The world is changing – and changing fast. With this rapid pace of change comes increased complexity for investors. Gone are the days of a rising tide lifting all boats – and of relying on passive index allocations to provide positive returns. We recognize it, and our clients recognize it.

In the many conversations we have with clients around the world, one thing is clear: Most expect to see increased volatility in markets in 2025 and beyond. We share that view and acknowledge the complexity in positioning portfolios for the macroeconomic drivers shaping the world. Interpreting the impacts and actively positioning at a company and security level is what our 340-plus investment professionals do every day.

Macro drivers matter

There are three instrumental macro drivers accelerating change. These are long term in nature and ever present in the world around us, so they are not surprising in and of themselves.

I introduced the drivers in my 2024 outlook, and a year on, the trends have only become more entrenched. They tie to evolving client needs and how the asset management industry must shift to meet them.  We therefore work tirelessly to understand in detail the implications of these drivers for our clients’ portfolios.

1. Geopolitical realignment

Our 2024 Investor Survey highlighted nervousness around geopolitics, with 72% of investors reporting it was among their top concerns.¹ There is no doubt geopolitics is shaping markets more than ever before, making it an increasingly important investment lever.

2024 was an election year around the globe, resulting in new leaders but also exposing heightened social friction and unrest. Relationships between superpowers have been recast, new alliances are forming, tensions increasing, and conflict and wars escalating. Changes in political leadership and policy have meaningfully impacted trade and redirected global supply chains, forcing the emergence of new relationships as well as manufacturing models.

We believe it is impossible to invest successfully without understanding the political environment. Investors must ask themselves: Am I investing in a country that is pro-business? Is this industry supported by policymakers? Does the political backdrop allow for access to private capital markets, and where are the most compelling opportunities? Is a company structured to fairly benefit shareholders, is it able to adapt to regime changes, and can it thrive regardless of the political backdrop? These are just a few of the questions that in-depth active research can help answer on behalf of investors.

2. Demographic shifts

This is not a new theme, but it is an important one, because it is happening now. We know populations in higher- or middle-income countries are getting older, and we know birthrates are slowing to the extent that some forecasters have the world population actually shrinking in the not-too-distant future. Future growth will come from Africa, and to a lesser extent Southeast Asia, with 25% of the world’s population forecast to be African by 2050.²

In 20 to 25 years – well within the time horizons of investors we serve – the growth engines and consumption patterns of the world will look very different to today, which in turn will impact investment opportunities and allocation strategies.

Healthcare and technology are the standout examples. Which drugs, treatments, and devices will improve lives in an aging population? How will technology continue to change the workforce and societies at large? Sustainability will also play a part: are companies today acting responsibly for a brighter tomorrow?

Many aspects of how we live and work have already changed in the post-COVID world, from the transport we use to the buildings we inhabit to the technology embedded in our daily lives. Product preferences and consumption practices have also morphed. Within our own industry the change is evident, with strong appetite for exchange-traded fund structures, model portfolios, less “traditional” vehicles, and asset management partners who can harness the power of disruptive financial technology.

3. Cost of capital

The cost of capital is significantly higher than it was through the last decade, and we expect it to stay that way.  This, of course, has major investment implications.

For one, fixed income as an asset class is attractive again, offering compelling yields and return potential along with renewed diversification benefits to suit different risk profiles. Within private markets, investment teams with the right expertise can now capitalize on opportunities as banks retrench, downsize, or divest assets amid higher rates.

But the higher cost of capital is not just about the returns available; it also means quality companies and challenged firms will increasingly perform differently. When the cost of cash was zero, funding remained readily available, even for poorly run companies. From here, a distinct gap should emerge between the “haves” and “have-nots”. In turn, we believe in-depth fundamental research that separates the winners from the losers can result in meaningful outperformance from the most experienced and skilled investors. Alternative strategies can also be deployed to capture performance from companies and structures that struggle in this new environment, and overlays can be applied with the intent of realizing gains from volatility and adjusted trading patterns.

With many investors looking to again put cash to work, complexity can be daunting. But with the right expertise, it presents exciting opportunities for active investors.

Clients should expect more from their asset managers

Against this new backdrop, the needs of our clients – and their clients – are changing. People expect more, and we’re proud to be working in partnership to deliver just that – including access to more asset classes, geographies, sophisticated strategies, diverse product vehicles, and blended outcome-driven solutions. We’re also applying new technologies and tools to continue enhancing our investment approaches. But importantly, while innovation helps shape the solutions we provide, it is the long-enduring qualities of truth, trust, and stability that we believe will ultimately determine success.

It is the responsibility of active asset managers like Janus Henderson to evolve with the world, the markets, and clients, and to offer effective solutions that can capitalize on new opportunities. But in this fast-changing world, investors value trust – the ability to trust that their asset manager is providing solutions that truly meet their needs. It is by honoring that trust and investing together that we can best navigate the road ahead. The trust clients place in us directly impacts their savings, pensions, and investments – and it is what drives us as we invest in a brighter future together.

Interpreting the impacts of change and actively positioning at a company and security level is what our 340-plus investment professionals do every day. With 90 years of experience investing through change, we are ever mindful – and grateful – that more than 60 million people rely on us to help them chart the right path.

 

–Ali Dibadj

IMPORTANT INFORMATION

Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss.

Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.

Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.

Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.

Volatility is the rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility the higher the risk of the investment.