Janus

The macro landscape is shifting rapidly, dominated by major global developments and meaningful long term risks. Shifts in the global regime are creating a fast moving environment. Yet, despite the noise, markets have continued to climb, and global growth has remained resilient. That tension between structural risks and supportive near term conditions is the central dichotomy we face. It’s an environment that we believe should reward active investing over passive. It demands careful selection, continuous monitoring, and the flexibility to adjust as conditions change, because the world is moving fast, and both opportunities and risks accelerate alongside it.

2025 was a strong year for our portfolios (with the usual reminder that past performance is not a guide to the future). The dynamics we saw last year are shaping how we approach the year ahead, helping us judge which opportunities still have room to run and which may be nearing the end of their cycle. You can explore this in more detail in our Outlook section.

There’s certainly no shortage of headlines right now, but with every change comes new opportunity. Our role is to spot those opportunities early and access them in a risk-controlled way. With that in mind, we’re looking ahead with interest to what this year’s markets will deliver.

A glance at headline returns for 2025 shows another year of strong market performance, the third consecutive year of double-digit gains in global equities. But unlike previous years, 2025’s positive performance was not all down to US mega-cap tech stocks. The annual returns for the MSCI all-country global index were actually higher than the S&P (22% vs. 17%), signalling a meaningful broadening of market leadership. Performance was far more globally diversified, with a wider range of countries contributing to strong returns than we’ve seen in some time. Japan’s TOPIX delivered a strong 26% return and the UK’s FTSE 100 also returned 26%, but it was emerging markets that truly stood out, surging 34% for the year (all returns in local currency).

This brings us to arguably the most consequential market move of the year: the sharp decline in the US dollar. After reaching a peak in early January, the greenback fell around 10% against a basket of major currencies, a notable reversal after years of sustained strength. For US dollar based investors with overseas holdings, strong regional returns combined with a weaker dollar translated into excellent returns on their overseas holdings.

For investors with a base currency of euros or the Swiss franc, for example, the picture looks quite different. Given the weight of the US in many portfolios, the strong headline returns discussed lose some shine when translated back into euros or the Swiss franc. When the dollar weakens against the euro, the value of US denominated assets falls in euro terms. Put simply, a weaker dollar reduces the euro value of dollar based investments.

Precious metals were the other big story of the year, with gold returning 67% and silver 158%. Gold’s rally was fuelled by strong momentum from the ‘debasement’ trade, the strategy of buying gold and other hard assets as a hedge against inflation, rising government debt, and a weakening dollar. Mining equities also posted exceptional gains, offering a leveraged way to participate in the gold upswing and rising nearly 160% over the year. Broader commodities finished in positive territory as well, even in the face of a 20% decline in oil prices.

Bonds enjoyed a stronger year as interest rates declined across global markets. Falling rates translate into lower yields and, in turn, higher bond prices. The global bond index gained 8%, outperforming a broad hedge fund index for the first time in several years. Looking ahead, however, it’s far from certain that major central banks will continue cutting rates in 2026 — we see that as unlikely. And with inflation lingering, the real returns on fixed income remain relatively unattractive.

Note: All data sourced from Bloomberg LP and quoted in USD unless otherwise stated.

The surge in liquidity continued into the last quarter of 2025, with credit readily available and ample capital circulating, spurring borrowing and investment activity. It was a combination of factors underpinning these favourable conditions, notably, lower interest rates, a softer US dollar, and falling oil prices. Reduced interest rates lower the cost of borrowing, stimulating consumer spending and business investment. These easy financial conditions are often associated with a ‘risk-on’ environment, where investor optimism drives capital into higher-risk assets in pursuit of greater returns.

Credit spreads describe the extra yield investors earn from holding corporate bonds instead of risk-free Treasuries. Spreads can be described as the market’s barometer of confidence. They narrow when investors require less compensation for taking credit risk. Wider spreads typically indicate heightened market uncertainty, whereas tight spreads suggest a more stable outlook.

Today’s ample liquidity has seen spreads fall to historic lows, increasing demand for yield as investors seek a home for their cash. Liquidity also suppresses volatility, and this tightens spreads as there’s lower required compensation for taking risk. Lower interest rates impact spreads too as yields on safe assets fall, so investors more likely to choose credit instead.

We have an underweight (relative to benchmark) position to credit in our portfolios . Narrow spreads mean there’s limited compensation for taking on credit risk, whilst term premia are relatively low, providing little reward for duration. In our view, the risk-reward profile is not attractive; spreads are still compressed relative to fundamental risk.

Absolute yields may have become reasonably attractive, with central bank bond yields sitting around their highest levels in 25 years. However, investors are still not being adequately compensated we believe for taking on additional credit risk. The real vulnerability lies in the possibility of an economic slowdown or a market shock that would bring an end to the current liquidity driven boom. In that scenario, credit markets would likely sell off sharply, creating significant downward pressure. Only then are we likely to see valuations reset to levels where prospective returns become genuinely compelling.

Precious metals had a remarkable year of growth in 2025, outperforming the more traditional asset classes. Gold mining equities, which provide differentiated exposure to gold, were also top performers last year. This performance reflects the earnings power of the mining companies as the base metal prices continue to march higher with persistent investor appetite for safe-haven assets due to inflation pressures, geopolitical uncertainty and falling interest rates.

This has not gone unnoticed as gold is now attracting a broader investor base. While central banks and other institutions have been the primary drivers of gold purchases in recent months, we’re seeing material inflows into gold ETFs, marking a shift towards retail investment. It seems even central banks decided they don’t want to own US government bonds anymore, they want to own gold. Precious metals are catching everyone’s eye.

We maintained a meaningful allocation to gold and gold mining equities last year, and both contributed strongly to portfolio performance. We believe the asset still has room to run, so we intend to keep our exposure in place until the economic backdrop shifts, although we might expand the exposure to capture a similar opportunity in industrial metals

When we look across the spectrum of diversifying assets, fixed income did enjoy a solid 2025 as falling interest rates around the world pushed prices higher. But we are less certain than the market that central banks will cut rates much further again this year, so plan to remain underweight bonds and overweight gold. In an environment of persistent inflation, the real returns on fixed income remain relatively unappealing. Possibly fixed income would have worked well last year on a tactical basis, but we think about positions over the long term. We see the risk of a deflationary negative shock to markets as a relatively low probability, if this is the case, duration will not provide the portfolio diversification desired; we continue to work hard to ensure portfolios have the right mix of diversifying strategies rather than simply relying on the ‘long bonds’ playbook of the past three decades.

Our preference for gold is also supported by the ongoing ‘debasement’ trade — the strategy of owning gold and other hard assets as protection against inflation, rising government debt, and a weakening US dollar. Historically, a softer dollar has tended to lift gold prices. As gold is priced in dollars, a weaker currency makes it more affordable for international buyers. A weaker dollar also reduces the appeal of other dollar denominated assets such as cash and Treasuries, whose returns are now less valuable . Both dynamics provide additional support for gold.

2025 delivered another year of robust market performance, but the question is whether that momentum can carry into 2026. In the US, the majority of equity market returns were driven by earnings, rather than any meaningful valuation uplift. Outside the US, earnings were still important, but crucially we saw markets re-rate in terms of valuation multiples. Global growth remains reasonably solid, offering a supportive backdrop for risk assets, especially in an environment still awash with liquidity. Looser fiscal, monetary, and regulatory conditions continue to inject liquidity into the system, and could help prop up valuations for longer than many might expect – as long as earnings stay strong.

The path of unemployment, growth and inflation - in the US and globally – will be crucial in determining where central banks take rates next. That will be a key driver for this year.

At the same time, the macro landscape is crowded with risks. That tension between supportive near term conditions and long term vulnerabilities is the central challenge investors face. Prudence is essential, particularly when considering structural risks that may take time to unfold. Yet in the shorter term, growth appears poised to improve, buoyed by abundant liquidity. For now, that dynamic remains the dominant force driving markets.

The AI bubble has dominated headlines, but it wasn’t actually where most of the gains came from last year. 2026 won’t be a single theme story about AI but it will likely remain a significant thematic opportunity. Therefore, we’re looking for ways to benefit from the broader AI expansion without taking unnecessary risk. We think one of the most compelling ‘picks and shovels’ AI opportunities is industrial metals.

With global spending rising across defence¹, AI infrastructure², and the energy transition³, industrial metals stand out as an overlooked sector with strong potential. Years of underinvestment have left supply constrained, while demand is set to accelerate. That combination puts the capital cycle in their favour. As a result, industrial metals are a key area we’re planning to add to in the year ahead.

Gold and gold miners have enjoyed a brilliant run, and while there may still be some upside left, we believe the opportunity is nearing its later stages. Markets eventually reach a point where everyone is on the same trade; we’re not fully there yet, but we’re getting closer. With that in mind, we’re already thinking ahead, considering how best to redeploy capital once the risk/reward trade-off looks less appealing.

A trade that looks much closer to its beginning than its end we believe is biotech. After a decade of exceptional performance, the sector endured three to four difficult years, marked by sharp volatility early this year amid political uncertainty. But over the past three to six months, biotech has staged an outstanding bounceback⁴.

We see this as a longer term opportunity, and we have planted the seeds early. We’re actively looking to add another biotech manager and increase our exposure as the sector enters what could be the early stages of a renewed cycle.

The US lagged the rest of the world last year, and we see that trend potentially repeating in 2026 as investors look towards new opportunities, particularly in emerging markets. These economies stand to benefit from the evolving global regime and the prospect of a weaker dollar, both of which could provide meaningful tailwinds. Given this backdrop, we view emerging markets as a key area to stay focused on and intend to maintain our overweight positioning.

¹ Military spending worldwide hits record $2.7 trillion | UN News

² Gartner Says Worldwide AI Spending Will Total $1.5 Trillion in 2025

³ Executive summary – World Energy Investment 2025 – Analysis - IEA

⁴ MSCI World Pharmaceuticals, Biotechnology and Life Sciences Index performance

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