Thomas De fauw

Morningstar’s flexible allocation category includes a diverse group of funds with largely unconstrained mandates. These strategies typically have significant leeway to adjust weightings between equities and bonds and to incorporate alternative asset classes into the mix. Private markets have recently garnered more attention, and the rally in gold hasn’t gone unnoticed by investors either.

Beyond the human suffering, the COVID-19 pandemic had far-reaching consequences for numerous sectors, particularly the real estate sector. Some market segments are still searching for a new equilibrium. Unlike the 2007-2008 crisis, attention this time has been less focused on the housing market and more on commercial real estate.

Allocation funds have fallen out of favour with investors since their weak performance in 2022, and in 2023, the classic equity-bond mix portfolio was even declared dead in some quarters. This proved premature, as these portfolios have performed well in recent years.

Bitcoin recently hits the symbolic 100,000 dollar mark as spot ETFs surge in popularity among investors.

Donald Trump’s comeback in American politics is a reality. With a strong mandate from voters and a Republican-controlled Congress, he now has more leeway than in his previous term. Bond investors have reacted cautiously to last week’s election outcome.

Flexible allocation funds typically have broad latitude to adjust their asset allocation. Additionally, their managers have the freedom to add alternative asset classes to the mix, with gold being a well-known option.

Spreads on high-yield bonds are tight, and the fundamentals of high-yield look strong. Taking (credit) risks has clearly paid off this year.

Local currency bonds have lagged this year, but expected interest rate cuts by the Fed have investors in emerging markets hoping for better times.

Investors are spotting opportunities in defence companies, particularly given the continued military support for Ukraine and significant increases in European defence budgets. Long-term revenue prospects appear stable, driven by the ongoing maintenance of military equipment and the need to replenish supplies.

Trackers and index funds are the logical choice for investing in US government bonds. Indeed, within long-term dollar bonds, the scope for active management is limited.