2025 Investment Outlook

Adapting to Markets Through Diversification

This year has vividly reminded us that market leadership is never static. After a prolonged stretch of U.S. large-cap growth stocks dominating headlines and returns, 2025 has delivered a significant rotation in both style and geography.

As of the end of August, non-U.S. and emerging market equities have outperformed U.S. stocks, breaking a long-standing trend of U.S. market dominance. Value stocks have regained their footing, although they trail growth stocks year to date. Since midyear, small-caps have outpaced large-caps, further underscoring the dynamic nature of today’s markets.

These short-term market shifts highlight the importance of having exposure across a fuller range of asset classes. This approach may help portfolios adapt to changing market conditions and remain responsive to developments.

Opportunities Emerging as Uncertainty Eases

The financial markets have delivered positive returns for the year despite the backdrop of geopolitical and policy uncertainty. Similarly, U.S. economic growth remains resilient despite labor market worries and lingering inflationary pressures.

Globally, growth continues at varying speeds. The eurozone and the U.K. face sluggish expansion and political headwinds. China’s outlook has improved following a tariff truce, but structural headwinds remain.

With August's latest Producer Price Index reading, U.S. inflation appears to be stabilizing around 3% across multiple inflationary indicators. The eurozone hovers near its 2% target, while the U.K. faces the potential for stagflation. At the same time, China continues to confront deflationary pressures.

Meanwhile, the Federal Reserve (Fed) has shifted to an accommodative stance, with market expectations of multiple rate cuts in the remaining months of 2025.

Positioning for the Final Months of 2025 and Beyond

Our investment teams look through the near-term uncertainty in an effort to identify investment opportunities with lasting potential. While recent shifts in market leadership may have surprised some investors, they have only reinforced the value of investing with a long-term view.

In our work to uncover these opportunities, we seek to understand how new dynamics influence and alter future risks and prospects. In this Investment Outlook, you will find insights into several key themes:

• Despite some ongoing trade uncertainties, most developed market economies are benefiting from new trade agreements with the U.S., offering greater clarity for businesses.

• The One Big Beautiful Bill Act (OBBB) incentivizes and rewards companies for investing in artificial intelligence (AI) infrastructure. Large-cap growth companies may be particularly well-suited to benefit from and capitalize on this opportunity.

• Structural changes are creating favorable conditions for non-U.S. markets, as European countries boost defense spending and ease fiscal spending restraints.

• Policy and government reforms in South Korea and Germany encourage growing confidence in sustained economic growth.

• Emerging markets present compelling opportunities, supported by robust fundamentals, stabilizing U.S. trade policy, and expected Fed easing.

• Against the backdrop of favorable tax policy changes and anticipated Fed rate cuts, small-cap firms may benefit from renewed M&A interest, attractive valuations and conducive business conditions.

• The current environment of elevated government spending, growing fiscal debt and inflecting interest rates, favors an active and nimble approach to fixed-income portfolio management.

As always, we encourage our clients to maintain a long-term perspective and diversify across asset classes and investment styles. This approach can help prepare for the evolving landscape and help portfolios remain responsive to market developments.

Thank you for entrusting your assets to us.

Victor Zhang

Chief Investment Officer

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