As we near the end of a year of significant geopolitical uncertainty – including elections for around half the world’s population – Liontrust fund managers outline their investment outlooks for next year. With equity markets’ handsome year-to-date gains owing a lot to AI excitement surrounding mega-cap technology stocks, could 2025 see a broadening of market leadership?
Mark Hawtin, Head of Liontrust Global Equities team:
"I have been investing for almost 40 years. There has never been such a strong trend, driven by the fundamentals of innovation and disruption, running in tandem with a huge technical trend, such as the rise of passive investing. These two monster trends support each other and create a memorable investment period over the last 10 years.
"Passive investors have ridden the wave of innovation, and this ride has been easy. However, we believe we are at or close to a peak in the trend that will make it very hard to achieve a satisfactory return in equity markets through passive investing alone.
"Market concentration, record margins and valuation have been cited as key reasons why returns going forward will be harder to achieve. If equity returns are going to be harder to achieve at the index level, then passive flows have to become more active.
"I firmly believe this will create a golden period for active investors, reversing the flows into easy money passive index funds and back into a better balance of active and passive as the scales of valuation and broadening of opportunity navigate investors away from the concentration risk.
John Husselbee, Head of Liontrust Multi-Asset team:
“There are investment opportunities among smaller companies in the US and elsewhere in the world, along with the UK, Asia ex-Japan, emerging markets and Japan. With the fragmentation of globalisation, moving to a multi-polar world and further potential challenges to supply chains if Trump follows through on his America First pledges from the election campaign, diversification will be more important than ever.
"There is also an opportunity for active managers with any broadening of share price growth beyond the US mega caps. We do not believe that future growth will come from just seven stocks. Our view is strengthened by the belief that we will gradually move from an investment to an economic story for AI.
"The global economy continues to be solid with lowering inflation, interest rates coming down and no sign of unemployment rising significantly in the major economies. For sure, there are many challenges, including the geopolitical risks, high government debt and China trying to stimulate its economy, but there are also lots of opportunities for investors.”
Simon Clements: Fund Manager of the Liontrust Sustainable Managed funds:
“As we move into the next economic cycle, investment across the economy will broaden beyond that of AI, which should also translate to more balanced leadership from a stock market perspective. For example, 2025 will see heavy investment into technologies addressing AI’s energy demands.
“The return of Donald Trump to the White House introduces new uncertainty. Policies aimed at reshoring manufacturing may boost US industrial growth, leveraging automation to offset higher labour costs. This aligns with broader reindustrialisation themes, but the degree to which tariffs are implemented will be an important determinant of how the global economy grows, and how strong stock market returns are.
“The urgent need to decarbonise our economy remains as important as ever, and despite some pushback in political circles, it is reassuring that virtually all the technology we need to decarbonise is in place. We expect strong investment returns from companies which allow us to decarbonise, such as renewable energy and technologies which drive energy efficiency.”
Clare Pleydell-Bouverie, Fund Manager of Liontrust Global Technology Fund:
“In 2024, we entered a golden period for investing in innovation. We believe this opportunity will be multi-year in nature and accelerate into 2025. Technology platform shifts are a once-in-a generation or even once-in-two generation occurrences, and the shift associated with AI has the potential to eclipse its predecessors by an order of magnitude.
"The opportunity starts in the Technology sector, and this is what we have observed this year - new AI infrastructure getting built and replacing traditional compute in data centres around the world. Next year, we will see the diffusion of this technology start in earnest across sectors; we are already witnessing early adopters building stronger moats and moving faster than competitors. Software is being re-architected and industries are being re-written.”
Samantha Gleave: Manager of the Liontrust European Dynamic Fund:
“We think the outlook for European equity investors is bright, particularly for those seeking out cash generative stocks.
“There are three key reasons for our upbeat outlook: valuations are attractive; European markets are still in a technical uptrend; and we see little sign of poor investment behaviour by corporates.
“From a valuation perspective, European equities on aggregate are around fair value: not exceptionally cheap but not at stretched levels either. However, when we look specifically at those companies with the best cash flow appeal, we find they look particularly cheap. Ranking the European stock universe in order of their cash flow metrics, the top 20% stocks have only been cheaper twice in the last 30 years – in 2001 and in 2020.
“Both of these proved to be excellent historic entry points to the stocks with cash flow appeal, and we think there should continue to be a strong relationship between low valuation at investment and subsequent strong performance.”
Phil Milburn, Co-Head of the Liontrust Fixed Income team:
“One cannot predict exactly what Trump v2.0 will look like, but we can examine his campaign promises and previous presidency to give a little guidance on the impact for bond markets.
“Looking at the three main policy fronts, proposed changes to tariffs and immigration are inflationary and bad for long-term economic growth, while tax cuts are the one policy that supports growth. We think the combined effect of these changes will be to imply fewer cuts in 2025 than previously envisaged. The flip side is that with restrictive monetary policy being maintained for longer, the chance of an economic accident occurring increases so the probability of needing loose monetary policy goes up in years beyond 2025.
“With so much uncertainty we expect volatility in sovereign bond markets to remain elevated. Valuations are cheap and you are well rewarded for being invested in the market even with delayed rate cuts. For corporate bonds, the outlook is benign for the foreseeable future but with risks further out on the horizon. We are focused on investing in debt issued by companies that can easily ride out any storm that Trump’s policies create.”
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