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Multi-Asset Solutions Team

Latest asset allocation views

July 2025

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Asset allocation views: diversifying in uncertain times

Geopolitical tensions and policy shifts call for exploring new opportunities

Key global themes

Diversification and agility are crucial amid a rapidly shifting global market landscape.

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Policy uncertainty drags global growth

  • Frequent trade policy shifts in Q2 2025, notably featuring tariffs and retaliation, have delayed investments and caused significant volatility. This has complicated economic planning and increased risks for businesses and investors globally.
  • Elevated U.S. tariffs are affecting global trade, leading the OECD to downgrade its 2025 global growth outlook. This revision highlights a synchronized slowdown in both developed and emerging markets, with contribution from the United States.
  • The United States feels like it’s approaching an inflection point, with various indicators showing signs of cooling—albeit not to worrisome levels. However, these metrics might not yet fully capture the effect of policies, so we’d expect further deceleration in H2 2025.

The rise of fiscal dominance

  • As most central banks approach the end of their easing cycles, fiscal policy is becoming an important tool for governments to support growth. The United States is considering tax cuts and deregulation, Germany is boosting infrastructure spending, and China is deploying stimulus to enhance consumption and stabilize manufacturing.
  • However, this is raising concerns about long-term debt sustainability and inflation—especially in the United States—where the new budget bill would potentially add to elevated deficits.
  • Diverging fiscal and monetary policies are creating investment opportunities. Quality equities in areas with credible fiscal space and supportive monetary policies, like Europe, are appealing as investors seek stability.

Opportunities amid global shifts

  • Maintaining a diversified and disciplined approach helps manage risk, while focusing on long-term goals, during uncertainty. Geographic diversification beyond the United States is increasingly important as economic and geopolitical landscapes evolve.
  • Within the United States, a selective investment approach focused on growth and defensive sectors like technology and utilities is advisable, as we look to employ a barbell approach. European equities present potential cyclical upside, supported by improving macroeconomics and resilience to global challenges.
  • Markets such as Mexico could benefit from supply chain realignment and nearshoring trends. Some Asian economies, including Singapore and Taiwan, may prove relatively resilient to U.S. tariff risks, though caution is necessary in trade-sensitive sectors.

Source: Manulife Investment Management, June 30, 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. Diversification does not guarantee a profit or eliminate the risk of a loss. No forecasts are guaranteed. 

Active asset allocation views

Asset class overview

Asset class overview

  • Over the next 12 months, we’re modestly overweight equities versus fixed income as peak trade uncertainty from early April has eased. However, headwinds, such as slowing and below-trend global growth, trade policy uncertainty, inflation concerns, and elevated valuations, continue.
  • We’re underweight fixed income and, in particular, underweight in duration, as inflation risks from trade policy remain a concern. We continue to favor shorter duration bonds, as persistent U.S. budget deficits could drive term premiums higher in the near term.
As of June 30, 2025, from a broad asset-class overview perspective, Manulife Investment Management’s Multi-Asset Solutions Team has moved its stance on equities to overweight and its stance on fixed income to underweight.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of June 30, 2025.

Broad equity

Broad equity

  • In the near term, we’ve moved overweight U.S. equities due to resilient economic conditions and earnings growth, supported by AI advancements. We’re balancing growth and defensive sectors while steering clear of tariff-sensitive sectors. We remain cautious of possible tariff increases that could cause short-term market swings.
  • We remain neutral on developed international markets outside North America driven by a narrowing growth gap with the United States, supportive fiscal and monetary policies, and attractive valuations; however, challenges like ongoing trade uncertainty and structural issues temper the long-term outlook.
  • We maintain a neutral stance on emerging markets. Positives include improving macro fundamentals, attractive valuations compared to developed markets, and potential support from a weakening U.S. dollar. That said, challenges such as geopolitical tensions, uneven growth, and vulnerability to global trade disruptions persist.
As of June 30, 2025, Manulife Investment Management’s Multi-Asset Solutions Team has moved its view on U.S. equities back to overweight from neutral. It has a neutral stance on Canada, non-North American developed market and emerging market equities.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of June 30, 2025. NA refers to North America.

Regional/sector-specific equity

Regional/sector-specific equity

  • We’ve downgraded U.S. small- and mid-caps to underweight due to their sensitivity to economic slowdowns and tariffs. Despite the potential for short-term rebounds, the risk/reward remains unfavorable at this stage.
  • We’ve upgraded U.K. equities to overweight, supported by their defensive, global value-oriented profile. These equities are less exposed to trade disruptions due to the service-heavy economy. We remain cautious of domestic risks; however, a limited portion of the market is domestically focused.
  • Emerging Latin American equities are upgraded to neutral from underweight due to Mexico's improved outlook. Attractive valuations, strong earnings, and nearshoring benefits bolster our view.
  • Onshore Chinese equities are downgraded to neutral from overweight amid a muted recovery outlook. The economy faces a prolonged property downturn and slowing exports.
  • We’ve upgraded Asia-Pacific ex-Japan equities, despite the downgrades to China and Hong Kong, driven by expected strength from manufacturing-driven export economies like South Korea, Singapore, and Taiwan.
  • Infrastructure shifts to neutral from overweight. Despite offering inflation protection and high dividends, current valuations limit near-term upside.
Taking a regional and sector-specific view, as of June 30, 2025, Manulife Investment Management’s Multi-Asset Solutions Team’s view on U.S. small and mid-cap equities is underweight. The team has shifted its view on U.K. and non-Japan Asia-Pacific equities from neutral to overweight and remains overweight commodities. The team has a neutral stance on Japan, non-U.K. Europe, emerging Latin America, Mainland China, Hong Kong, infrastructure and real estate investment trusts.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of June 30, 2025.

Fixed income

Fixed income

  • We remain neutral across the U.S. investment-grade spectrum. Within the asset class, we prefer mortgages over Treasuries and credit, given limited risk of prepayment.
  • In the United States, we prefer shorter duration opportunities and see increasing risks related to term premium at the long end of the yield curve.
  • We’ve upgraded U.S. high-yield bonds from underweight to neutral as fundamentals remain sound and all-in yields present attractive total return potential. Spreads have compressed in leveraged loans, whose default rates are expected to be higher. This has limited the relative upside versus high yield in the absence of a rate-hiking cycle.
  • In Asia, we favor high-yield over investment-grade credits due to more attractive valuations and favorable spreads compared to global high-yield peers and historical averages. Default rates are expected to keep normalizing despite recent global trade and tariff developments.
  • We remain overweight in 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 to emerging market debt as of June 30, 2025. The team is neutral on U.S. investment grade, Canadian investment-grade, Asian investment-grade, Asian high-yield debt, leveraged loans and U.S. high-yield debt.
Source: Multi-Asset Solutions Team, Manulife Investment Management, as of June 30, 2025.

Private markets

Private markets

  • We remain neutral on real estate. Declining interest rates have provided a tailwind for valuations and lowered borrowing costs, which should be supportive of a recovery. Rising rents and increasing transaction volumes signal 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 double digits.
Within private markets, Manulife Investment Management’s Multi-Asset Solutions Team has an overweight stance to global infrastructure and private credit as of June 30, 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 June 30, 2025.

Asset class focus

Commodities for portfolio diversification

As concerns overhang traditional assets, commodities could provide a valuable portfolio construction tool.

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Within commodities, crude oil stands out as ongoing geopolitical uncertainty in the Middle East could constrain supply. Copper and other base metals, whose price is driven by global economic activity, could face a headwind of slower growth. However, low inventories should boost demand, while trade uncertainty and a weaker U.S. dollar remain supportive.

Despite a strong rally over the last two years, gold remains attractive. The fundamental drivers of gold prices remain strong and there is potential for further gains. Gold is a crucial asset as central banks continue buying and geopolitical tensions remain heightened. 

A weak U.S. dollar driven by interest rate differentials due to the likelihood of further rate cuts by the U.S. Federal Reserve, weaker economic growth, and policy uncertainty should support prices as the negative correlation between gold and the U.S. dollar has strengthened.

There are risks to this view, due to the significant rally in gold price since late 2023, which has left prices higher. Easing geopolitical or trade tensions could dampen gold demand and ease oil supply, while economic downturns could slow copper demand.

Gold vs. the U.S. dollar: an inverse relationship

Correlation of rolling six-month weekly gold returns to the Wall Street Journal U.S. Dollar Index 

The chart illustrates the correlation between rolling six-month weekly returns of gold and the Wall Street Journal U.S. Dollar Index from February 1, 2012 to July 12, 2025, highlighting a generally negative relationship. The correlation as of July 12, 2025 was at -0.631.
Source: Macrobond, U.S. Federal Reserve, Manulife Investment Management, as of June 12, 2025. The Wall Street Journal U.S. Dollar (WSJ USD) Index tracks the performance of the U.S. dollar relative to the value of a basket of world currencies. It is not possible to invest directly in an index. Diversification does not guarantee a profit or eliminate the risk of a loss.

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 20-year-plus time horizon.

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Expected returns

Source: Multi-Asset Solutions Team, Manulife Investment Management, as of April 30, 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

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Nathan W. Thooft, CFA

CIO, Multi-Asset Solutions Team, Global Equities

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Robert E. Sykes, CFA

Senior Portfolio Manager, Head of Asset Allocation, U.S., Multi-Asset Solutions Team

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James Robertson, CIM

Senior Portfolio Manager, Head of Multi-Asset Solutions, Canada, Head of Tactical Asset Allocation, Multi-Asset Solutions Team

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Luke Browne

Senior Portfolio Manager, Global Head, Multi-Asset Solutions Team, Head of Multi-Asset Solutions, Asia

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Geoffrey Kelley, CFA

Senior Portfolio Manager, Global Head, Systematic Equity Solutions, Multi-Asset Solutions Team

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Benjamin W. Forssell, CFA

Client Portfolio Manager, Global Multi-Asset Team, Multi-Asset Solutions Team

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Eric Menzer, CFA, CAIA, AIF

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

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