Are investors positioned for the new reality?

The world is in the middle of ‘regime change’ with the investment landscape today vastly different from the QE decade between the Global Financial Crisis (GFC) and the Covid pandemic (which in turn kickstarted a massive period of fiscal stimulus).  

This has profound implications on how investors should be positioned. It would not be surprising if the ‘winning’ asset classes, regions, currencies, and stocks of recent years do not have such a stranglehold over returns going forward, while other areas are experiencing a renaissance. 

I am not so sure that investors’ portfolios have been adjusted to this new reality, and many are still ‘stuck’ with equity portfolios heavy on the winners of the previous decade and a focus on benchmarking against indices that are very concentrated and skewed against these backward-looking winners, often at elevated P/E-multiples.  

At turning points, portfolio inertia can cause immense pain for those who don’t diversify away - even if just as an insurance policy.  

If investors were to start with a blank sheet of paper and build a global equity portfolio from scratch today, we do not believe they would choose to put two-thirds of their portfolio in one country and currency with large sector exposure to tech and quality growth – as global benchmarks currently do. 

Of course, ‘regime change’ is a bit of a buzz-term that can mean different things to different people. For us, it’s a term to describe the broad stylised market drivers and the economic and/or political environment.  

Alongside the regime change we believe there has been a change in the investment zeitgeist, yes, in the political and economic environment, and a change in longer term indicators such as rates, inflation, taxation, and trade.

We believe that the post-GFC era of little or no inflation, low or negative interest rates, relative peace, increased global trade links, and unchecked globalisation is no longer.  

Inflation has returned globally (outside of China, that is) leading to un-anchored inflation expectations. The US 10-year bond yield is above 4%, a level not seen since 2008. 

Government balance sheets are running at debt/GDP levels that would have been unacceptable decades ago, geopolitical conflict is intensifying and latterly we have entered a new era of trade protectionism.  

Things are changing. Portfolios should, as well. 

This, in turn, has led to a change in market leadership both within and across asset classes. Bonds and long duration assets are no longer leading the market; US is not outperforming the Rest of the World equities. 

That told, US AI-exposed stocks are rallying, and bitcoin seems to be doing ok, but so are European banks and Global Emerging Markets – all traditionally seen as value sectors.  

Software is not automatically outperforming steel. There is more than one game in town, and it’s not just driven by US tech, low interest rates, and free money. 

The ‘one way traffic’ that we saw in markets in the post-GFC era, which saw long duration assets (US quality growth stocks, venture capital, 50-yr government bonds etc.) outperform almost everything else, appears to have come to an end, for now at least. 

Some factoids: 

• European banks have more than doubled the return of the NASDAQ over the last three years.¹
• South Korea is the best performing equity market in 2025 thus far, almost 3x that of the NASDAQ.²
• German defence company Rheinmetall has outperformed Nvidia since August 2022.³ 

We skewed our portfolio towards many of these new areas of outperformance a couple of years ago and reaped the rewards from doing so, with the fund strongly outperforming in recent years and year-to-date. 

European banks (as well as banks more generally) have been our largest sector overweight since late 2022, where we saw the potential for normalising interest rates, much improved balance sheets and cheap valuations to usher in a step change in returns in the sector.  

Obviously, regime change is not a straight line; some aspects have been evident since the pandemic, such as generally higher interest rates (especially risk-free rates at the longer end of the yield curve) on the back of generally higher inflation and inflation expectations. 

Other elements are coming to the fore this year, such as protectionism and disruption to global trade. We believe the story will be volatile but continue to create investment opportunities for the curious contrarian.  

We currently invest in 21 different countries denominated in 12 different currencies.⁴ 

This diversification is not an objective but is illustrative of an investment universe that offer interesting investment opportunities that lie outside the most popular areas.  

We try to position our portfolio so we can benefit from these secular rotations and more deep-rooted changes. It’s about buying some stocks which might not have been leading equity markets for a decade or longer that now look interesting in the context of the regime change and which are trading at historically low multiples, at least in relative terms.  

Jacob de Tusch-Lec, co-manager of the Artemis Global Income Fund.