Multi-asset strategy

Portfolio positioning at a glance

Thanks to our cautiously constructive outlook and investors' low positioning in June, we started the second half of the year moderately overweight in equities, without having a clear preference for Europe or the US. We have maintained this position since then and remain constructive on equities in the medium term. If the outlook remains unchanged, we believe a setback would be a buying opportunity. Our largest overweight position remains in gold. At the end of August, we switched our position in industrial metals to silver. In addition to positive market fundamentals, silver's favourable valuation compared to gold was another factor in its favour. Furthermore, the first central banks are now also buying silver. We remain optimistic about industrial metals in the long term, but do not expect much upside potential in the short term due to the tariff issue.

Our view that, in an environment of exploding government debt and structurally higher inflation, real assets should be preferred over nominal government bonds is clearly reflected. Bonds, especially government bonds, are underweighted. In bonds, we prefer covered bonds, high-yield bonds and niche segments such as local currency bonds from frontier markets or catastrophe bonds.

Review of the third quarter – declining uncertainty helps

Agreements in the trade dispute gradually brought more clarity in the third quarter, Trump's tax cuts under the ‘One Big Beautiful Bill Act’ were swiftly passed and US earnings developed surprisingly positively, thanks in part to low expectations and the weak US dollar. Together, this was a recipe for significantly lower volatility. In the third quarter, volatility was below the average for the last five years for all asset classes. Systematic investment strategies that had only minor positions in equities at the end of the second quarter built up positions there. In addition, all asset classes recorded significant fund inflows. This supported the markets. Stock markets, especially US equities, climbed to new highs in July and August. After the losses in the first half of the year, the US dollar trended sideways with volatility. From the perspective of a euro investor, all asset classes posted gains in the third quarter, led by gold, silver, equities from emerging markets and the US. European equities and emerging market bonds also gained ground. Government bonds recorded the lowest gains.

Economic outlook – More or less ‘business as usual’

The mix of inflation and growth remains uncertain, particularly in the US. Tariffs are likely to cause inflation to rise in the coming months. US import prices, measured in US dollars and before tariffs, have been relatively stable so far. The depreciation of the dollar has therefore not caused any imported inflation so far. Either suppliers had hedged the currency or they are accepting lower prices in their currency. This is one of the reasons for weaker corporate results in Europe. However, stable import prices in the US also mean that US companies and consumers are bearing the burden of tariffs. The Fed, however, considers tariffs to be temporary drivers of inflation. For the Fed, the risk of weaker economic growth and, in particular, a weaker labour market outweighs this. For this reason, it cut interest rates again on 17 September after a long pause. The market expects at least four further interest rate cuts by the end of 2026. We consider this to be overly optimistic. Our economists expect only one further cut in October of this year. The unchanged expansionary fiscal policy, looser monetary policy and weaker US dollar are supporting economic growth in the US. Despite the burden of tariffs, the economy is likely to grow at a similar rate in 2026 as in 2025. According to the consensus of economists, there are no signs of a clear acceleration or slowdown in the economy in other regions either.

Steeper yield curves up to curve control

Even though yield curves are already significantly steeper again, the spread between yields on 10-year and two-year government bonds is still below the historical average: in Germany, the spread is approximately 20 basis points, and in the US, 40-50 basis points. Further interest rate cuts by the Fed are therefore unlikely to lead to lower yields for longer maturities. This is all the more true given that high and rising debt, dwindling confidence in the Fed's independence and interest rate cuts despite a too high and rising inflation are a recipe for rising long-term inflation expectations and higher term premiums. Yields on 30-year government bonds in particular have risen further since the end of June for most regions: Germany +12bp, UK +14bp, Japan +29bp. In the US, the US government is likely to use debt management (lower issuance volumes for longer maturities, repurchases of long-term bonds), financial regulation and other instruments to counter higher yields at the long end. The Fed could also buy bonds again (QE). This means we are moving ever more obviously into an environment of financial repression, in which investors are unlikely to achieve an adequate real return on government bonds. For this reason, we continue to consider government bonds attractive only in a scenario of a significant economic slowdown or recession.

Equities and precious metals to be supported in the medium term

Fiscal dominance, financial repression and high budget deficits favour real and scarce assets over the US dollar and government bonds. The dollar is likely to weaken in the medium term, which should lead to better relative performance for investments outside the US. As long as no financial crisis with sharply rising bond yields forces a fiscal U-turn in the US or parts of Europe – a risk that we consider possible in the long-term but do not expect in the short term – the bull market in equities and precious metals should continue over the next six to twelve months. It is supported by solid nominal earnings and further fuelled by Fed interest rate cuts, which may be comparable to those of 1998 in the wake of the Russia/LTCM crisis. Experience shows that bear markets are triggered by interest rate hikes, not cuts. If the stock market bull run were to come to an end in the short term, it would be rather short and weak by historical standards. Admittedly, following the strong recovery since the correction in April and in view of the high positioning of rule-based investment strategies and political risks, a renewed counter-movement has become more likely, especially as October is historically the month with the highest volatility. However, with next year's mid-term elections in mind, President Trump is likely to act in support of the economy and the markets in such a case. We therefore believe it would be wrong to become too pessimistic about risky investments in the medium term. After the typically volatile months of September and October, equities are likely to remain supported for the time being. In mid-term election years, equities have historically performed well until March/April. After that, these years have often become more volatile, and it is only after the elections that the upward trend has continued.