Preparing for the unpredictable

November is the time of the year when, together with the Investment Committee, I start preparing for our year-ahead market outlook. But, to tell you the truth, we do this continuously: as new research comes in and events unfold, we keep refining our market outlook, day in and day out. Most likely, every investment team in the industry could present its own market outlook at any time of the year. But December or January just feels right, doesn’t it? It’s a natural time to connect with existing and potential clients who themselves may be setting goals and planning for the 12 months ahead. Ultimately, market outlooks are about something that can’t be nailed with certainty: the future. So, how does one prepare for potentially unpredictable events? 

Market outlooks: why investors should pay attention

If you were to take all the market outlooks presented this year and compare them, you would most likely notice a certain similarity. By and large, we tend to look at the same data and information, we use similar systems and analytics, and the people we talk to for extra insight and perspective aren’t likely to be that different.

Obviously, there might be some differences. Some analysts might have their ways of thinking about certain asset classes and securities and have a more differentiated view; some investors might focus more on their home region, while others (like us) tend to be more global. But, for the most part, we’re all going to be talking about similar things: economic growth, interest rates, artificial intelligence (AI), the aftermath of the US elections, and so on.

However, the key differences come in the way each wealth manager reflects their market outlook in portfolios. After all, if everyone were literally doing the same thing, there would be no one to buy what everyone wants to sell, and vice versa. This is why I believe market outlooks are worth paying attention to. They give you, our client, an insight into how we’re planning to invest your money in the next 6-12 months and, more importantly, why. 

How we build our forward-looking investment views

Market outlooks focus on what’s ahead of us, typically a year out, with recalibrations every six months. And that’s sensible. After all, looking beyond that time horizon makes things far more uncertain. However, nothing in the future, no matter how close, is certain. I wonder how many market outlooks published in January 2020 anticipated a worldwide lockdown due to the global pandemic only a couple of months later.

We build market outlooks based on the data available to us at the time, and something I can predict with some certainty is that data will change. This is why clients should view market outlooks as what we think is most likely to happen, not what will happen. 

Therefore, we build portfolios based on what we think is most likely to happen while leaving a margin if it doesn’t happen. If we thought interest rates would skyrocket (we don’t, by the way), we’d sell bonds as prices move inversely with yields. If we thought artificial intelligence would continue to show exponential growth, we’d buy tech equities.

Our robust research process leads us to clear convictions on which investments we believe will benefit portfolios. But one can never be sure. As custodians of your wealth, investing exclusively based on the forecasts from our market outlook would be an act of overconfidence. We don’t doubt our convictions, but we have to leave some room for the unexpected. 

Diversification: the airbag in your portfolio when there’s a market crash

If we knew with absolute certainty that there would never be another car accident, we wouldn’t need airbags. In this line of thinking, if we knew with absolute certainty that our market outlook forecasts were always going to play out as expected, we’d simply invest all the money into our predicted best-performing asset.

But we don’t. So, while we believe we’ll get to our destination unharmed, we have the airbags just in case. Our airbags are a diverse range of investments across different asset classes, geographies, styles and instruments. This diversification reduces the impact on portfolios if the unexpected happens.

To give you an example, if you join one of our market outlook events, you’ll no doubt hear us talk about AI. If this is such a revolutionary trend, and AI-related stocks have performed so well in 2024, why not invest heavily in them in 2025?

We do hold AI stocks in our portfolios. But, to borrow a reference from portfolio diversification, we’re not putting all our eggs in one basket. Instead, we invest broadly across US equities (where one can find quite a few AI stocks) and other equity markets across the globe, and safe-haven assets such as government bonds. If AI does well, portfolios benefit from that performance.

If AI were to do less well, the rest of the portfolio would dampen the impact. This broad market exposure is our airbag, together with our quality bonds investments – which tend to benefit when economic growth slows (which is when equities do less well).

Embracing the unpredictable with confidence

As we navigate the ever-changing landscape of global markets, it’s clear that predicting the future with absolute certainty is an impossible task. However, this unpredictability is what makes investing both challenging and exciting.

And you don’t need absolute certainty to invest. As I said before, there would be no market if all investors had access to the same information and agreed on the intrinsic value of each asset. Instead, what you need is an investment process, an assessment of the likelihood of our forecasts playing out and how they are reflected in market prices.

At the heart of our market outlooks lies a commitment to thorough analysis, informed decision-making and a deep understanding of what drives markets. While we can’t foresee every twist and turn, we look ahead to the coming year with a sense of optimism and preparedness.

Our market outlooks are not just predictions; they are a reflection of our best thinking, grounded in data and experience. We are here to guide you through the uncertainties, helping you prepare for the unpredictable with confidence.