, Multi-Asset Solutions Team

Eric Menzer, CFA, CAIA, AIF

Senior Portfolio Manager and Global Head of OCIO and Fiduciary Solutions, Multi-Asset Solutions Team


Related viewpoints

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.
Read more

Q1 2025 review: analyzing the impact of tariffs and geopolitical dynamics

Tariffs and rising trade tensions injected much uncertainty in the first three months of 2025. Our capital markets strategists examine what this could mean for investors in the months ahead.
Read more
Important disclosures

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.  These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here.  All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice.  This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.

Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.

 

This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at manulifeim.com/institutional

Australia: Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. Mainland China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad  200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.

Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license

4365780