Introduction

At Alpian, we strive to offer you the best of both worlds: private bank-caliber strategies without the astronomical costs of traditional private banking. We are not a robo-advisor—behind our investment process and your portfolio is a dedicated team of experienced professionals. We often work behind the scenes, so this communication is our way of showing that we are here, engaged, and that we care.

This report complements our regular investment publications, such as our newsletter, by providing a deeper dive into our investment process, our performance in 2024, and our outlook for 2025.

While the content may be more detailed and sophisticated than our usual updates, we recognise the need to cater to different audiences. As always, our advisors are here to help you navigate and interpret market insights. We hope this report equips you with the same confidence we have as you approach 2025.

We don’t forecast, do you?

The year 2024 surprised even the most seasoned analysts. While most major banks and financial institutions anticipated modest stock market performance, the S&P 500 defied all expectations, posting a remarkable 25% gain. This increase, the strongest over two consecutive years since the late 1990s, highlighted the disconnect between cautious strategist forecasts and a market propelled by unexpected factors.

Did our team do a better job of forecasting 2024? The answer is no, and we approach our ability to predict the future with humility. As Niels Bohr, Nobel laureate in Physics and father of the atomic model, famously said, “Prediction is very difficult, especially if it’s about the future!” More seriously, there are two fundamental reasons why we also avoid forecasting altogether:

First, forecasting often adds little real value. Studies show that Wall Street forecasters’ accuracy hovers around 48%—no better than a coin toss. Building a robust investment strategy on such uncertain foundations is far from reliable.

Second, forecasts can lead to commitment bias, which poses a significant risk to portfolio performance.

Instead, we believe the role of an asset manager is not to predict but to adapt. It begins with constructing a resilient, all-weather core strategy and then adjusting the sails as specific events unfold.

Did this approach pay off in 2024?

The short answer is yes. Through tactical adjustments, we added value to performance. While hindsight reveals opportunities for improvement, we met our commitment: delivering performance in line with the markets, underpinned by a strong focus on risk management. We’ll explore this further in a dedicated section reviewing our 2024 performance.

That said, forecasts are not entirely avoidable. Every investment decision involves forming views about the future—an implicit form of forecasting. And let’s be honest: forecasting helps address the questions individuals naturally have when entrusting managers with their money. Questions like, “How will you navigate the year ahead, and can I trust that you have a solid plan?” are crucial for building confidence.

That’s why, in this edition, we will share insights into how we plan to approach 2025. Rather than making specific predictions, we’ll focus on the key factors likely to drive portfolio performance in the year ahead.

Alpian performance in 2024: a recap

First things first: a critical look at 2024, a year that proved challenging to navigate. Overall, we delivered performance broadly in line with expectations. Conservative portfolios faced greater hurdles due to higher-than-anticipated volatility in fixed-income markets and our broader international exposure compared to most of our peers. On the other hand, we successfully held the fort with more aggressive portfolios.

A balanced strategy portfolio delivered a solid 5.47% return for the year. While this was slightly below the 2024 industry average of 6.46%, it’s important to highlight that in 2023, we outperformed significantly, delivering almost double the average return (6.27% vs. 3.27%).

Overall, a balanced strategy delivered an average net return of 12.10% over the past two years, outperforming the industry average of 9.89%, according to Performance Watcher, an independent platform that tracks the performance of Swiss asset managers.

Breaking down the sources of performance, the majority of returns came from our exposure to global markets—a positive outcome, as this aligns with the core assumptions of our investment process. Our primary objective is to provide diversified access to global economic growth. However, we were negatively impacted by rate movements and the USD surge in the second half of the year. As a reminder, our policy is to hedge currency risks by default.

The tactical adjustments we implemented added value throughout the year. Our small allocations to cryptocurrencies and gold, along with an underweight position in inflation-linked bonds and Asia-Pacific equities, delivered strong results. Conversely, our overweight in emerging market bonds and underweight in European equities were less advantageous. Nonetheless, the positive performance of our winners outweighed the impact of underperforming positions.

With consistent results, a disciplined process, and a strong foundation from 2024, we enter 2025 with confidence. Our focus remains on diversification, adaptability, and leveraging global opportunities to continue delivering robust outcomes for our clients.

Turning to 2025

The elephants in the room

When we approach portfolio management, our first instinct is to ask: what are the elephants in the room? What are the key drivers that will shape the performance of a given portfolio, whether it’s designed for a cautious investor or a more risk-tolerant individual? From this foundation, we can then identify and analyze the factors influencing these drivers.

Asset allocation: The core driver of performance

The most important driver of portfolio performance is the mix of assets you hold. Over the long term, asset allocation is the primary determinant of return variability.

While stock selection and market timing may influence short-term results, it’s the distribution of investments across asset classes—such as stocks, bonds, real estate, and alternatives—that accounts for roughly 80% of the variability in future returns.

This is not to dismiss the impact of stock picking. In 2024, for example, owning NVIDIA instead of Intel would have significantly altered outcomes. However, at Alpian, we don’t engage in stock picking—and for good reason. The odds are stacked against investors: only about 1 in 3 stocks outperform their indices on average, and losses from poor picks often outweigh the gains from winners.

Instead, our focus remains on asset allocation, enabling us to concentrate on the most influential drivers of performance within each asset class—particularly stocks and bonds, which form the core of our portfolios.

Geographical allocation: Critical for equity performance

Within equities, geographical allocation is one of the most critical factors to get right, and 2024 was no exception. Whether capital was allocated to U.S. equities or Swiss equities, for example, had a substantial impact on overall performance. Choosing the right geographical exposure in 2025 will again meaningfully influence returns.

Interest rates: The key driver for bonds

On the bond side, interest rates are the dominant performance driver, with credit risk playing a secondary role. In 2024, as central banks worldwide adjusted their policies at different rates, disparities in performance became clear—for instance, between Swiss bonds and U.S. bonds. These differences highlight the importance of monitoring monetary policy trends and adapting accordingly.

Currency risk: A silent yet pervasive driver

A fourth factor, often underestimated but just as impactful, is currency risk. For Swiss investors, navigating the challenges of a strong reference currency is particularly relevant. Currency fluctuations can amplify or diminish returns, sometimes significantly pulling portfolios in one direction or another.

Asset allocation, geographical diversification, sensitivity to interest rates, and currency risk—these are the key drivers we focus on to optimise portfolio performance.

A lens through which to view 2025

With this foundation in place, we can begin to peel back the layers of the onion. What are the key questions we need to address to form a coherent view? How can we contextualise 2025 challenges and events around these drivers to make informed decisions?

Here are the key questions currently occupying our thoughts:

• Asset allocation: After a strong 2024 and an equally solid 2023, have equities stretched too far? Should we consider scaling back risk, or should we maintain a neutral allocation between stocks and bonds? Can we still count on gold and crypto as diversifiers?

• Geographical breakdown: U.S. equities have outperformed most markets. Should we continue to rely on U.S. dominance, buoyed by Trump’s re-election? Or could other regions stage a comeback?

• Interest rates: This past year, we navigated diverging monetary policies, with rates falling in Switzerland and rising in the U.S. Can we expect a reversal or further divergence in 2025?

• Currency: What lies ahead for the Swiss franc in 2025? Will its strength persist, and how might it impact portfolio returns?

Let’s tackle each of these questions, and hopefully, this will give you a clear sense of how we intend to approach 2025.

Did you say “bubble”?

"Trees don’t grow to the sky," as the saying goes. After two years of stellar returns, with stocks like NVIDIA repeatedly breaking records, it's natural to question whether this streak is sustainable. The word "bubble" has already been floated by the more pessimistic forecasters. But are equity markets truly in a bubble? Or have they simply stretched far enough for us to consider adjusting our allocation strategies?

Our initial assessment is that the market, as a whole, is not in a bubble state. While certain pockets are undoubtedly overheated, this is not true across the board.

To explain the foundation of our observation, it’s essential to first identify the key characteristics of a bubble. Over time, market-shaking bubbles have often displayed common traits that we identify and assess:

• Rapid price surges with a clear disconnect from fundamental values

• Overestimation of future growth prospects coupled with poor risk assessment

• Broad market participation, including less experienced investors

• Herd mentality, often amplified by excessive media hype

• Insufficient regulatory oversight

• Heavy reliance on leverage

The question of a disconnect from fundamentals is a valid one. In recent years, many markets have delivered strong performance despite economies experiencing only modest growth. Labor markets in most developed countries remain stable, and companies have posted robust earnings growth, but this has translated into elevated valuations. For instance, the S&P 500's price-to-earnings (P/E) ratio currently stands at 27, significantly above its historical average. Furthermore, the overregulation of the financial sector has redirected capital toward less transparent and lightly supervised areas of the ecosystem. So, there are reasons for concerns.

However, these issues are largely concentrated in the U.S. and a handful of stocks that have driven market performance, as well as a few cryptocurrencies. The majority of stocks, both in the U.S. and globally, have not experienced such growth. For example, U.S. small-cap stocks are trading at roughly the same levels as three years ago.

Market participation is broad in some crowded trades but nearly absent in other parts of the market. Additionally, higher interest rates have made leverage more expensive, tempering speculative behaviour.

This suggests that we are not facing a generalised market bubble. Even if the hottest pockets of the equity market were to experience a correction—which is a plausible scenario—other areas of the market could remain resilient and help stabilise the overall picture.

Alternatives are not without challenges either. Shifting a portion of equity allocations to perceived "safer" assets like bonds carries risks, particularly in an environment of uncertain central bank policies.

At this stage, we remain comfortable with a benchmark-weighted allocation, relying on diversification to navigate potential turbulence. Of course, we stand ready to adjust our allocation mix more decisively if markets show signs of overheating, but for now, this remains our base scenario.

Our stance: Hot but not overheated—and not everywhere. Benchmark-weighted allocation is a good place to start the year.

Double down on the US?

After gaining 25% in 2024 following another 25% in 2023, U.S. equity markets appear unstoppable. The dominance of U.S. equities over recent decades can be attributed to a host of competitive advantages: high productivity, efficient capital markets, an entrepreneurial culture, and more. This economic strength has consistently translated into market outperformance.

It’s no surprise, then, that U.S. equities now represent 73% of the MSCI World Index, despite accounting for only 26% of global GDP. The re-election of Trump has further fuelled optimism among market participants.

But is this outperformance truly unstoppable? And should investors dismiss the rest of the world entirely?

Let’s first examine what a new Trump era means for U.S. markets. In essence, his return combines pro-growth measures with protectionist policies, which, on paper, could create a fertile environment for U.S. markets to trend higher. However, this strategy is not without its risks:

• Corporate tax cuts are expected to boost corporate profits and support indices like the S&P 500, but they come with the risk of widening the fiscal deficit, reminiscent of his first term.

• Protectionist policies, including tariffs of up to 60% on Chinese imports and threats against other trade partners, are disrupting global supply chains and forcing companies to adapt. These trade tensions are likely to increase market volatility, as reflected in the VIX, and could pressure the dollar's stability if deficits escalate.

• Planned infrastructure investments may boost sectors like construction and heavy industries, while deregulation in fossil fuels and cryptocurrencies could stimulate growth in these areas. However, such policies could come at the expense of sustainable investments, as seen during his previous term.

In summary, Trump’s 2025 policies are broadly positive for the U.S. economy, though much depends on his ability to implement them effectively.

While Trump’s return may inspire optimism in U.S. markets, it also introduces uncertainties for the global economy. Canada, Europe, Japan, Mexico, etc., the list of countries which could be affected by the commercial strategy of the US president is long.

And some areas like Europe are already facing their own challenges. Slow growth, long term competitiveness challenges…The heavyweights of the EU are dragging their feet, exemplified by Germany, which has been in recession for two years. Investors' only hope lies in the ECB lowering its key interest rates sooner than expected to jumpstart the economy. The story is a bit similar in Japan.

Investors are also shunning China. The mid-2000s marked the peak of China’s stock market, fuelled by the era of hyper-globalisation. Today, however, the trend of de-globalisation presents significant headwinds for Chinese equities. As an economy still heavily reliant on exports, China faces mounting challenges from protectionism and shifting supply chains, putting its export-driven growth model under considerable strain.

Compounding these external pressures are domestic issues: a prolonged property crisis, high local government debt, and sluggish consumer spending. Together, these factors create a potent mix that discourages investors from committing to the region.

But can we truly ignore a country that contributes 19% of global GDP? While Trump’s policies bring uncertainty, Xi Jinping offers stability, and the government’s recent liquidity injections are tangible.

Moreover, in a tariff battle between the U.S. and China, who stands to lose the most? Keep in mind that 40% of China’s exports to the U.S. consist of critical electronic components, while 40% of U.S. corporate earnings are derived from overseas markets.

We believe Chinese equities still have a place in a diversified portfolio, alongside other emerging markets such as India and Vietnam, which are gaining favour among investors as countries increasingly diversify their supply chains.

Overall, it seems to us that the impact of Trump’s policies appears to be partially priced into many regions and may even be overestimated in the U.S.

In light of this, our approach for 2025 will be to start with the benchmark weight, which already allocates a substantial portion to the US equities, and make tactical adjustments to capitalise on market inefficiencies and excesses.

However, there is no compelling reason to significantly deviate from the benchmark at this stage, particularly as international diversification has proven valuable in recent years like 2022 and 2023. After all, crises tend not to occur simultaneously across all regions of the world.

Our stance: Stay anchored at base camp while making tactical adjustments to seize geographical short-term opportunities and capitalise on market inefficiencies and excesses.

When central bankers don’t help

Bonds are traditionally considered the safe corner of a portfolio, but for the past three years, exceptions have outweighed the rule. Central banks’ aggressive actions to curb inflation hit bond investors hard. Rising interest rates pushed bond prices down, leaving investors bracing for the storm to pass and anticipating a reversal. Instead, they encountered a new challenge: the end of forward guidance.

Central bankers, who once calmed markets with their words, now seem to be navigating by ear. This shift has led to either a hyper data-dependent approach—creating unbearable suspense with monthly inflation releases—or unexpected policy U-turns, like the Swiss National Bank (SNB) delivered in 2024.

Although markets have largely digested the SNB’s surprise rate cut, something about the move still feels off. Why such a rapid decision? If we rule out the possibility of a policy mistake (our role as asset managers is to adapt, not to criticise), another explanation emerges: the SNB either has a different agenda or sees risks we don’t. Is this an aggressive effort to weaken the CHF? Are cracks in the domestic economy spreading? And is the apparent calm in the real estate and banking sectors genuinely reassuring?

What’s clear is that forward guidance doesn’t seem to be a priority for the SNB in 2025—their press release on the cut was cryptic at best. We know negative interest rates are back on the table for 2025, but we don’t know why.

Across the Atlantic, U.S. central bankers remain uncertain about the path of interest rates. For now, we’re aligning with the Fed’s dot plot, which suggests a modest decrease in rates in 2025. This should provide some relief and a boost to bond portfolios.

In Europe, the outlook seems clearer. The ECB has all but handed markets a roadmap for future rate cuts, providing a rare moment of predictability in an otherwise turbulent environment.

In summary, bonds remain an essential component of a portfolio but are accompanied by greater uncertainty than ever. As for the much-anticipated reversal in the U.S., patience will be key. Diversification remains our strongest strategy, as poorly timed active bets on interest rates could prove costly.

Our stance: Patience and time accomplish more than force and anger. The central banks' approach has made rate speculation far too volatile to be a reliable strategy.

Our currency, your problem

The strength of the Swiss franc has always been a double-edged sword for the Swiss. On one hand, it helps the economy absorb inflationary pressures naturally and enhances purchasing power when traveling abroad. On the other hand, it poses challenges for exporters and complicates investment returns.

The trend over the past 20 years is clear. A U.S. investor who invested in U.S. equities 50 years ago would have enjoyed an annual return of 11.9%. However, the same investment made by a Swiss-based investor in CHF would have yielded only 9.5% annually. In other words, 2.4% is lost on average every year due to the appreciation of the Swiss franc against the USD. When compounded, the difference is staggering—16,238% left on the table over 50 years. The story is similar with other currencies.

This highlights the importance of hedging currency risk. However, hedging comes at a cost, and to complicate matters, currency movements are not consistent. For instance, while the USD lost 9% against the Swiss franc in 2023, 2024 painted a different picture, with the USD gaining 8% against the CHF.

Last year, we gradually increased our exposure to the USD ahead of Trump’s election, but this remains a tactical move. We lack sufficient evidence to suggest that a 50-year trend, which even the Swiss National Bank has struggled to counter, is about to reverse.

There are several structural reasons behind the strength of the Swiss franc, ranging from Switzerland's relative immunity to inflation, the resilience of its economy, and the stability of its political system.

While it’s difficult to attribute this strength to any single factor, one thing is clear: for the Swiss franc to weaken structurally against the USD or the Euro, there would need to be a shift in these foundational factors or the emergence of new dynamics. Potential triggers for such a shift could include:

• A persistent interest rate differential between currencies.

• Switzerland becoming less politically stable compared to its peers.

• A loss of competitiveness relative to Europe.

• External factors, such as the emergence of a new global order or payment system.

What is the likelihood of these changes?

While we cannot completely rule out scenarios like political instability or a surge in inflation in Switzerland versus Europe, these remain relatively low-probability events for now.

That said, a loss of competitiveness cannot be entirely excluded. For instance, Switzerland has faced increasing difficulty securing bilateral agreements with Europe, and its credibility as a neutral nation took a hit following the Russia-Ukraine war.

Additionally, the rise of digital currencies could present a long-term threat. However, these are slow-moving trends, and their immediate impact is more likely to result in a slightly less robust Swiss franc rather than a dramatic depreciation.

Of course, external factors like the Swiss National Bank's (SNB) active interventions in currency markets and potential impacts from the Trump trade package could also play a role. Despite these considerations, we remain confident in keeping a portion of foreign currency exposure hedged.

Our stance: Maintain a partial hedge on foreign currency exposure.

Conclusion

In this report, we have shared our thought process with you in the hope of providing the confidence needed to approach markets in the year ahead.

Forecast is not our cup of tea, instead we rely on a highly analytical approach to building portfolios. Our investment motto says it all: “No fancy products, no excessive fees, no unnecessary risks.”

Our role is to act as a straightforward intermediary between you and the financial markets. Whatever 2025 brings, we are prepared to navigate its challenges and will remain focused on delivering the best possible outcomes for your investments.

Important information

Disclaimer

The information contained in this document is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any securities or other financial instruments. The opinions expressed are those of Alpian as of the date of publication and are subject to change without notice.

Past performance is not indicative of future results. Investments involve risks, including the possible loss of principal. Before making any investment decisions, it is recommended to consult with an independent financial advisor to ensure that the investments are suitable for your personal situation and financial goals.

Alpian disclaims any liability for the accuracy, completeness, or timeliness of the information provided in this document. Any use of this information is at your own risk.

Investment mandate performances are not guaranteed and may lose value.