Asset allocation Capital market assumptions | 2025
Invesco Solutions develops capital market assumptions (CMAs) that provide long-term estimates for the behaviour of major asset classes globally.
Markets are moving quickly and surprisingly, we now find ourselves attracted to government bonds, an asset class we’ve shunned for some time.
The backdrop to this publication is that inflation is peaking higher and later than expected. The Federal Reserve (Fed) and some other central banks are tightening aggressively1. Government bond yields have risen to levels not seen in more than a decade (in the US) and the global economic cycle feels more fragile by the day. Central bank aggression risks turning economic slowdown into recession.
Following the results of our optimisation process, we’re increasing government bonds to Overweight (for the first time since 2016) and reducing equities to Underweight within our Model Asset Allocation*. But we don't go as far as suggested by the optimiser, as we’re wary of having too few equities after the recent sell-off. We fear that bond yields, though more generous than for some time, can still go higher. Adding to the de-risking, we also eliminate the exposure to high yield credit.
To some extent, that dampening of portfolio risk is offset by an increase in the allocation to real estate (to Overweight) and reductions in the allocations to investment grade credit and cash. Both of these remain Overweight and we remain zero allocated to commodities, including gold.
From a regional perspective, we favour UK and emerging assets (EM). Indeed, our best-in-class selection of assets (based upon 12-month projected returns) is: UK government bonds, EM real estate, Chinese equities and USD cash.
Invesco Solutions develops capital market assumptions (CMAs) that provide long-term estimates for the behaviour of major asset classes globally.
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Welcome to Applied philosophy, our view on global equity market model sector allocation.
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