Ten Investment Convictions for H2 2025

Late last year we had anticipated a path of further economic growth and disinflation in 2025, paving the way for central banks to continue cutting interest rates. Instead, unexpected volatility in US trade policy created business uncertainty, and prompted us to lower our global growth forecasts. While we expect the US economy to slow, it should avoid a recession. Geopolitical tensions and policy instability demand a disciplined investment strategy.

US trade policy has disrupted supply chains and proven disinflationary for the rest of the world as a weaker US dollar makes their imports cheaper. In the meantime, the longer-term implications of higher tariffs on the US economy are unclear, clouding the outlook for US inflation. We expect central bank interest rates to remain lower, or in the case of the Federal Reserve to begin to fall, as inflation hits monetary policy targets. Selective deployment of capital, considering multiple sources of risk this year including volatile geopolitics, is paramount. This is especially true for Switzerland, where central bank rates are at zero.

In fixed income we keep our preference for quality (investment grade) corporate bonds and believe that the current elevated yields represent an opportunity to increase positions in income-generating bonds for diversification purposes.

We see further upside for equity markets in the second half of the year. Our most preferred themes focus on infrastructure and nature-positive companies. From a sector perspective, cyclicals have slightly outperformed defensives, but we note the relative resilience of cyclicals in the face of recent increases in geopolitical uncertainty and stick to this preference for now.

Alternative investments continue to play an important role in portfolios by widening the range of opportunities for returns. Real estate investments typically benefit from falling policy rates and in hedge funds, market-neutral strategies can be useful in periods of uncertainty.

Finally, our expectations last year for positive gold performance were easily exceeded in 2025, and we now anticipate some price consolidation. While recent geopolitical tensions might have supported gold, prices have been unchanged since Israeli strikes on Iran began in mid-June. This said, gold remains a useful strategic diversifier in portfolios.

Portfolio risk

1. Use cash holdings and market dislocations as opportunities to deploy capital

As central banks cut their policy rates further, Switzerland and the eurozone will see the lowest rates among major economies. That means that capital needs to be deployed to ensure adequate portfolio diversification. In this context, fixed income offers an attractive risk/reward profile.

Fixed income

2. Investment grade corporate bonds in focus

We had expected investment-grade (IG) corporate bonds to perform well, as many countries’ government finances are on a deteriorating path. Year-to-date performance of this bond market segment is around 3.4%. While high yield bonds also performed well, we believe that the risk-reward profile favours IG in multi-asset portfolios. For the second half of the year, we expect investment-grade corporate to perform well. Yield spread compensation is less attractive for high yield (HY) bonds when adjusting for risk, in our view. Investment grade should therefore be preferred over high yield bonds for any increase in portfolio exposures. In Europe we like German, French, Spanish, Italian, and UK issuers. In emerging markets, our preference for corporates over sovereign debt in USD has only partly played out, even though both have performed within a narrow range of 3.5-5.0% so far this year. We maintain our preference for corporate over sovereign issuers and favour 5-year maturities across most currencies.

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3. Government bonds for diversification. We prefer US Treasury inflation-protected securities and Japanese government bonds (JGBs)

Government bonds continue to perform well and benefit from yields that are above their 10-year averages. Government bond yields in Europe, the US, and Japan are stable or higher than a year ago. The growth outlook is weaker and inflation is on divergent trajectories, but most central banks are likely to cut interest rates in the months ahead. In government bonds, inflation-linked securities provide a hedge against worst-case geopolitical scenarios. Ten-year US Treasury inflation-protected securities (TIPS) still offer real yields above 2%, among the highest in developed markets, while compensating for inflation. We expect TIPS to perform well in our base case of weaker growth and falling real yields, as well as in a risk case where inflation rises more than expected, thereby capping nominal yield declines. 10-year JGB yields have recently declined. We still think JGBs offer an interesting investment opportunity as we expect the Bank of Japan to pause its rate hiking cycle for the remainder of the year. More specifically, hedging JGBs back into dollars and euros can offer appealing additional returns for international investors, given interest rate differentials.

Equities

4. Favour developed and emerging market equities

Broad regional diversification is key, as are investments aligned with our thematic strategies. We expect equities to benefit from monetary policy easing amidst slowing growth in coming quarters as well as falling bond yields. Moreover, a solid global earnings outlook and weak investor sentiment towards equities should help positive surprises drive up risk asset valuations.

5. Prefer communication services, quality stocks for resilience

Materials and communication services remain our top preferences. The global materials sector has consistently performed well year to date. Although recent performance has been somewhat sluggish, several tailwinds should continue to drive performance. For example, and while gold price rises have slowed, gold miners are benefiting from high gold prices and improved cost control, while construction materials stocks have rallied due to renewed and existing commitments to infrastructure projects worldwide. Communication services remains our preferred technology-related sector exposure. It offers more attractive valuations and less volatile fundamentals compared to semiconductors and hardware, and presents an opportunity for quality growth at a reasonable price.

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We maintain our preference for European semiconductors, projecting medium-term performance despite near-term tariff-induced uncertainties. Finally, we still like quality stocks with strong balance sheets, market leadership, and resilient earnings track records.

6. rethink infrastructure - one of our six long-term thematic convictions

We expect the infrastructure spending cycle to accelerate in a multipolar world. In emerging markets, investment remains strong, with the extension of the BRICS 1 group and its cooperation framework directing efforts towards infrastructure. In developed markets, Germany is looking to close the gap in capital expenditure spending with a focus on infrastructure. In equities, we focus on stocks from companies along the value chain, from materials to infrastructure operators, which stand to benefit from rising infrastructure spending. rethink infrastructure is one of our six long-term thematic convictions for equity investments.

7. rethink nature - one of our six long-term thematic convictions

Nature and biodiversity are facing many challenges, with safe water availability being among the priorities worldwide. Public awareness, government action, and the emergence of efficient technologies are building a favourable environment for leading companies in water technology and treatment to thrive and scale up promising solutions that restore water assets. The focus of China and other emerging markets on land assets and biodiversity is also offering solutions. We count our rethink nature investment theme among our top convictions for the rest of the year.

Alternatives     

8. Real estate as an income alternative in low-yielding markets

With lower central bank rates and a non-recessionary global growth outlook, real estate investments can offer alternative sources of income in markets with comparatively low bond yields. The clearest case for real estate as a fixed-income alternative is in Switzerland. The eurozone may also become more attractive.

9. ​​​​​​​Hedge funds and private assets increase the investment universe

We maintain our preference for market-neutral, long-short and event-driven strategies, as these offer additional flexibility in multi-asset portfolios. Private equity, for eligible investors, may help enhance an opportunity set restricted by trade barriers.

Currencies

10. Prefer current account surplus and high-yielding EM currencies

Earlier this year, we revised our view on the US dollar, shifting our preferences to the Swiss franc and Japanese yen. We expect Asian currencies to fare better than the FX majors over the coming months. Currencies well placed to perform include those with external surpluses (Korean won - KRW, Australian dollar - AUD) or higher interest rate differentials, as well as stronger growth prospects (Indian rupee - INR). After lagging developed market currencies due to tariff concerns, Asian currencies have seen strong recoveries. Developments from here, including a more stable dollar-yuan and potential trade deals including FX clauses, should remain supportive for Asian currencies. Alternatively, the AUD has a high correlation to Asian currencies, and its valuation looks appealing.