Julian McManus: When we look ahead to the outlook for global equities in 2025, looking outside the U.S., first of all, I think it’s going to be less dictated by what happens to rates in the sense that I think the the default world view of markets until just the last month or so had been an expectation for rates to fall in a synchronized way—excluding Japan, of course, which is on its own rate cycle.

I think with a Trump administration coming in, who’s likely to introduce some inflationary policies, those rate expectations are now being rethought and readdressed. So, I think, instead, it’s probably more helpful to look for returns on a more bottom-up basis, and that plays to our strengths, which of course is looking for free-cash-flow growth that’s undervalued by the market.

And we find that in a number of areas. So, there’s opportunity in defense. As the U.S. pivots away from Europe and NATO and more to the Pacific, European governments are going to have to step up and pay for their own defense. And so, you’re going to see, I think in aggregate, much more money spent as countries rebuild their security and their defense.

I think Asia is going to be a fascinating case in diverging fortunes, and you’ll have “the haves” and “the have-nots.” I think China is definitely going to be in a tougher place as the U.S. gets tougher around sanctions and trade deficits and trade imbalances. At the same time, I think India is very much on the ascendant. We’re finding reasons for long-term growth that’s going to sustain there for a long period of time.

And then of course, Japan, which will be more of an idiosyncratic story. There’s a lot of value here and there, but you have to be selective. You have to be able to find the value on a bottom-up basis, where the hidden value is often lower down in the balance sheet, capital structures getting more efficient, and companies getting a little more motivated around profitability, as well.

Also see opportunities for…on the valuation side. In many cases in, for example, Europe, you do have lower multiples, but you also have lower growth rates. And we’re by no means arguing for a closing of P/E [price-to-earnings] multiples between Europe and the U.S. to parity. I don’t think that’s realistic. That said, we find that there are some quite attractive, reasonably fast-growing companies in Europe and in, for example, Asia and Japan.

On the flipside, in the U.S., we also see pockets of probably stretched valuations. And so, you could see, at the margin, the U.S. get cheaper—or, I should say multiples correct and compress—and some pockets of Europe and Asia actually increase.

I think, unsurprisingly, the main risks are volatility around geopolitics. We are seeing play out, in real time, a series of appointments by the incoming [Trump] administration set to take over in January that point to a quite a hardline hawkish policy, particularly as it relates to foreign policy and trade. And so, I think the one thing that we can predict is that risk is back, and volatility is rising. And we just have to make sure that the companies we’re invested in are resilient to that volatility and stay focused on free cash flow.

Free cash flow (FCF) yield is a financial ratio that measures how much cash flow a company has in case of its liquidation or other obligations by comparing the free cash flow per share with the market price per share and indicates the level of cash flow the company will earn against its share market value.

Idiosyncratic risks are factors that are specific to a particular company and have little or no correlation with market risk.

Price-to-Earnings (P/E) Ratio measures share price compared to earnings per share for a stock or stocks in a portfolio.

Monetary Policy refers to the policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money.

Volatility measures risk using the dispersion of returns for a given investment.