(Bloomberg) — Somehow, for all its drama — tariffs, fiscal brinkmanship, inflation fears, and geopolitical flare-ups — the first half of 2025 may be remembered by diversified investors for something else entirely: the strongest stretch of synchronized market gains in years.
Most Read from Bloomberg
High Yield Savings Offers
Powered by Money.com – Yahoo may earn commission from the links above.
Rather than spelling a slow-motion disaster for bulls, months of whiplash across equities, fixed income and commodities have rewarded strategic indifference and punished overconfidence. Strategies that spread risk across assets are outperforming by near-historic margins, a shift from the concentrated bets that favored the likes of Big Tech stocks in recent years.
A Societe Generale (GLE.PA) multi-asset portfolio, tracking equities, government bonds, corporate credit, commodities and cash, is on pace for its strongest first-half performance since at least 2008. Even the classic 60/40 stock-bond mix — written off during the pandemic-era disruption as obsolete in a world of uncertain inflation — has proved relatively resilient. Meanwhile, a popular multi-asset strategy known as risk parity is up about 6%, by one measure.
This holiday-shortened week offered fresh validation for cautious investors. Federal Reserve Chair Jerome Powell warned of “elevated uncertainty” around economic growth and said new tariffs could reignite supply-side price pressure. Disappointing economic data and ongoing clashes between Israel and Iran added to the case for investors to stay vigilant about both the business and market cycle.
In a market this divided, perhaps the only reasonable stance is to refuse to take a side, favoring instead a principled neutrality in portfolios built for all-weather conditions.
“For every indicator out there that shows the economy is strong, I can give you one that shows it’s slowing,” said John Davi, chief executive of Astoria Portfolio Advisors. “Uncertainty is definitely higher.”
In a year when international stocks, gold, and even Bitcoin (BTC-USD) have outpaced the S&P 500, investors are being rewarded for looking beyond the familiar. Davi’s firm’s multi-asset ETF, with gold as its top holding, is up more than 10% — a result, he said, of building a portfolio “meant to survive uncertainty, not predict it.”
Trading in the biggest asset classes this week reflected the stunted returns that — despite the April rebound — have made a virtue of going further afield at a time of economic and political anxiety. The S&P 500 ended lower on the week and sits just 1.5% above where it began in January. Ten-year Treasury yields are broadly flat this week, while a broader index of government bonds has returned 3% so far this year.
Instead, diversified portfolios have been powered by assets long eschewed during the era of Magnificent-7 exceptionalism. Developed-market equities excluding the US and Canada have climbed 14% year-to-date, while the Bloomberg Commodity Index has surged 8% this year, while gold has soared nearly 30%.
“I find that when it comes to owning things outside the US, from the US investor point of view, there’s a lot of reluctance,” said SocGen’s Manish Kabra. “The only time you are really diversified is when you have assets that you don’t want to own.”
US investors are starting to get the message. Based on inflows, the top dozen ETFs tracked by Bloomberg over the past month encompass a broadening palette of asset classes, including gold, Bitcoin, overseas equities and short-term T-bills, alongside US stocks and bonds.
“ETFs are a natural solution to find diversification through other forms of equity exposure or yield hunting in the fixed income space, particularly to strategies with limited duration risk,” said Todd Sohn of Strategas. “Ultra-short duration strategies have taken in the second-most inflows of categories we track.”
To be sure, the old-school asset classes remain the main destination for investor cash. Equity ETFs have pulled in roughly $56 billion so far in June, surpassing May and April totals, with still around one week. Total cross-asset flows now stand at $523 billion, which means ETFs are on track to take in more than $1 trillion this year, after topping that number for the first time in 2024.
How those bets fare in the evolving macroeconomic climate remains to be seen. A string of weaker-than-estimated data releases has pushed Citigroup’s US Economic Surprise Index to its lowest level since September. On Wednesday, Fed officials downgraded their estimates for growth this year while lifting forecasts for unemployment and inflation.
“The macro backdrop has shifted so quickly this year,” said Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group, a $100 billion registered investment adviser. “Concentration helps in a bull market. Diversification helps you keep what you’ve earned when the macro backdrop shifts frequently.”
