Allspring’s 2025 Market Outlook: A Shifting Landscape
Allspring Global Investments, a prominent asset management firm with $590 billion in assets under advisement, recently unveiled its 2025 global market outlook, forecasting significant shifts in both equity and fixed income markets. The firm anticipates an evolving investment landscape characterized by economic adjustments, changes in equity market leadership, and a volatile fixed income environment. Coinciding with this outlook, Allspring announced its entry into the exchange-traded fund (ETF) market with the launch of three actively managed fixed income ETFs, leveraging the firm’s expertise in a sector representing $440 billion of its managed assets. These ETFs – the Allspring Broad Market Core Bond ETF (AFIX), Allspring Core Plus ETF (APLU), and Allspring Income Plus ETF (AINP) – offer investors varying approaches to fixed income, focusing on core bonds, global opportunities, and income generation, respectively.
Navigating the Fixed Income Terrain
Allspring predicts continued volatility in the fixed income market driven by fluctuating interest rates influenced by the evolving monetary policies of central banks, particularly the Federal Reserve and the European Central Bank. The firm advises investors to strategically navigate this uncertainty by focusing on high-yield opportunities, short-duration instruments, and tactical duration tilting to capitalize on relative value. Diversification through actively managed ETFs, particularly those designed to adapt to market cycles, is recommended. Furthermore, Allspring highlights sectors like securitized credit, mortgage-backed securities, and financials as potential areas offering attractive relative value. The firm emphasizes the importance of combining risk-focused strategies with flexible tactical adjustments to optimize returns within this dynamic environment. While acknowledging a supportive growth trend in the U.S., Allspring recognizes greater challenges globally, especially in Europe, which faces ongoing economic pressures compounded by the ECB’s distinct monetary policy path.
Attractive Global Bond Market Despite Low Risk Compensation
Despite yields reaching 15-year highs in global bond markets, the compensation for credit risk in U.S. investment-grade and high-yield bonds remains near historical lows. This necessitates a focus on security selection, highlighting the importance of active portfolio management, a strategy reflected in Allspring’s newly launched actively managed ETFs. The Allspring Broad Market Core Bond ETF (AFIX) emphasizes fundamental analysis to identify diverse high-quality yield sources. The Allspring Core Plus ETF (APLU) offers exposure to the firm’s top global fixed income ideas, while the Allspring Income Plus ETF (AINP) targets a combination of high current income and capital appreciation. Each ETF distributes monthly dividends and has a competitive expense ratio, ranging from 0.19% to 0.35%.
Equity Outlook: Beyond the Magnificent Seven
Allspring anticipates a significant shift in the U.S. equity market, moving away from the dominance of mega-cap growth stocks. The firm forecasts a broadening of market breadth, increased interest in small- and mid-cap equities due to attractive valuations, and the potential for emerging markets to outperform expectations. While acknowledging the strong performance of the "Magnificent Seven" tech giants, Allspring cautions about their high valuations and potential for decelerating growth. The firm suggests that the significant valuation gap between these mega-caps and the broader market may present opportunities for investors looking beyond the dominant players.
Small- and Mid-Cap Opportunities Emerge
Historically, periods of large-cap dominance are often followed by cycles of small-cap outperformance. Allspring believes that 2025 could witness such a shift, with small- and mid-cap companies potentially outperforming their larger counterparts due to accelerating earnings growth and attractive valuations relative to large-caps. Active managers are increasingly focusing on profitable small-cap companies within the Russell 2000 Index, seeking to capitalize on the anticipated shift in market leadership. This focus aligns with the historical trend of extended periods of small-cap outperformance following periods of large-cap dominance, suggesting a potentially favorable environment for these smaller companies.
Emerging Markets: A Potential Dark Horse
Allspring identifies emerging markets as a potential dark horse for 2025. Despite geopolitical risks and concerns about tariffs, particularly in relation to China, the firm notes that emerging market valuations are at historically low levels relative to the S&P 500. This presents a compelling contrarian opportunity, as low expectations can sometimes lead to surprising outperformance. Allspring draws parallels to the market reaction following the 2016 U.S. presidential election, where initial concerns about emerging markets were followed by strong performance in 2017. The firm suggests that a similar scenario could unfold, with emerging markets defying low expectations and delivering significant returns for investors willing to take on the associated risks. Allspring believes that active management is essential for navigating the complexities and potential volatility of this asset class.
