Investment professionals will need to have an “unwavering focus” on diversification and valuations in 2025 amid elevated equity prices and credit market risks, St. James’s Place (SJP) CIO, Justin Onuekwusi, has stated.

As we enter 2025, Onuekwusi said that events from last year had presented the investment community with a landscape that was rife with challenges and opportunities.

“In 2024, markets demonstrated resilience amid dynamic global conditions,” Onuekwusi said.

“Equity markets saw robust returns, driven by technological innovation, a decisive US election outcome, and an expansion in valuation multiples, particularly among US mega-cap technology stocks.

“Tightening spreads in bond markets, while offering higher yields than much of the past decade, highlighted the importance of navigating credit risk in a prudent manner.”

Moving into 2025, the macroeconomic backdrop remained “complex”, as governments look to balance their election pledges with debt sustainability, while trade frictions, tax policies, and protectionist measures were adding layers of uncertainty.

Furthermore, inflation and the higher interest rate environment created a potentially volatile environment, especially in bond markets, with this evolving landscape demanding a “nuanced investment approach” where diversification, disciple, and flexibility were “paramount”, Onuekwusi argued.

“Equally, there are opportunities for those prepared to take a long-term view,” he continued.

“Non-US equity markets, particularly in emerging regions, alongside Europe and Japan, are offering compelling relative valuations, and fixed income continues to provide a stabilising role within diversified portfolios.

“Funds that are actively managed struggled in concentrated markets dominated by a few large-cap stocks, but could regain importance as markets broaden and volatility creates inefficiencies. These dynamics set the stage for an investment approach that balances resilience with a readiness to capitalise on new opportunities.”

Additionally, Onuekwusi highlighted that higher equity prices and credit market risks required an “unwavering focus” on diversification and valuations.

He argued that a prudent underweight in US equities, alongside overweight positions in emerging markets, non-US developed regions, and smaller company equities reflected SJP’s view that diversification can mitigate risks and unlock returns in areas with strong structural growth drivers.

“Our fixed income allocations remain neutral, taking advantage of higher yields while providing stability in volatile environments,” he stated.

“However, the combination of higher yields and historically tight spreads reinforces the need for vigilance. While bond markets provide valuable diversification benefits, the risk of taking on unnecessary credit exposure without adequate rewards, remains significant.

“As markets evolve, our investment framework remains adaptable, rooted in global diversification, active decision-making, and a commitment to long-term value creation.

“By maintaining this approach, we are confident our strategies will continue to deliver outcomes that align with our clients’ goals, navigating the challenges and seizing the opportunities of an everchanging global market.”

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