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1、 2025 WEALTH OUTLOOK growth amid discord:strategies for a“rule-breaking”expansion where wealth happens INVESTMENT PRODUCTS:NOT FDIC INSURED NOT CDIC INSURED NOT GOVERNMENT INSURED NO BANK GUARANTEE MAY LOSE VALUE WEALTH OUTLOOK 2025 foreword Welcome to Wealth Outlook,our semiannual flagship report e

2、xploring key economic and market trends for your portfolio in the coming year and beyond.I am grateful to Steven Wieting,our Chief Economist and Chief Investment Strategist,and the colleagues worldwide who have contributed their insights.We see the global economy as having“broken the rules”in recent

3、 years,given its continued growth despite usually reliable recession signals in the U.S.and elsewhere.Considering the pace of innovation,productivity gains and rising global consumer demand,this resilience came as no surprise to us.We have consistently argued for keeping portfolios fully invested an

4、d positioned for an ongoing rally.While market volatility may pick up,we believe economic growth will be sustained globally in 2025 and 2026.The rollout of artificial intelligence may bring increasing benefits to industries beyond technology.Rising capital spending can help support this“rule-breakin

5、g”expansion and the markets upward path.Naturally,there remain many challenges.The potential for new U.S.tariffs may intensify trade tensions.Discordant politics and geopolitics may persist,with scope for unpredictable developments in the Middle East,Ukraine and elsewhere.Heavy government borrowing

6、in the U.S.and other nations could yet unnerve the bond markets.3 While valuations have risen since 2022s lows,we see potential opportunities across asset classes globally.We believe this calls for a broadening of portfolio horizons,especially for the many investors whose allocations are overly conc

7、entrated.We also expect that holding a lot of cash will remain unrewarding.As you explore Wealth Outlook,please ask your relationship team what it may mean for your portfolio.Our global investment platform contains many strategies to help you pursue the potential opportunities we see,while also seek

8、ing to mitigate risks.At Citi Wealth,we recognize you,our clients,as the Worlds Changemakers,whose ideas,passions and pursuits are reshaping businesses,communities and society as a whole.Our mission is not only to help you manage your wealth,but also to inspire and enable its creation by connecting

9、you to opportunities across Citis vast global network.Thank you for choosing Citi Wealth.We look forward to guiding you on your financial journey this year and beyond.Andy Sieg HEAD OF WEALTH 4 WEALTH OUTLOOK 2025 contributors Wealth Outlook 2025 was prepared by The Office of the Chief Investment St

10、rategist in collaboration with colleagues from Citi Investment Management and our Alternative Investments team 5 WEALTH OUTLOOK 2025 OUR GLOBAL TEAM-INSIGHTS Steven Wieting Chief Investment Strategist and Chief Economist Jorge Amato Head of Latin America Investment Strategy Davide Andaloro Senior Po

11、rtfolio Manager Citi Investment Management Stefan Backhus Head of Alternatives Strategy Cecilia Chen Global Equity Strategy Chris Distaulo Portfolio Manager Citi Investment Management Joseph Fiorica Head of Global Equity Strategy Bruce Harris Head of Fixed Income Investment Strategy Joe Kaplan Senio

12、r Fixed Income Investment Strategist Paisan Limratanamongkol Head of Strategic Asset Allocation and Quantitative Research Guillaume Menuet Head of Europe,Middle East and Africa Investment Strategy Daniel ODonnell Head of Alternatives and Investment Manager Solutions Ken Peng Head of Asia Pacific Inv

13、estment Strategy Deborah Querub Head of Digital Assets Charlie Reinhard Head of North America Investment Strategy Harlin Singh Urofsky Head of Sustainable Investing Malcolm Spittler Investment Strategist and Senior U.S.Economist Michael Stein Head of Liquid Strategies Hedge Fund and Traditional Cath

14、erine Turullols Sustainable Investing Specialist for North America Diane Wehner Senior Portfolio Manager Equities Citi Investment Management Nathan Weinstein Global Healthcare Analyst Citi Investment Management Kerry White Head of Portfolio Solutions Citi Investment Management Michael Yannell Head o

15、f Research Hedge Funds,Fixed Income and Credit Shu Zhang Head of the Investment Lab PRODUCTION Gera Aina Investments Marketing Project Manager Nicole DAngelo Head of CIO Content&Insights Jamie Maran CIO Content&Insights Analyst Dominic Picarda Editor 6 WEALTH OUTLOOK2025WEALTH OUTLOOK 2025 foreword

16、the world in 2025 and beyond Growth amid discord:strategies for a“rule-breaking”expansion 9 Our positioning infographic 15 The long-term view for asset classes:moderate optimism 16 The dollarization of cryptocurrencies 19 core portfolio insights Staying the course:broadening portfolio horizons 24 Eq

17、uities:shifting leadership in an ongoing bull market 27 Fixed income:credit at the core 32 Complementing core portfolios with private asset classes 36 The case for hedge funds in suitable and qualified 42 investors core portfoliosBeyond core portfolios:opportunistic investing 46 unstoppable trends A

18、I:getting more real 53 Climate:investing in innovative technologies 57 Healthcares prescription for longevity 61 Positioning portfolios amid U.S.China polarization 63 7 WEALTH OUTLOOK 2025 the world in 2025 and beyond continuing growth The global economic expansion has defied recessionary signals in

19、 recent years.We expect ongoing growth in 2025 and 2026,with potential further gains in global earnings.potential for long-term returns With markets having recovered strongly since their lows of late 2022,valuations have risen somewhat across most asset classes.Nevertheless,our ten-year return forec

20、asts make us moderately optimistic.By contrast,we believe holding cash may prove disappointing.discord and other risks Trade tensions and other geopolitical discord could trigger higher market volatility ahead.Risks also include U.S.overheating and pockets of high valuation.However,we do not see a c

21、ase for holding excess cash.WEALTH OUTLOOK 2025 growth amid discord:strategies for a“rule-breaking”expansion With the global economy potentially set for further upside,we make the case for portfolios that are positioned for potential growth but prepared for the risks of a discordant world.key takeaw

22、ays We believe in continued global growth and rising profits in 2025 Discordant geopolitics may trigger more volatility across markets We make the case for broadening portfolio horizons,with potential in several asset classes Risks include but are not limited to U.S.overheating,a global trade war an

23、d pockets of high valuation 9 WEALTH OUTLOOK 2025 The global economy has defied expectations in recent years.Forecasts of recession backed up by usually reliable indicators came to nothing.Despite the sharpest and most synchronized interest ratehiking campaign by global central banks in decades,grow

24、th has endured.Corporate profits in the U.S.recently reached new highs,with profits elsewhere closing in on their former peak.FIGURE 1 U.S.output,employment and income kept growing despite recession signals-20%-15%-10%-5%0%5%10%15%6065707580859095000510152025Y/Y%ChangeRecessionLeading Economic Indic

25、atorsCoincident Economic IndicatorsSource:Haver,as of Nov 10,2024.The US Index of Leading Economic Indicators looks at a combination of statistics including manufacturing new orders,money supply and consumer expectations as a guide to potential future activity.The US Index of Coincident Economic Ind

26、icators addresses a combination of elements such as labor market activity,personal income,and industrial output to capture the state of current activity.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the perform

27、ance of any specific investment.Index returns do not include any expenses,fees or sales charges,which would lower performance.All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.Past performance is no guarantee of

28、future results.Real results may vary.10 WEALTH OUTLOOK 2025 In 2025 and 2026,we expect this“rule-breaking”expansion to continue.We also expect the growth to be accompanied by further geopolitical and political discord.In the U.S.,the incoming Trump administration is poised to pursue policies that se

29、ek to accelerate activity domestically,but which may increase tensions externally.Some controversial policies may also lead to fractious domestic politics in the U.S.and elsewhere.Amid the inevitable noise,we remain focused on the drivers of global growth,both shorter and longer term,while monitorin

30、g the evolving risks.CONTINUING GROWTH,POTENTIAL RISING PROFITS In our view,global GDP may rise at 2.9%in 2025 and 2026,compared to 2.6%in 2024 figure 1.Among advanced economies,we see the U.S.remaining as the main engine of growth.We recently upgraded our U.S.growth forecast for 2025 to 2.4%.As in

31、his first administration,President-elect Donald Trump will aim to boost growth while trying to avoid stronger U.S.demand simply“leaking abroad”as the U.S.consumes more imports.Deregulation and tax cuts are key to his growth agenda.We will be watching U.S.small business confidence particularly for si

32、gns that the prospect of loosening regulation is enhancing currently depressed sentiment.FIGURE 1 Citi Wealth Investments forecasts for GDP Growth GDP FORECASTS(%)2020 2021 2022 2023 2024E 2025E 2026E U.S.-2.2 5.8 1.9 2.5 2.7 2.4 2.1 China 2.2 8.5 3.0 5.2 4.9 5.2 4.8 E.U.-6.3 6.2 3.4 0.5 0.7 1.2 1.6

33、 U.K.-10.3 8.6 4.8 0.3 1.0 1.1 1.5 Global -3.2 6.0 3.3 2.6 2.6 2.9 2.9 2020 2021 2022 2023 2024E 2025E 2026E S&P 500-13.5 46.9 6.0 0.6 9.2 7.6 7.6 EPS Level 122 209 222 223 244 262 280 P/E 27.6 24.4 17.8 22.8 24.0 22.4 20.9 Source:Citi Wealth Investments,as of Nov 16,2024.All forecasts are expressio

34、ns of opinion and are subject to change without notice and are not intended to be a guarantee of future events.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the performance of any specific investment.Index retu

35、rns do not include any expenses,fees or sales charges,which would lower performance.Past performance is no guarantee of future results.Real results may vary.11 MSCI ACWI ex-USMSCI USQuarterly EPS Growth Y/Y%WEALTH OUTLOOK 2025 Of course,Trumps agenda comes with risks.Any capital spending boom could

36、see misallocation of resources.The U.S.economy might simply“run hotter”without any increase in its growth potential.If enacted,tariffs and tough action on illegal immigration would also likely raise goods prices and squeeze the supply of labor,feeding through into higher inflation,one of the primary

37、 issues of the campaign for voters across the country.That said,we suspect Trumps domestic and external policies may prove rather different from his campaign speeches.For now,we expect U.S.core inflation to drop to 2%during the first half of next year thanks partly to the strong dollar and cheaper i

38、mports.We think the Fed may be able to cut policy rates,if more gradually,through the first half of 2025.The Fed funds target range may bottom around 3.54%in 2025.Against this backdrop,we look for further growth in corporate profits both in the U.S.and the rest of the world figure 2.Once more,this“b

39、reaks the rules.”Interest rate cutting cycles have typically occurred at times of falling rather than rising profits.FIGURE 2 we look for EPS gains beyond the U.S.-50-30-10103050709019202122232425Estimates Source:Bloomberg,as of Oct 31,2024.Citi Wealth forecasts are based on historic national accoun

40、ts and IMF-forward data.All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent th

41、e performance of any specific investment.Index returns do not include any expenses,fees or sales charges,which would lower performance.For illustrative purposes only.Past performance is no guarantee of future results.Real results may vary.12 WEALTH OUTLOOK 2025 GEOPOLITICAL DISCORD We expect Trump t

42、o pursue some version of the swiftly imposed 60%-or-higher tariffs on imports from China that he promised in his election campaign.Only in time will we learn if this is a negotiating gambit to achieve other China-related goals.We are skeptical that much will be achieved other than a shift in product

43、ion and trade between countries.Some U.S.companies would almost inevitably face harsh retaliatory measures from China.Heavy,across-the-board U.S.tariffs would represent a clear threat to Chinese exports,which have been a rare bright spot for its economy lately.We are keenly watching to see whether C

44、hina becomes bolder or more timid in its growth-boosting efforts at home.So far,the size and specifics of its borrowing and spending plans have disappointed.Our forecast for 2025 is for a slight increase in Chinas GDP to 5.2%.The blanket 1020%tariffs Trump promised on all other countries imports may

45、 be intended as a bargaining chip to persuade others to lower their tariffs on U.S.goods.The European Union where we already expect further limp GDP growth in 2025 looks vulnerable given its export reliance on U.S.trade.We consider trade disputes among the greater risks to U.S.and world equity marke

46、ts resulting from the U.S.election.Even if a full-blown trade war is avoided,headlines about U.S.policy are likely to cause market volatility,as in 2018.Geopolitical events have not historically changed the global economys or markets direction Much of the bull market in risk assets since late 2022 h

47、as occurred amid heightened geopolitical tensions,including the wars in the Middle East and Ukraine.Such events have not historically changed the direction of the global economy or markets,as we have often pointed out.1 There is now greater uncertainty over how the new U.S.administration will approa

48、ch these and other geopolitical challenges.Trump prides himself on unpredictability in foreign affairs and believes that rivals and potential foes will be more cautious on his watch.Nevertheless,geopolitical tensions and flashpoints look set to persist in the years ahead leaving market volatility in

49、 their wake.1 See,for example,Geopolitics and elections:assessing risk in 2024 in Wealth Outlook 2024.13 WEALTH OUTLOOK 2025 STRATEGIES FOR A“RULE-BREAKING”EXPANSION How to position portfolios for growth amid discord?We see potential for decent returns over the coming decade the long-term view for a

50、sset classes:moderate optimism.However,we see many investors whose portfolios are highly concentrated,especially in U.S.large-cap equities,which have performed strongly in recent years.Given the latters high valuations,we believe such concentration may prove even riskier in the coming decade.Holding

51、 large amounts of cash,meanwhile,seems unlikely to be rewarding.Against this backdrop,we make the case for keeping core portfolios fully invested and exposed to all the asset classes envisaged in each investors long-term investment plan staying the course:broadening portfolio horizons.With equity up

52、side likely to continue in 2025,we think more sectors and countries can help drive markets.We explore potential opportunities and risks in U.S.small-and mid-cap equities,banks,the enablers of manufacturing reshoring,and national markets including Brazil,Japan and India equities:shifting leadership i

53、n an ongoing bull market.In fixed income,we seek yield from credit i.e.,bonds issued by companies.Indeed,we believe that intermediate maturity,investment grade corporate bonds could serve as a core fixed income holding.Suitable investors might also consider differentiated holdings,including structur

54、ed credit,bank loans and preferred securities fixed income:credit at the core.Likewise,suitable and qualified investors might seek diversification in private equity,private credit and real estate complementing core portfolios with private asset classes.In the face of geopolitical discord,we look to

55、global diversification to help address risks.We believe such allocations are likely to withstand volatility better than portfolios concentrated in a region where a significant geopolitical flashpoint occurs.We also see value in exposure to investments relating to“economic security”vital aspects of g

56、lobal supply chains and national security.These include supplies of traditional energy,technology such as semiconductors,defense and cybersecurity.Many of these are tied to our unstoppable trends,the powerful,long-term forces that may reshape the world around us see,for example,positioning portfolio

57、s amid U.S.-China polarization.Among our unstoppable trends,are the advance of artificial intelligence(AI).We expect AI to enhance human output in coming years,while creating new social and cybersecurity risks.If so,AI could enable the“speed limit”of the global economys growth to rise over time.In t

58、he meantime,we see the benefits of this game-changing technology spreading to more industries AI:getting more real.As the global economys“rule-breaking”expansion looks poised to continue in 2025 and 2026,we therefore see many ways to position portfolios for what may follow.Our approach stresses disc

59、ipline,allocating to potential opportunities within the framework of a long-term plan and understanding the risks.While the economy may break the rules from time to time,preserving and growing wealth calls for investors to stay the course.14 -WEALTH OUTLOOK 2025 our positioning ASSET CLASSES|GLOBAL

60、USD LEVEL 3 ASSET ALLOCATION STRATEGIC(%)(long term)TACTICAL(%)0 FIXED INCOME 37-2.5 DEVELOPED SOVEREIGN 18.8-5.6 U.S.8.8 1.6 NON-U.S.10-7.3 U.S.SECURITIZED 6.1 2 DEVELOPED IG CORPORATES 6.9-0.3-HIGH YIELD 2-1.5 EMERGING MARKET SOVEREIGN 3.1-1 THEMATIC:PREFERREDS 0 2 THEMATIC:U.S.BANK LOANS 0 2 EQUI

61、TIES 60.9 3.5 DEVELOPED EQUITIES 52.2 2.9 LARGE CAP 46.3 1 U.S.33.1 0 S&P 500 33.1-1.5 THEMATIC:EQUAL WGT S&P 500 0 1.5 CANADA 1.5 0 U.K.1.9 0 EUROPE EX-U.K.5.4 0 ASIA EX JAPAN 1.4 0.5 JAPAN 3 0.5 SMALL-AND MID CAP(SMID)5.9 1.9 CORE GLOBAL SMID 5.9-1.1 THEMATIC:U.S.SMID GROWTH 0 3 EMERGING MARKET EQ

62、UITY 8.7 0.6 ASIA 7.4 0.5 LATIN AMERICA 0.8 0.5 EUROPE,MIDDLE EAST AND AFRICA 0.5-0.4 THEMATIC:HEALTHCARE 0 0 CASH 2-1 COMMODITIES 0 0 GLOBAL USD LEVEL 3 ASSET ALLOCATION 100STRATEGIC ASSET ALLOCATION ACTIVE Source:Citi Wealth Investments Global Investment Committee and Citi Wealth Strategic Asset A

63、llocation and Quantitative Research Team,as of Nov 9,2024.The above table is an example for educational and illustration purposes only and does not constitute a portfolio recommendation.It was generated without taking into account any individuals specific circumstances or requirements.Investors look

64、ing to develop their portfolio should contact their Citi representative for further guidance.Risk level 3 is designed for investors with a blended objective who require a mix of assets and seek a balance between investments that offer income and those positioned for a potentially higher return on in

65、vestment.Risk level 3 may be appropriate for investors willing to subject their portfolio to additional risk for potential growth in addition to a level of income reflective of his/her stated risk tolerance.The asset classes used to populate the allocation model may underperform their respective ind

66、ices and lead to lower performance than the model anticipates.15 WEALTH OUTLOOK 2025 the long-term view for asset classes:moderate optimism While the next decade will likely see lower returns than the last couple of years,we continue to make the case for global diversification.To build and maintain

67、a core portfolio,you need a long-term investment plan.This plan also known as a strategic asset allocation sets out how much to allocate to each asset class.At Citi Wealth,we create such a plan for each client using our own methodology:Adaptive Valuation Strategies(AVS).AVS takes current valuations

68、to estimate returns over the next decade.Based partly on these estimates,it suggests a suitable mix of asset classes for pursuing each clients goals.So,what is AVS saying about the outlook for returns over the coming decade?key takeaways Rising markets in 2023 and 2024 have raised valuations across

69、asset classes But our ten-year return forecasts make us moderately optimistic Portfolios concentrated in a single asset class with a lower Strategic Return Estimate(SRE)may prove even riskier Holding too much cash is likely to prove unrewarding 16 WEALTH OUTLOOK 2025 Figure 1 shows our Strategic Ret

70、urn Estimates(SREs)for ten major asset classes.SREs are annualized forecasts over a decade that may not be achieved.After two years of strongly rising markets,valuations are no longer as low as they were.As such,SREs have also come down from where they were this time last year or even in mid-2024.Al

71、ongside these forecasts,we share Extreme Downside Risk.Also displayed in figure 1 is Extreme Downside Risk(EDR)for each asset class.Based on historical data,EDR addresses the most meaningful risk for investors:that of an allocation suffering severe losses during a crisis.SREs and EDRs are closely re

72、lated,with higher returns coming with higher risks.FIGURE 1 our return and risk estimates over a decade SRE from 2025 to 2035 SRE from mid-2024 to mid-2034 EDR from 2025 to 2035 EQUITIES 5.6%6.4%Developed Markets 5.2%6.0%-55.8%Emerging Markets 9.2%10.4%-63.8%FIXED INCOME 4.8%5.3%Investment Grade 4.6

73、%5.1%-11.9%High Yield 5.6%6.3%-49.8%Emerging Markets 6.1%7.1%-45.5%CASH 3.2%3.2%0.0%HEDGE FUNDS 8.1%8.5%-36.9%PRIVATE ASSETS 12.6%14.6%*-71.6%Private Equity 13.5%14.6%-78.7%Private Credit7.6%n/a*-25.1%REAL ESTATE 11.0%10.8%-78.9%COMMODITIES 2.5%2.6%-50.5%Source:Citi Wealth Strategic Asset Allocation

74、 and Quantitative Research Team.Strategic Return Estimates(SREs)2025(based on data as of Oct 2024),prior Strategic Return Estimates for mid-year 2024(based on data as of Apr 2024).The Strategic Return Estimates are calculated annually and can be reassessed periodically.Returns estimated in U.S.Dolla

75、rs.All estimates are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.Strategic Return Estimates are no guarantee of future performance.Extreme Downside Risk (EDR)calculates the worst potential loss that a particular allocation m

76、ay suffer within a rolling twelve-month period over ten years.Past performance is no guarantee of future returns.Strategic Return Estimates based on indices are Citi Wealths forecast of returns for specific asset classes(to which the index belongs)over a 10-year time horizon.Indices are used to prox

77、y for each asset class.The forecast for each specific asset class is made using a proprietary methodology that is appropriate for that asset class.Equity asset classes utilize a proprietary forecasting methodology based on the assumption that equity valuations revert to their long-term trend over ti

78、me.The methodology is built around specific valuation measures that require several stages of calculation.Assumptions on the projected growth of earnings and dividends are additionally applied to calculate the SRE of the equity asset class.Fixed Income asset class forecasts use a proprietary forecas

79、ting methodology that is based on current yield levels.Other asset classes utilize other specific forecasting methodologies.*Private Assets at the mid-year stage consisted only of Private Equity;an SRE for Private Credit was not calculated.SREs do not reflect the deduction of client fees and expense

80、s.Past performance is not indicative of future results.Future rates of return cannot be predicted with certainty.Investments that pay higher rates of return are often subject to higher risk and greater potential loss in an extreme scenario.The actual rate of return on investments can vary widely.Thi

81、s includes the potential loss of principal on your investment.It is not possible to invest directly in an index.All SRE information shown above is hypothetical,not the actual performance of any client account.Hypothetical information reflects the application of a model methodology and selection of s

82、ecurities in hindsight.No hypothetical record can completely account for the impact of financial risk in actual trading.See Glossary for definition of asset classes and terms.17 WEALTH OUTLOOK 2025 EQUITIES AND FIXED INCOME Shares from advanced economies including the U.S.,Europe and Japan have an S

83、RE of 5.2%.Midway through 2024,this stood at 6.0%.For Emerging Equities shares from economies including China,India and Brazil the SRE is 9.2%.Its a similar story across Fixed Income,where prices and valuations have also risen.Our forecast for Investment Grade which includes the highest quality bond

84、s from governments and companies in advanced economies has an SRE of 4.6%.High Yield riskier bonds from less creditworthy borrowers and Emerging Market Fixed Income bonds from developing economies have SREs of around 5.6%and 6.1%respectively.Again,these estimates are somewhat lower than in the recen

85、t past.Lower potential estimated returns in Equities and Fixed Income have knock-on effects elsewhere.Private Equitys SRE of 13.5%has been reduced by rising valuations in publicly traded shares.Likewise,Hedge Fund SREs are linked to those in publicly traded shares and bonds.In this asset class,our f

86、orecast is 8.1%,while Real Estate has little changed at 11.0%.PRIVATE CREDIT Private Credit non-traditional loans from lenders other than banks has grown as a major asset class over recent years.We have thus decided to publish Private Credits own SRE and added it as a sub-asset class under our Priva

87、te Assets(which includes Private Equity).At 7.6%,it is higher than our estimates for the three fixed income asset classes.Of course,this higher return potential comes with risks,including less liquidity.We consider the potential opportunities and risks in complementing core portfolios with private a

88、sset classes.moderate optimism HOW TO INTERPRET OUR LATEST SRES?SREs are not meant to forecast returns in the year or two ahead.Instead,they are an average of forecasts over a decade,in which there will be better years and worse years.Over time,most decades have hosted at least one recession and rec

89、overy.We believe our SREs key message to be about diversification.In recent years,portfolios concentrated in Developed Equities and specifically in U.S.equities have typically performed well.But given the decline in Developed Equities SRE,we think that such concentration is likelier to prove even ri

90、skier.Instead,we believe investors should ask themselves whether their portfolios are following their long-term plan.If there are asset classes in their plan that do not feature enough or at all in their portfolios,it may be a good moment to seek broader diversification.18 WEALTH OUTLOOK 2025 the do

91、llarization of cryptocurrencies Stablecoins which account for most of cryptocurrency activity worldwide could end up reinforcing the U.S.dollars dominance.key takeaways Stablecoins are cryptocurrencies whose value is linked to another asset They are widely used in payments,money transfer,saving and

92、lending beyond just the cryptocurrency ecosystem Since most are pegged to the U.S.dollar,further growth could bolster that currencys status Stablecoin risks may include,for example,issuer solvency,custodian problems and“de-pegging”19 WEALTH OUTLOOK 2025 In the world of digital assets,the likes of Bi

93、tcoin and Ethereum dominate headlines.Their volatility and hence potential to generate rapid gains or losses have seen them develop a substantial following among investors.Away from the limelight,however,a different kind of cryptocurrency is gaining in popularity:stablecoins.Stablecoins are cryptocu

94、rrencies whose market value is pegged to another asset.Minted and controlled by private companies,the most widely used stablecoins are backed by central bank currencies such as the U.S.dollar or euro.Others are linked to physical commodities like gold or oil.The idea behind this pegging often at a o

95、ne-to-one rate is to provide them with stability,as their name suggests.There is another less popular type called algorithmic stablecoins.These are not backed by any asset but instead use software to automatically adjust demand and supply,seeking to maintain a stable price.Initially,stablecoins play

96、ed a supporting role in crypto markets.They enabled traders to keep their funds in a crypto asset before buying into or after selling out of the likes of Bitcoin and Ethereum.So,rather than having to switch back into,say,actual U.S.dollars,traders could keep their liquid reserves in a dollar-pegged

97、cryptocurrency.The most widely used stablecoins are backed by bank currencies 20 WEALTH OUTLOOK 2025 Subsequently,though,stablecoins have entered much broader daily use.Many people rely on them to send money or make purchases,often being quicker and cheaper than doing bank transfers,especially inter

98、nationally.Stablecoins can also serve as interest-earning savings and as collateral in peer-to-peer lending.They are especially popular in emerging countries with inflation-dogged currencies,1 where citizens typically prefer saving and spending in U.S.dollars but may face restrictions on doing so.Si

99、nce their inception in 2014,stablecoins have amassed nearly$180bn in market capitalization,much of that in the last five years figure 1.2 Activity has reached record highs,with$5.5 trillion in value across the first quarter of 2024.3 By comparison,Visa saw about$3.9 trillion in volume.4 In response

100、to this challenge,Visa,PayPal and other traditional providers are adapting by offering stablecoins of their own or settling transactions in other firms coins.Originally,cryptocurrencies such as Bitcoin were conceived as rivals to central bank issued currencies.Indeed,some believed and continue to be

101、lieve that Bitcoin might end the U.S.dollars hegemony.However,stablecoins which account for more than four-fifths of cryptocurrency trading volume are challenging that narrative.Around 93%of stablecoins are U.S.dollar denominated.5 Most of these are issued by companies that maintain reserves of doll

102、ars,U.S.Treasuries,repurchase agreements and money market funds as backing.Despite their backing by government-issued currencies,stablecoins are not without risks.Issuers may not hold sufficient reserves or may become insolvent.Those providing custody to reserves could also experience difficulties.G

103、iven concerns over money laundering and fraud,regulators may place restrictions on these cryptocurrencies.Indeed,a couple of stablecoins have even collapsed,while the value of others have temporarily“de-pegged”from their backing assets,declining below one-for-one.Nevertheless,demand for stablecoins

104、has kept growing.The potential implications for the broader financial system have attracted the interest of regulators globally.In the European Union,for example,new rules covering stablecoins came into effect in July 2024.6 The U.S.House of Representatives may vote on an act that aims to introduce

105、a regulatory framework for these assets.7 While such initiatives aim to protect investors and preserve financial stability,greater regulatory clarity could also potentially further boost their appeal.If so,demand for U.S.Treasury bills from stablecoin issuers might grow from around 1%of purchases to

106、day.8 Stablecoins could make dollars more accessible to the world Rather than usurping the dollar,therefore,this variety of cryptocurrency could thus make dollars more accessible to the world and reinforce the U.S.currencys longstanding global dominance.21 WEALTH OUTLOOK 2025 FIGURE 1 total stableco

107、in market capitalization 020406080100120140160 180Jan-19Jan-20Jan-21Jan-22Jan-23Jan-24$bn.TetherUSDCDAIOther StablecoinsSource:Citi Research,Coin Metrics,as of Nov 1,2024.Stablecoins shown are the top three by market capitalization:Tether(USDT),USD Coin(USDC)and DAI,a coin on the Ethereum blockchain

108、.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the performance of any specific investment.Past performance is no guarantee of future results.Real results may vary.See Glossary for definitions.1 Citi Research Di

109、gital Asset Take:A Framework for Stablecoins,as of Nov 2024 2 Citi Research Digital Asset Take:A Framework for Stablecoins,as of Nov 2024 3 Bloomberg,as of May 2024 4 Citi Research Visa Metrics,as of Oct 2024 5 Citi Global Insights Digital Dollarization,as of Feb 2024 6 Bloomberg,as of Apr 2023 7 Co

110、ngress.gov,as of Apr 2024 8 Bloomberg,as of Aug 2024 22 WEALTH OUTLOOK 2025 core portfolio insights core portfolios We believe that establishing a core portfolio a globally diversified mix of assets kept fully invested across market cycles is central to seeking wealth preservation and growth over ti

111、me.Every core portfolio should be based on a long-term plan.broaden portfolio horizons Many portfolios do not have exposure to all the asset classes envisaged in their long-term plan.We see potential to broaden across global equities,fixed income,and for suitable and qualified investors,private equi

112、ty,private credit,real estate and hedge funds.opportunistic investing A much smaller opportunistic portfolio can potentially complement the returns of a core portfolio.Such positions are often more concentrated,shorter-term and have little or no performance history.WEALTH OUTLOOK 2025 staying the co

113、urse:broadening portfolio horizons High U.S.large-cap equity valuations argue against concentrating portfolios in that market and in favor of global diversification.key takeaways Portfolios heavily concentrated in the U.S.have performed strongly in recent years but may not do as well over the next d

114、ecade We make the case for seeking to broaden portfolios in line with investors long-term investment plans and investment objectives Alternative asset classes may offer return and diversification potential for suitable and qualified investors portfolios Global diversification neither guarantees a pr

115、ofit nor ensures against losses amid falling markets 24 WEALTH OUTLOOK 2025 Staying the course is essential in most aspects of life,from business and careers to relationships to education to sports.We believe it also matters deeply in investing.Historically,those who have stayed the course with a co

116、re portfolio a globally diversified mix of assets that is fully invested throughout market cycles have been likelier to reach their wealth goals than those who have not.The last three years are a case in point.In 2022,equities and fixed income the mainstay of most core portfolios suffered simultaneo

117、us double-digit calendar-year losses.Such rare pain panicked some investors into abandoning their long-term investment plan and shifting their portfolios heavily into cash.This has proved a costly mistake.Since the end of 2022,global equities and global fixed income have returned 44.9%and 10.4%respe

118、ctively.By contrast,cash has returned just 9.5%.1 As we enter 2025,we reiterate our case for staying the course in core portfolios.However,this does not mean standing still,as past performance may not be repeated going forward.In recent years,U.S.-focused investors could have achieved strong results

119、.U.S.equities and U.S.bonds would have returned 45.3%and 7.7%respectively since the end of 2022,compared to 28.3%and 12.3%for non-U.S.equities and fixed income.2 We think this is much less likely to recur over the next decade.Richly valued U.S.large-cap equities may produce only modest returns Richl

120、y valued large-cap U.S.equities the main constituent of developed equities may produce only modest returns averaged between now and 2035,as we discuss in the long-term view for asset classes:moderate optimism.25 WEALTH OUTLOOK 2025 At the same time,equity valuations from other developed markets and

121、emerging markets suggest scope for potentially improving returns.Of course,our call is not to abandon either U.S.equities or Treasuries.Both are core components of almost any diversified asset allocation and will remain so for the long term.Instead,we argue for not overlooking entire markets and ass

122、et classes worldwide.We frequently encounter investors whose portfolios are much narrower than their long-term investment plans envisage.Large cash holdings,exposure to a single equity market,investment grade fixed income only and,among suitable and qualified investors,a complete absence of any alte

123、rnative asset classes are all too common.Our message thus concerns broadening portfolio horizons for 2025 and beyond.This begins with comparing your long-term investment plan and investment objective with your portfolio.If there are gaps,overlaps or too much cash,consider strategies to address this.

124、On the pages that follow,we explore some potential ways to broaden portfolios.In the near term,we believe the rally in equities can expand further see equities:shifting leadership in an ongoing bull market.Likewise,we see potential in fixed income beyond U.S.Treasuries see fixed income:credit at the

125、 core.For suitable and qualified investors,there may be scope to broaden outside of equities and fixed income.On a multi-year view,we forecast that some of the higher returns may occur in alternative asset classes.3 We discuss segments where we see potential across private equity,private credit,real

126、 estate and hedge funds see the case for hedge funds in suitable and qualified investors core portfolios.Naturally,broadening allocations is not a free lunch.The potential returns to be sought from high-yield fixed income or alternatives entail taking on additional risks,which may be unfamiliar.Thes

127、e may include illiquidity and even a total loss of principal.Diversification doesnt guarantee a profit or protect against loss in falling markets.Over time,though,we believe that globally diversified portfolios may prove to be equipped to seek growth and endure tougher times.Concentrated and cash-he

128、avy allocations are likely to disappoint.We advocate for staying the course and broadening where appropriate for individual investment objectives.1 Bloomberg,as of Nov 5,2024.Global equities are represented by MSCI ACWI,Global Fixed Income by Bloomberg Global Aggregate Bond Index,and cash by U.S.Tre

129、asury 3-month bill money market yields.2 Bloomberg,as of Nov 5,2024.U.S.and non-U.S.equities are represented by MSCI USA and MSCI ACWI ex USA respectively,US Fixed Income by Bloomberg US Aggregate Bond Index and Global Aggregate ex US indices.3 See the long-term view for asset classes:moderate optim

130、ism on page 16 26 WEALTH OUTLOOK 2025 equities:shifting leadership in an ongoing bull market While U.S.technology has dominated much of the upside to date,other parts of the market could outperform in the coming year.key takeaways We look for the bull market in equities to continue in 2025 Some U.S.

131、sectors may do better as its economy faces inwards,such as small-and mid-cap and various large-cap segments India,east Asian AI-exposed markets,Japan and Brazil may offer attractions Risks include inflation,rising trade tensions and valuations The bull market in global equities is more than two year

132、s old.Having hit the lows of its 24%sell-off in September 2022,the MSCI AC World Index which embraces large-and mid-capitalization shares from developed and emerging economies had delivered a total return of 20%by Nov 14,2024.Following a sharp rebound in 2023,we believe that its uptrend can continue

133、 in 2025 albeit at a more modest pace.27 WEALTH OUTLOOK 2025 Given our forecast of ongoing economic growth,we believe corporate earnings can keep rising over the coming year see figure 1 in strategies for a“rule-breaking”expansion.More sectors saw earnings progress in 2024 than in 2023,with further

134、potential in 2025.If so,we may see broader participation in the bull market,extending further beyond the U.S.technology giants that have led for much of it.Naturally,there are risks to our positive view.Valuations in the U.S.are high by past standards.On a ten-year view,we believe this may point to

135、more modest returns for developed equities,of which the U.S.makes up some 70%see the long-term view for asset classes:moderate optimism.High valuations leave equities more exposed when things go wrong.The incoming Trump administration could widen the already-gaping U.S.fiscal deficit further.In turn

136、,this could stoke inflationary concerns.If the U.S.Federal Reserve then reversed its current interest rateeasing cycle,it might choke off the bull market.Emerging markets which are sensitive to rising U.S.rates and a stronger U.S.dollar might be hit.Trade policy is another uncertainty.Were the U.S.t

137、o impose sweeping tariffs on imported goods likely provoking retaliation in kind companies supply chains could be disrupted.Nevertheless,we see potential in various parts of the equity market for 2025 and thereafter,both in the U.S.and well beyond.28 29 WEALTH OUTLOOK FIGURE 1 select equity market e

138、arnings and valuations Market Forward PE Forecast EPS growth 2025%Forecast EPS growth 2026%S&P 400 Growth 22.3 10.4 14 S&P 600 Growth 20.9 12.6 16 U.S.Banks 13.3 4.8 12.8 MSCI India 25 16.5 16.1 MSCI China 10.9 9.4 11.9 MSCI Japan 15.2 8.3 9.3 MSCI Brazil 9.3 15.0 10.3 MSCI EM Asia 14.3 14.2 12.9 So

139、urce:Bloomberg,FactSet,as of Nov 14,2024.All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do

140、 not represent the performance of any specific investment.Index returns do not include any expenses,fees or sales charges,which would lower performance.Past performance is no guarantee of future results.Real results may vary.STRATEGIES FOR A MORE INWARD-FACING U.S.A return to an“America First”agenda

141、 in the U.S.is likely to influence equity market leadership over the next four years.Republicans controlling Washington are set to prioritize deregulation,extending tax cuts and greater use of tariffs.All of this could attract inflows into U.S.dollar assets for a time.However,potential upside may no

142、t be evenly spread.These include domestically oriented U.S.large caps,such as banks,industrial real estate,robotics and automation specialists,and defense contractors.HOW DEREGULATION AND DEMAND COULD BOOST BANKS Positive forces may be converging for the banking sector.Short-term interest rates have

143、 been falling,while longer-term yields have been rising.This means banks can borrow more cheaply and lend out at higher rates.And with loan activity picking up,they seem well placed to do so.Possible Trump administration deregulation could enable banks to do business more easily and take risks using

144、 their balance sheets.An acceleration in mergers&acquisitions and initial public offerings may also follow.This could boost fees for investment banks,which have suffered in recent years from weak deal flow.Meanwhile,should risk asset markets keep rising,banks wealth management revenues may grow alon

145、gside their assets under management.Of course,these scenarios may not come to pass,as policy implementation under a new administration is always uncertain.30 WEALTH OUTLOOK MAKE AMERICA MANUFACTURE AGAIN:THE ENABLERS A further push to bring manufacturing activity back to the U.S.seems likely,especia

146、lly in key sectors such as technology.This onshoring is likely to see much activity carried out via robotic technology in state-of-the-art facilities rather than by human workers.In this event,sectors that support cutting-edge manufacturing may see growth.These could include the makers of robotics a

147、nd automation technology,constructors specialized in creating warehousing and factories,and the companies that produce heavy machinery needed to build new facilities.Possible deregulation could enable banks to do business more easily Aside from the risk that support for reshoring disappoints,supply

148、chain disruption could impact potential beneficiaries of reshoring.High valuations for robotics and automation providers may limit upside potential.A MATTER OF SIZE In recent times,the largest U.S.technology equities have been at the forefront of the bull market.In the process,those stocks which acc

149、ount for a significant proportion of the S&P 500 Index have driven that indexs valuation much higher.By contrast,U.S.large-cap equities have a lower valuation when every company has the same weight in the index.If the corporate earnings recovery continues broadening,we believe equal-weighted U.S.lar

150、ge-cap equities have outperformance potential.The opposite might be true,of course,if the big technology firms experience another strong run,though.We also see potential in smaller-and mid-capitalization(SMID)equities.If the Trump administration relaxes regulation and cuts taxes,SMID firms may benef

151、it more,as keeping compliant with regulations is especially burdensome for them.Also,SMID companies businesses are typically more domestically focused.As such,they may be less vulnerable if the new administrations policies trigger a global trade war.We are attracted,for example,to mid-cap technology

152、,which has lower valuations than large-cap technology,despite higher potential growth and greater likelihood of mergers&acquisitions activity.The S&P 400 Growth Index and S&P 600 Growth Index are forecast to deliver 10%and 13%earnings growth in 2025.Quality SMID firms that are not over-leveraged are

153、 our preference.Still,SMID equities have been more volatile than large caps.While not our base case,a U.S.economic downturn would likely hit them harder.During market turbulence,selling out can be more challenging.And we cannot rule out ongoing leadership by large-and mega-cap equities.SEEKING GLOBA

154、L GAINS Particularly if widespread tariffs are imposed,economies that trade heavily with the U.S.may suffer.Fears of this have already sparked volatility in equity markets such as China,Mexico and in Europe.However,we do not think that all markets outside the U.S.will underperform.INDIA:MORE GROWTH,

155、LESS CURRENCY VOLATILITY India is the fastest growing major economy globally.We expect its real GDP to rise 7%in 2025,with 45%inflation.High growth may continue over the next five years,mostly driven by domestic demand.India is industrializing and urbanizing,while becoming more business-friendly.The

156、 stock market is well supported by domestic investors,while the central banks large foreign exchange reserves have brought greater stability to the Indian rupee.In 2025 and 2026,consensus forecasts point to 16.5%and 16.1%in earnings growth for the MSCI India Index.1 The market trades on 22 times for

157、ecast earnings for 2025,compared to 13 for the MSCI Emerging Markets Index.This valuation leaves limited scope for earnings disappointment.Although not our base case,higher inflation and interest rates could dampen growth.1 Haver,as of Nov 15,2024 31 WEALTH OUTLOOK .AI BENEFICIARIES IN EAST ASIA We

158、expect further demand growth for key inputs such as semiconductors The artificial intelligence(AI)revolution remains in its early stages.As the rollout continues across industries see AI:getting more real we expect further demand growth for key inputs such as semiconductors.Taiwan and South Korea ho

159、st the largest semiconductor and fabrication companies.We believe they are well placed to address current infrastructure needs and future upgrade cycles.We believe this may provide momentum to these markets over time.Koreas equities continue to trade at a discount to other emerging markets on 7.6 ti

160、mes forecast earnings.The authorities have sought to encourage better practices around dividends and corporate governance,albeit with limited success so far.Taiwanese equities,by contrast,trade on a much higher multiple of 16.3,reflecting their stronger performance in recent times However,this leave

161、s them more vulnerable to disappointments.Both markets face risks from a global trade war,given their reliance on exports.Likewise,a downturn in the world economy might hit both.JAPAN:STILL REFLATING AND REFORMING Japans efforts to reflate its long stagnant economy are paying off.In 2025,nominal GDP

162、 may rise 3.5%,making a third straight year of well-above-trend growth.Tax cuts may help boost consumer spending,while unions are preparing to press for another 5%pay rise in 2025.Against this backdrop,Japanese equities look attractively valued on 15 times 2025s forecast earnings.The Tokyo Stock Exc

163、hange is promoting reform.Listed companies are under pressure to improve governance,transparency,returns on equity and valuations or face delisting or demotion.We expect more consolidation among companies,including in retail,telecoms and financials,which have traditionally been resistant to mergers

164、and takeovers.As a major exporter,Japan is at risk from a potential trade war.A strengthening of the yen could slow corporate earnings.Corporate reform efforts may fall short,while ongoing interest rate hikes could dampen growth.BRAZIL:RECOVERY AND DIVERSIFICATION POTENTIAL Amid contracting Brazilia

165、n corporate earnings,local equities have underperformed world equities by 38%over the last two years.In the process,its currency has dipped toward historic lows against the U.S.dollar.However,we believe things may be looking up for Latin Americas largest economy and equity market.Brazils government

166、is working toward a package to shore up public finances,which may help improve investor sentiment.In 2025,consensus forecasts are for a 15%earnings rise.Among the risks to our positive scenario include any weakening of the global economy,further dollar strength and disappointing progress on fiscal c

167、onsolidation.However,given a multiple of 7 times 2025s forecast earnings and the currencys weakness,we believe these challenges may be largely already priced in.In our view,exposure to Brazil may offer diversification potential for global equity allocations.32 WEALTH OUTLOOK fixed income:credit at t

168、he core Amid a U.S.rate cutting cycle,we see various potential opportunities for seeking more yield from fixed income.key takeaways As U.S.rates fall,we favor making investment grade(IG)credit a core portfolio holding We see potential in certain lower rated IG bonds and sub-IG bonds Differentiated c

169、redit includes structured credit,bank loans and preferred securities(a hybrid of debt and equity)Risks include those relating to repayment,liquidity,interest rates and borrowers repaying early 33 WEALTH OUTLOOK The U.S.Federal Reserve looks set to continue cutting overnight interest rates cautiously

170、 in 2025.The Fed Funds rate could fall from its current 4.75%to about 3.75%by year-end 2025.1 These declines may be enabled by a slowly declining inflation rate and a weakening yet positive employment picture.The U.S.central bank has repeatedly said that it will keep reducing rates based on improvin

171、g inflation data,and that it will cut even more aggressively if the labor market unexpectedly weakens.The Feds heightened vigilance toward employment marks a departure from the previous few years when it was primarily concerned about the threat of higher inflation.However,if the new Republican admin

172、istration proposes government budgets for 2025 and subsequent years that risk sharply increasing the deficit,the Fed might cut rates even more slowly or not at all to try to head off higher inflation.WHAT MIGHT THIS MEAN FOR FIXED INCOME INVESTORS?Rate cuts typically boost bond prices.But we believe

173、 that U.S.Treasury yields already priced in most of the expected rate cuts and are now pricing in the possibility of higher government deficits and therefore an increasing supply of bonds.For example,the 5-year U.S.Treasury yield is currently near 4.28%.2 Likewise,we believe the 10-year yield may ri

174、se slightly from its current 4.42%to about 4.75%by end-2025.3 It is likely that only data indicating an increasing possibility of a recession or a geopolitical shock might push yields much lower.In those cases,we could see investors flock to U.S.Treasuries,pushing prices up.The U.S.central bank has

175、said it will keep reducing rates based on improving inflation data Given the likelihood of further but limited Fed rate cuts,and uncertainty around the new administrations fiscal plans,investors might focus on a diversified fixed income portfolio with intermediate duration rather than bank deposits

176、and Treasury bills.Treasury Inflation-Protected Securities(“TIPS”)currently yield higher after inflation than they have for most of the last decade.The 5-year TIP,for example,currently yields about 1.85%above annual headline consumer price index(CPI).4 If inflation increases more than expected,TIPS

177、might offer more return than Treasuries and a potential hedge for a diversified core portfolio.1,2,3,4 Bloomberg,as of Nov 13,2024 34 WEALTH OUTLOOKWHY WE PREFER CREDIT TO TREASURIES We see greater income potential in credit,i.e.,fixed income securities issued by companies.Currently,intermediate U.S

178、.investment grade credit has a yield of 5.04%,compared to 4.29%on equivalent Treasuries.5 Investors might therefore consider adding intermediate maturity(four-year)investment grade(IG)corporate bonds to their core fixed income holding.Admittedly,credits additional yield or its“spread”over Treasuries

179、 isnt large by past standards.Spreads are about 68 basis points(bps),versus about 150 bps a year ago.6 But we think the potential additional income makes them worthwhile.In a recession which we dont expect credit would likely underperform Treasuries.In the U.S.,selected investment grade rated munici

180、pal bonds(or“munis”)may also provide additional yield over Treasuries.Heavy new muni issuance lately has cheapened them relative to Treasuries.FIGURE 1 yields on various fixed income and equity assets 1.32.73.13.64.44.64.85.25.26.06.68.20123456789S&P 500 Div.YieldGlobal aggex-USMSCI Worldex-US Div.Y

181、ieldUS munisUS TreasuriesUS AgencyMBSUS aggUS IG CMBSUS IG corpUS IGpreferredsEM USD agg US bank loanYield(Latest)Yield(%)Source:Bloomberg,as of Nov 20,2024.Indices cited are:S&P 500 Index,Bloomberg Global Aggregate Fixed Income ex USD Index,MSCI All Country World ex USD,US Munis:Bloomberg US Muni I

182、ndex,Bloomberg US Treasury Index,Bloomberg US MBS Index,Bloomberg US Agg index,Bloomberg US Investment Grade CMBS Index,Bloomberg U.S.Investment Grade Corporate Index,Ice BofA Investment Grade Institutional Capital Securities Index,Bloomberg Emerging Markets USD Aggregate Index,Morningstar LTSA US L

183、everage Loan 100 Index.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the performance of any specific investment.Past performance is no guarantee of future results.Real results may vary.See Glossary for definiti

184、ons.35 WEALTH OUTLOOK LOWERING QUALITY TO SEEK HIGHER RETURNS BBB-rated7 corporate bonds have the lowest rating,still qualifying as“investment grade”or“higher quality.”And BB-rated corporate bonds are categorized below this as“high yield.”Lower-rated bonds come with greater risks,including issuers n

185、ot meeting coupon payments or repaying what they borrowed.However,for investors who understand and are comfortable with those risks,there may be potential to earn additional spread.PREFERREDS,STRUCTURED CREDIT AND BANK LOANS Also for suitable investors who understand and are comfortable with the ris

186、ks,we see further higher-yielding possibilities among differentiated credit.Investment grade rated preferred securities(“preferreds”)average yield is around 6.0%.Blending features of equity and debt,preferreds rank below bonds for repayment if the company is liquidated.Structured credit includes new

187、 Agency AA-rated mortgage-backed securities(MBS).Diversified structured credit funds often own lots of MBS in their portfolios,alongside other types of structured credit.Strategies owning high-yield syndicated bank loans with an average single-B rating yield around 8.2%.Their floating rate coupons f

188、all alongside Fed rates.Even so,we still see potential for seeking additional yield.The flipside of these assets potentially higher yields are the likes of repayment risk,liquidity risk,interest rate risk,prepayment risk,extension risk on the ultimate maturity date(for preferreds),and the suspension

189、 of preferreds dividends.Bonds are affected by a number of risks,including fluctuations in interest rates,credit risk and prepayment risk.In general,as prevailing interest rates rise,fixed income securities prices will fall.Bonds face credit risk if a decline in an issuers credit rating,or creditwor

190、thiness,causes a bonds price to decline.High-yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues.Finally,bonds can be subject to prepayment risk.When interest rates fall,an issuer may choose to borrow

191、money at a lower interest rate,while paying off its previously issued bonds.As a consequence,underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.Tax-Exempt

192、Securities:A national municipal portfolio would be tax-exempt from federal taxes for U.S.taxpayers.However,investors are generally required to pay state taxes on any bonds that are issued by states other than the one they reside in.Prior to investing,please check with your own local tax or accountin

193、g professional to confirm whether you will be required to pay state taxes on municipal bonds issued by other states.Tax-Policy Risk:The potential for changes in the code or tax rules that may adversely affect a companys results as well as taxable income to investors.5,6 Bloomberg,as of Nov 13,2024 7

194、 See the Bond rating equivalence table in the disclosures at the end of this publication 8,9 B loomberg,as of Oct 16,2024 36 WEALTH OUTLOOK complementing core portfolios with private asset classes With higher forecast returns than equities and fixed income,private asset classes may offer potential p

195、ortfolio benefits for suitable and qualified investors prepared to accept the risks involved.key takeaways We see potential for seeking diversification and returns from private markets Evergreen funds are broadening access to private equity,private credit and real estate We favor the likes of second

196、ary private equity strategies,private credit,and industrial and hospitality real estate Risks include leverage,less transparency and operational issues 37 WEALTH OUTLOOK Alternative asset classes have attracted increasing amounts of capital over many years.Between 2000 and 2023,assets under manageme

197、nt for six categories of alternatives grew at a compound annual rate of 12.4%to over$18 trillion figure 1.We believe alternatives popularity could gain further as suitable and qualified investors seek returns and portfolio diversification.Within alternatives,our multi-year outlook for private asset

198、classes is positive.Our strategic return estimates are 13.1%for private equity,7.6%for private credit and 10.8%for real estate,compared to 5.5%for publicly traded equity and 4.4%for fixed income.While these represent our forecasts of annualized performance averaged over the coming decade,there is no

199、 guarantee they will be met.Large year-to-year variations are likely,including scope for deep declines see the long-term outlook for asset classes:moderate optimism.Aside from the potential for returns and diversification,access to private assets is expanding.Managers are offering innovative structu

200、res that seek to improve liquidity and flexibility see expanding private markets access:evergreen funds.Nevertheless,we observe that many suitable and qualified investors still do not follow their long-term investment plan when it comes to alternatives,allocating either too little or not at all.With

201、in alternatives,our multi-year outlook for private asset classes is positive Here,we set out some private market strategies for broadening portfolio horizons.38 WEALTH OUTLOOKFIGURE 1 the long-term rise of alternatives AUM 20 18 16 14 12 10 8 6$trillion 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007

202、2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 PRIVATE EQUITY HEDGE FUNDS REAL ESTATE INFRASTRUCTURE PRIVATE DEBT NATURAL RESOURCES Source:Preqin and HFRI,as of Dec 31,2023.39 WEALTH OUTLOOK LEVERAGING MARKET INEFFICIENCIES VIA PRIVATE EQUITY Following a freeze-up si

203、nce 2021,dealmaking involving privately owned companies has started recovering.However,with a backlog of 11,567 U.S.private equity held companies having accumulated,more paths to liquidity are being utilized by managers.1 The secondary private equity(PE)market may help here.General partner(GP)led se

204、condaries are initiated by the manager of an existing PE fund.The manager either sells part of a single company or several fund assets in a transaction led by a secondaries manager by rolling them into a new investment entity,enabling them to continue managing them(“continuation funds”).The secondar

205、y fund acquires an interest in the asset while ensuring continuity of management.Secondaries deal volume hit$115 billion as of September 30,2024,a near-record performance.GP-led transactions where we see potential accounted for roughly half of that.2 One challenge with secondaries is that they are p

206、assive strategies,where the secondary managers do not control the ultimate disposal of the underlying assets.However,the terms of continuation vehicles tend to be significantly shorter than typical PE funds.ADDRESSING UNSTOPPABLE TRENDS VIA PRIVATE EQUITY Private equity can also provide exposure to

207、unstoppable trends,the powerful long-term forces transforming the world around us.Many highly innovative,young firms involved in digitization and healthcare,for example,are not accessible via public markets.The next generation of potential AI leaders is being incubated and developed in the well-esta

208、blished technology venture capital,growth and private equity ecosystem.We see potential for private market strategies targeting early-stage and growth-stage companies working on innovative solutions in software and computing.While large-cap publicly traded technology companies have performed strongl

209、y,their valuations are already quite elevated.Private strategies can seek technology and AI-driven returns at much smaller scale and lower valuations,albeit with potentially greater risks of technology development failures and disappointing adoption see AI:getting more real.There is also potential i

210、n strategies targeting biotechnology.Many small,PE-owned biotechnology companies are at the cutting edge of developing new healthcare treatments healthcares prescription for longevity.They often end up being bought by pharmaceutical giants,whose strength is in marketing and distribution rather than

211、innovation.High failure rates in drug development,regulatory approval uncertainty,heavy capital requirements and concentrated portfolios are among the risks here.1 Pitchbook,as of Jun 30,2024 2 PJT Partners Q3 2024 Secondary Market Insight,as of Sep 30,2024 40 WEALTH OUTLOOK As well as investment ri

212、sks relating to these industries,private equity strategies tend to be highly illiquid,requiring investors to commit capital for several years.There may be operational risks,which arise from managers processes,policies and people.Adverse scenarios may include complete loss of capital.For a further di

213、scussion of risks,please see Important Information.THE EXPANSION OF PRIVATE CREDIT Private credit loans from the likes of private equity firms,hedge funds and specialist credit funds can enable borrowers to negotiate more customized terms than they would get from a bank.This market has grown from$62

214、1 billion in 2017 to$1.5 trillion in 2024.By 2029,it may expand to$2.6 trillion.3 The higher interest rates that private credit borrowers pay could mean higher yields for investors.In the third quarter of 2024,the average yield on newly issued loans was 10.3%.On average,private credit has offered a

215、premium over leveraged loans of 150200 basis points(bps).4 The flipside is higher risks,including borrowers failing to make interest and principal payments,and illiquidity,meaning cash distributions only occur as the loans mature or are refinanced.OUR FAVORED SECTORS IN REAL ESTATE After several tou

216、gh years,better times may lie ahead for real estate.Alongside continuing economic growth,falling interest rates could be helpful.Lower borrowing costs may boost new developments and dealmaking.They would also support higher real estate valuations.We believe there are potential opportunities in indus

217、trial real estate,which includes the likes of manufacturing,storage and distribution.Supply of certain property types is lacking in many mature markets.Industrial vacancy rates overall are 4.8%in the U.S.and 3.6%in Europe,near record lows.Demand for many industrial properties is strong and could rem

218、ain so for the time being.One driver is the effort to move supply chain facilities away from China and into the U.S.and Europe.There is also a need for new development and repositioning of existing logistics and distribution centers to incorporate technologies such as robotics-enabled warehousing an

219、d AI-powered supply chains see unstoppable trends.Aside from weakening growth,higher interest rates and resurgent inflation which are not our base case risks to industrial properties come from downturns in particular industries they serve and future disruption if reshoring patterns and other sources

220、 of demand change.We think there are attractive possibilities in hospitality real estate.This segment is benefiting as leisure and business travelers make up for missing out during COVID.Globally,hotels revenue per available room(RevPAR)which measures how full they are and how much guests pay-was up

221、 12.8%in the third quarter of 2024 over the equivalent period in 2019.5 As well as cost overruns and delays,refitted and repositioned hotels can fail to live up to performance expectations if consumer and business travel weakens due to shifting consumer sentiment on travel or renewed corporate cost

222、cutting.Overall,real estate strategies are illiquid and often utilize significant borrowed money or“leverage”which can amplify risks during economic downturns.3 Preqin,“The Future of Alternatives,”published Sep 2024 4 Pitchbook,as of Sep 30,2024 5 JLL Global Real Estate Perspective,Nov 2024 41 WEALT

223、H OUTLOOKWEALTH OUTLOOK 2025 41 expanding private markets access:evergreen funds Private asset classes have often proved inaccessible to or challenging to manage for many suitable and qualified investors.High minimum investment levels,strict qualification requirements and having to lock up capital f

224、or long periods have been among the barriers.However,new structures called“evergreen funds”are emerging to help expand access to private equity,private credit,infrastructure and real estate.With conventional private asset funds,investors generally only commit capital at the outset and lock up their

225、capital for several years,after which the fund exits all its investments and expires.By contrast,the evergreen structure has no expiration date,reinvests proceeds and enables new investors to buy in continuously.It also provides periodic windows for existing investors to sell out.That said,there are

226、 still restrictions on exiting,which means evergreen funds are not like liquid public securities or mutual funds.For those buying into an evergreen fund,their capital is usually fully at work in private assets from day one.Again,this is different from conventional private funds,where there is usuall

227、y a three-to five-year period where investors capital gets deployed.Being fully invested simplifies portfolio management and rebalancing and means investors are fully exposed to potential gains or losses throughout.One of the main ways that evergreen funds are“democratizing”access to private assets

228、is through lower minimum investments.Sometimes,these can be as low as$10,000 to$25,000.Also,some evergreen funds are meeting regulatory requirements for availability to retail investors,which can lower the minimum legal eligibility requirements.However,it is important not to confuse eligibility with

229、 suitability.Each investor should seek professional guidance as to whether these funds may be suitable for them.42 WEALTH OUTLOOK the case for hedge funds in suitable and qualified investors core portfolios We believe exposure to a mix of hedge fund strategy types can potentially strengthen suitable

230、 and qualified portfolios.key takeaways Various kinds of hedge fund strategies have historically done better or worse under certain market conditions Suitable and qualified investors might consider combining varieties of these strategies in portfolios We see potential in some diversifying and direct

231、ional hedge fund strategies Risks include but are not limited to losses from the use of leverage,concentrated portfolios and limited transparency 43 WEALTH OUTLOOK We see upside potential for various asset classes in 2025 see strategies for a“rule-breaking”expansion.Nevertheless,the risk of economic

232、,geopolitical and market turbulence is always present.Recessions,market downturns,supply chain disruptions and flashpoints between nations may all strike unpredictably during the coming decade,as they often have over time.Having exposure to different varieties of hedge funds may potentially strength

233、en portfolios amid better and worse times.In the tough year of 2022 when both equities and bonds struggled global macro and relative value hedge fund strategies collectively held up well figure 1.By contrast,in 2023 when markets recovered,long/short equity and event-driven hedge fund strategies perf

234、ormed strongly,whereas global macro saw negative returns.Averaged over the next ten years,we believe this broad asset class may produce strong annualized returns see the long-term view for asset classes:moderate optimism.According to their investment objectives,we believe suitable and qualified inve

235、stors should consider adding a mix of hedge fund strategies to diversified portfolios for the long term.Among these are certain diversifying and directional strategies.Exposure to different varieties of hedge funds may potentially strengthen portfolios amid better and worse times 44 WEALTH OUTLOOK F

236、IGURE 1 how broad hedge funds strategies have performed -2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD 1.0%10.6%24.6%1.8%27.3%17.9%19.0%9.0%22.8%20.0%-0.3%8.5%13.3%-0.4%13.7%16.8%12.4%-0.7%11.4%11.6%-1.0%7.7%7.6%-2.1%8.2%9.3%11.7%-4.8%10.4%8.6%-1.3%5.5%5.1%-4.1%7.5%5.6%7.7%-10.1%7.1%8.8%-1.8

237、%3.9%3.0%-7.1%7.4%5.4%7.6%-11.2%7.0%3.2%-3.6%1.0%2.2%-8.9%6.5%3.4%-1.4%-18.0%-0.3%3.6%-MSCI ACWI TR Index(USD)HFRI Relative Value(Total)Index HFRI Event Driven(Total)Index HFRI Equity Hedge(Total)Index HFRI Macro(Total)Index Global Agg Index (USD Hedged)Source:Bloomberg,Hedge Fund Research(HFR)and P

238、ackHedge,as of Sep 30,2024.The index returns shown do not represent the results of actual trading of investor assets.The indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the performance of any specific investment.

239、Index returns do not include any expenses,fees or sales charges,which would lower performance.Past performance is not necessarily indicative of future returns.Real results may vary.HFRI Macro:A broad range of strategies seeking to exploit movements in underlying economic variables and their impact o

240、n equity,fixed income,hard currency and commodity markets.HFRI Relative Value:Strategies that trade on valuation discrepancies between multiple securities.HFRI Event-Driven:Strategies taking positions in companies currently or prospectively involved in corporate transactions spanning the likes of me

241、rgers,restructurings and financial distress.HFRI Equity Hedge:Strategies taking both long and short positions in primarily equity and equity derivatives.MSCI ACWI TR Index(USD)captures total returns of a broad-based equity index covering developed and emerging markets.The Bloomberg Global Aggregate

242、Index(USD Hedged)is a benchmark for the global fixed income market.45 WEALTH OUTLOOK DIVERSIFYING HEDGE FUND STRATEGIES Diversifying hedge funds encompass various distinct strategies.In times of upheaval,they have often done better than equities.The flipside is that they have frequently done worse d

243、uring strong equity bull markets.Diversifying strategies are not necessarily designed to eliminate all market risk but seek to reduce specific risks through investment selection and portfolio construction.In the past,such strategies returns have often been lowly or moderately correlated with equitie

244、s and fixed income,i.e.,they have often performed well and badly at different times.So,suitable and qualified investors should consider various types of exposures when constructing a diversifying hedge fund allocation.One way to seek exposure to a range of diversifying strategies is available throug

245、h a multi-strategy fund,which can shift capital around according to the market environment.A multi-strategy fund can potentially offer diversification and a ready-made allocation to diversifying strategies.We believe larger multi-strategy funds could present opportunities.Among the reasons for this

246、are that they tend to more easily attract and retain talented managers and have historically performed better than their smaller counterparts.Multi-strategy funds seek consistent returns and portfolio diversification across cycles given their low correlations to traditional assets.For example,the HF

247、RI RV:Multi-Strategy Index had a correlation of 0.2 or less to both the MSCI World Index and Bloomberg Global Aggregate Index from February 1990 to September 2024.1 However,they also come with higher fees and are less liquid.Like other hedge funds,there are also risks including the use of leverage,l

248、imited transparency and operational issues relating to people,processes and systems.Like other hedge funds,there are also risks including the use of leverage,limited transparency and operational issues relating to people,processes and systems.2025DIRECTIONAL STRATEGIES:SEEKING DIFFERENTIATED FIXED I

249、NCOME AND EQUITY RETURNS With short-term rates coming down,investors may seek differentiated yields in credit.Hedge fund credit strategies target the likes of high-yield,syndicated bank loans and structured credit products.The options can get quite complex.We therefore think flexible hedge fund cred

250、it strategies that can look across asset classes to build a portfolio of high-conviction ideas may be a viable choice.They often focus on more complex,less liquid credits where they see potentially higher yields and total returns.Among directional strategies is equity long/short,where managers seek

251、to buy companies they believe may perform better and shorting those they see doing worse.Specialists in a particular global region,market or sector may be better at managing these strategies.Away from U.S.large caps,active management via hedge funds has the potential to exploit market dispersion and

252、 volatility to potentially benefit portfolios.Examples might include hedge funds focusing on small-and mid-cap equities or elements of our unstoppable trends such as G2 Polarization,healthcare or digitization see unstoppable trends.Market-wide downturns,magnified losses from the use of leverage and

253、concentrated portfolios are among the risks of such directional strategies.Please see Important Information for further discussion of Alternative Investments.1 Correlation is a statistical measure of how two prices move in relation to each other.Measured on a scale of 1 to-1,a correlation of 1 impli

254、es perfect positive correlation,where two prices move in the same direction all the time.A correlation of-1 implies perfect negative correlation,such that two assets or asset classes move in the opposite direction to each other all the time.A correlation of 0 implies zero correlation,such that there

255、 is no relationship between the two over time.46 WEALTH OUTLOOK beyond core portfolios:opportunistic investing An opportunistic portfolio may potentially help seek returns and mitigate risk in coordination with a core portfolio.key takeaways We make the case for suitable clients establishing a small

256、er opportunistic portfolio alongside a core portfolio We believe disciplined opportunistic investing may help complement core portfolios The suitability of each position needs to be assessed in light of individual objectives Opportunistic portfolios can be riskier owing to the likes of concentrated

257、positions,reduced certainty and greater volatility 47 WEALTH OUTLOOK We believe that building a core portfolio is critical when seeking to preserve and grow wealth over time.In our view,such a portfolio should be fully invested for the long term and diversified across asset classes from around the w

258、orld.However,we also recognize that many clients also wish to invest in ways that do not necessarily fit within a core portfolio.This is where opportunistic investing may help.An opportunistic portfolio is an additional,much smaller portfolio for pursuing investments that may fall outside the scope

259、of a suitable investors long-term plan.The investments held may be shorter-term and have little or no track record of risks and returns.An opportunistic portfolio is often concentrated.It may also be held in cash until a potential opportunity arises,enabling a quick response in what may be a brief w

260、indow.Despite its flexibility,opportunistic investing calls for a disciplined approach.We believe the aim should be to complement a core portfolio,potentially enhancing returns or risk-adjusted returns.Figure 1 lists our new and ongoing opportunistic ideas as well as some where we have moved to the

261、sidelines since we published them last December.1 We provide a benchmark index in each case.Before considering an idea,investors should ascertain its suitability in light of investment objectives and then discuss the appropriate allocation with their financial professional.We recognize that many cli

262、ents also wish to invest in ways that do not necessarily fit within a core portfolio Of those that we no longer see as offering opportunistic potential,some are still relevant to core portfolios.Copper mining and cyber security,for example,are key ingredients to the unstoppable trends of the energy

263、transition and digitization respectively.Our suggested opportunistic timeframe is up to two years or so.1.SEMICONDUCTOR EQUIPMENT MAKERS The AI buildout has created massive demand for semiconductors,even while demand for chips from cyclical industries such as autos has disappointed.Against this back

264、drop,U.S.-led restrictions on exports of advanced chips and equipment to China have hit some semiconductor equipment maker equities.This is despite the U.S.government and others offering subsidies to producers to reshore the Taiwan-centered semiconductor supply chain.Many semiconductor companies hav

265、e delivered only modest performance since the start of 2023,even as the equities in the leading firms have climbed sharply.Ultimately,the penetration of semiconductors in everyday products,innovation and obsolescence drive industry growth.Global semiconductor market revenue could grow from$607.4 bil

266、lion in 2024 to$980.8 billion by 2029.2 Despite semiconductors returning 34.4%3 since we identified its opportunistic potential last year,we see more scope for upside in 2025.Disruptions to supplies of essential materials,market access restrictions and an economic downturn are among the risks.1 Weal

267、th Outlook 2024 2 Statista,as of Aug 2024 3 Bloomberg,as of Nov 15,2024 48 WEALTH OUTLOOKFIGURE 1 semiconductor leadership has been concentrated 50100150200250300350400450Jan-23Apr-23Jul-23Oct-23Jan-24Apr-24Jul-24Oct-24 Rest of the SOX IndexLargest Chip Designer and Largest FabJan 2023=100Source:Hav

268、er Analytics,as of Nov 14,2024.SOX is the Philadelphia Semiconductor Index.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and do not represent the performance of any specific investment.Index returns do not include any expenses,fees

269、 or sales charges,which would lower performance.Past performance is no guarantee of future results.Real results may vary.2.MEDICAL EQUIPMENT:IMPROVING VITAL SIGNS In a rapidly aging world and with wealth levels rising,we see healthcare as a long-term focus for core portfolios see healthcares prescri

270、ption for longevity.We also see ongoing opportunistic potential among one of its subsectors:the companies that conceive and create innovative diagnostics and instruments,such as laboratory testing equipment,imaging systems,surgical tools,and wearable or implanted devices for those with chronic condi

271、tions.AI may increasingly augment some of the sectors products and services.Having rallied in 2024 albeit by less than U.S.equities overall medical equipment may have further to go,in our view.Forecast earnings per share may increase 9.5%in 2025,giving a forward price/earnings multiple of 20.4.While

272、 the subsector is less exposed to political risks than some other areas within healthcare,it may still encounter supply chain issues and shortages,technological reversals,and patient privacy issues arising from AI deployment.3.DEFENSE CONTRACTORS IN AN UNSETTLED WORLD In recent decades,business was

273、often seen to drive geopolitics.Governments prioritized commercial interests in their external policies on trade and energy,for example.But in todays often polarized world,geopolitics is driving business.As nations focus on bolstering their strategic and defensive needs,we see potential opportunitie

274、s for some sectors.Among them are the providers of weaponry,aircraft,advanced defense technologies and the like.In 2024,some 23 NATO members are likely to meet their commitment to spend 2%or more on GDP on defense,up from just six members in 2021.4 Even if the Ukraine and Middle East conflicts are r

275、esolved swiftly,we would expect continued spending in Europe and elsewhere,especially given reduced certainty over U.S.intervention in future conflicts.High government indebtedness,competing spending priorities,supply chain issues and technological disruption are among the challenges facing defense

276、firms.49 WEALTH OUTLOOKFIGURE 1 potential opportunistic positions ONGOING Return since Dec 7,2023 (Publication of Wealth Outlook 2024)1.Philadelphia Stock Exchange Semiconductor Index34.4%2.Dow Jones U.S.Medical Equipment Index19.6%3.S&P Aerospace&Defense Index19.6%WEALTH OUTLOOK 2025 ADDITIONS 4.S&

277、P Biotechnology Select Industry Index5.S&P 500 Banks Index6.Alerian Midstream Energy Index7.MVIS Global Uranium and Nuclear Energy Index8.CBOE VIX(1-month implied volatility)Index9.Bitwise Crypto Innovators 30 Index10.MSCI Brazil USD IndexWHERE WE MOVED TO THE SIDELINES Return from OL24(Dec 7)to Jul

278、 GIC(Jul 17)1.Solactive Global Copper Miners Index41.6%2.Red Rocks Global Listed Private Equity Index17.6%3.Nasdaq CTA Cybersecurity Index10.5%Return from OL24(Dec 7)to Jul GIC(Jul 17)4.S&P 500 Energy Sector Index17.8%Return from OL24(Dec 7)to Aug GIC(Aug 7)5.Yen Rebound-1.7%Return from OL24(Dec 7)t

279、o Nov GIC(Nov 19)6.MSCI Japan USD Index9.1%7.Shift of the 10s1s UST yield spread+100.7 bps 8.ICE BofA US ABC&CMBS Index6.7%Source:Citi Wealth Investments,Haver Analytics,as of Nov 14,2024.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes on

280、ly and do not represent the performance of any specific investment.Index returns do not include any expenses,fees or sales charges,which would lower performance.Past performance is no guarantee of future results.Real results may vary.4.BIOTECHNOLOGY:HEALTHCARES CUTTING EDGEWhen it comes to healthcar

281、e innovation,the biotechnology sector is at the cutting edge.Firms in this space have made important progress in recent years in the likes of therapies that seek to disrupt the environment that tumors need to grow,personalized treatments based on genetics,weaponizing the bodys immune system to fight

282、 disease,and advanced vaccines that address cancer and rare conditions.We believe the AI revolution could accelerate biotech innovation on various levels,from drug discovery and development to advanced diagnostics to enhanced manufacturing.Having rallied for much of 2024,we believe that biotech equi

283、ties may offer outperformance potential.Decent valuations and lower interest rates could encourage renewed mergers&acquisitions activity,involving both private equity and large pharmaceutical firms seeking to replenish their product pipelines.Political risks,regulatory obstacles and rising interest

284、rates are among the pitfalls facing the sector.4 Citi Research-Money and Might:Financing the Future of Defense,Oct 2024 50 WEALTH OUTLOOK 5.DEREGULATION POTENTIAL:U.S.BANKS Could deregulation boost U.S.banks during Trumps second administration?An overall tightening of rules since the financial crisi

285、s of 200709 has made for tougher operating conditions for the sector.But having eased some rules during his first term,Trump may go further this time,especially following his campaign commitment to overseeing the“largest regulatory reduction in the history of this country.”Since the election,U.S.fin

286、ancials have rallied from near-record relative lows against the wider stock market.Possible deregulation measures include looser rules on how much capital banks must hold and a more permissive mergers&acquisitions regime.This could see consolidation among smaller and midsized banks,as well as more d

287、ealmaking activity among companies in general,feeding through into more fees for bigger banks.If Trumps pro-growth agenda succeeds,this could also generate a better business environment for the sector.Of course,such changes may not come to pass,while deregulation can ultimately increase the sectors

288、riskiness.An overheated economy followed by a bust is another risk.For now,though,we see the recent rally continuing in 2025.6.GOING WITH THE FLOW:MIDSTREAM ENERGY TRANSPORTATION The incoming U.S.administration is a friend of traditional energy sources.Even as U.S.oil output reaches record levels,po

289、tentially sinking prices and profits for the industry worldwide,Trump has vowed to boost production further.With easing regulations,rising demand and more gas export,we are attracted to master limited partnerships and corporations owning the pipelines,storage facilities and processing plants that ma

290、ke up the“midstream”between production and consumption.Master limited partnerships seek to pay out more of their cash flows to investors.The Alerian Midstream Energy Index recently had a dividend yield of 4.5%.5 Its total return since 2020 has exceeded that of the S&P 500 Index figure 2 and we belie

291、ve its momentum may persist for now.Risks include falls in energy demand and prices as well as the substantial debts that many MLPs have.7.NUCLEAR ENERGYS ONGOING ROLE Power demand is on the rise worldwide,with artificial intelligence and cryptocurrency mining among the drivers.Electricity generatio

292、n may increase from 28,000 terawatt hours in 2023 to 36,000 terawatt hours by 2030.6 We expect this to come from a variety of sources,both traditional and alternative.Nuclear seems likely to play an ongoing role here,given that supply is not intermittent and does not emit carbon directly.Over the pa

293、st year,equities relating to such areas as uranium mining,nuclear power facilities and generation,nuclear-sourced electricity,and providers of hardware and services have rallied.We believe there may be more to come.Risks to the sector come from shifting political agendas such as nuclear phaseouts an

294、d subsidy withdrawal in certain countries safety incidents and concerns and legal challenges.8.POSITIONING FOR RENEWED VOLATILITY Market volatility seems likelier in 2025.The risk of escalating trade tensions,in particular,is likely to keep uncertainty at more elevated levels.However,as of mid-Novem

295、ber 2024,implied U.S.equity market volatility as measured by the VIX Index was around record lows.In our view,this creates potential to enter into hedging strategies at a reasonable cost.But once the index surges again,as we expect it to do,another possibility would be to enter positions that seek t

296、o convert demand for hedging strategies into an income.Adverse volatility developments,illiquidity of positions during times of market stress,and counterparties defaulting all pose risks here.51 WEALTH OUTLOOK FIGURE 2 midstreams recent performance Alerian Midstream Energy dividend yield(%)(Right)Al

297、erian Midstream Energy Total Return Index,2020=100 0 2 4 6 8 10 12 14 40 60 80 100 120 140 160 180 200 220 240 2021222324 Dividend yield(%)Source:Haver Analytics,as of Nov 14,2024.Indices are unmanaged.An investor cannot invest directly in an index.They are shown for illustrative purposes only and d

298、o not represent the performance of any specific investment.Index returns do not include any expenses,fees or sales charges,which would lower performance.Past performance is no guarantee of future results.Real results may vary.9.ENABLERS OF CRYPTOCURRENCIES GROWTH The global market for digital assets

299、 continues to expand.In November 2024,the combined capitalization of cryptocurrencies alone reached an estimated$3.2 trillion.7 The new U.S.administration is crypto-friendly,with Trump having spoken of establishing a national strategic bitcoin reserve,wanting to see more crypto mining domestically a

300、nd perhaps creating a more accommodative regulatory environment.To maintain its growth,the crypto market will need greater infrastructure.Among the providers of this are crypto mining companies,mining equipment makers,brokerages and trading firms.Equities across this space as represented by the Bitw

301、ise Crypto Innovators 30 Index have recovered strongly from their late-2022 lows.We believe they may remain on this path in the coming year.We also consider crypto industry equities as having the highest risk of the opportunistic positions discussed here,particularly given their rapid recent appreci

302、ation.Price volatility,technological failures,cyberbreaches and unfavorable regulatory developments could challenge our positive case.10.BRAZILIAN EQUITIES SNAPBACK POTENTIAL Brazilian equities have fallen hard in 2024,as has the nations currency.This may partly reflect concern over government finan

303、ces,where reform progress has disappointed.Latin Americas largest market trades at just 7.8 times forecast earnings for 2025 near historic lows but with consensus estimates pointing to a 17%EPS rebound in the coming year.8 As such,we believe the pessimism to be overdone and see scope for a potential

304、 bounce back in this market.Of course,emerging markets tend to be more volatile and come with other risks,including sensitivity to slowing global growth.Further setbacks to the governments efforts to get the public finances on a more sustainable footing as well,deteriorating inflation and more curre

305、ncy weakness could dent Brazils performance,on the other hand.5 Bloomberg,as of Nov 15,2024 6 Statista,as of Aug 2024 7 Bloomberg,as of Nov 2024 8 Haver,as of Nov 24 WEALTH OUTLOOK2025 unstoppable trends powerful long-term forces Unstoppable trends are transformative,multiyear forces at work in the

306、world around us.They include technological,economic,demographic and geopolitical trends.And they may impact investment portfolios over time.disruptions investment potential Artificial intelligence,healthcare innovation,climate-related technologies and a reconfiguration of global supply chains are po

307、ised to disrupt long-established ways of doing business.We seek portfolio exposure to these unstoppable trends.the risks of unstoppable trends Investing in unstoppable trends comes with many risks,such as technological setbacks,tough competition,regulation and valuations.We also identify risks in ha

308、ving too much exposure to assets disrupted by unstoppable trends.53 WEALTH OUTLOOK2025 AI:getting more real We believe AI adoption will spread across sectors,impacting more non-technology investments.Artificial intelligence(AI)infrastructure leaped ahead in 2024.Billions of dollars have been investe

309、d in related technology,which is set to continue.The International Data Corporation forecasts AI-related spending on hardware,software and services to rise from$232 billion in 2023 to over$500 billion by 2027 figure 1.This has boosted profits and the share prices of those that design and make AI chi

310、ps,servers and related equipment.In 2025 and thereafter,we see AI adoption spreading.We highlight six areas in tech and beyond where AI may create investment potential.key takeaways Spending on AI capacity continues to grow globally So far,the main investment impacts have been in technology sector a

311、sset prices We see healthcare,finance,robotics,education and agriculture as potential beneficiaries of AI adoption Risks include slower-than-expected business outcomes and some firms getting left behind.54 WEALTH OUTLOOK2025 FIGURE 1 companies heavy AI investment Bn$YoY%0 5 20 25 30 35 40 0 100 200

312、300 400 500 600 20232024f2025f2026f2027f Spending:GenAI Spending:Other AI Annual Growth:Total AI Spending(RHS)15 10 Source:Citi Research,Gartner,as of Aug 2024.All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.RE

313、INVENTING SOFTWARE While chips and hardware are the engines that power AI,software companies are at the forefront of building programs and services that integrate AI with legacy applications.AI-assisted coding has helped dramatically reduce the cost of developing applications.Lately,though,many soft

314、ware customers have allocated limited technology budgets to building AI capabilities,often at the expense of traditional software.We see a risk that some leading software as a service(SaaS)firms may be displaced by public AI cloud services.Tough competition and rapid obsolescence also need to be tak

315、en into account.Nevertheless,we believe other software companies that can effectively integrate AI to improve outcomes for their customers are poised to outperform.We believe other software companies that can effectively integrate AI are poised to outperform SMARTER HEALTHCARE New possibilities for

316、diagnostics,treatment planning and patient care are emerging.In many cases,AI analyzes X-rays,MRIs and CT scans faster and more accurately than humans.Predictive analytics are identifying patients at greatest risk of chronic conditions,enabling preventative interventions,and thus reducing hospitaliz

317、ations.By analyzing large genetic,medical and lifestyle datasets,AI can help create even better personalized treatments.Chatbots and virtual assistants are making healthcare access cheaper and more efficient,providing support in routine inquiries,appointment scheduling and medication reminders.Risks

318、 include diagnostic errors,hurdles from regulatory and practitioners organizations,patient distrust,and technological disappointments.55 WEALTH OUTLOOK2025 FINANCIAL SERVICES NEW FRONTIERS Financial institutions are using AI to improve operations,data analytics and customer care.For example,machine

319、learning models are identifying fraudulent customer transactions and cyberattacks against banks.Data-entry and back-office tasks are steadily being automated,along with compliance monitoring and data collection.And complex dataset monitoring is helping banks to monitor lending and other risks.On the

320、 investment side,trading activities are being refined by processing market data at scale,enabling better execution techniques.Robo-advisors are offering affordable,data-driven financial advice to a broader audience.Asset managers are relying more and more on AI to summarize market trends,corporate a

321、nnouncements and macroeconomic data to inform decisions.Implementation setbacks,regulatory obstacles,breaches of customer data and privacy laws,and reputational issues from biased algorithmic decision-making are among the risks.RISE OF ROBOTICS Thanks to AI,robots across many industries are performi

322、ng more complex tasks.AI-enhanced robots can increasingly adapt to new environments without human intervention.In manufacturing,for example,they are performing high-precision work such as assembling microelectronics.Robots are also assisting in surgeries,physical therapy and elderly care.AI-powered

323、robotic arms provide increased precision and dexterity during surgical procedures,reducing recovery time for patients.The integration of AI with robotics has the potential to improve productivity,safety and quality of work across many sectors.Cybersecurity and hacking risks,poor integration into exi

324、sting factory settings and compliance with medical ethics and regulations could lead to disappointments for investors.EMPOWERING EDUCATION Language translation tools and AI tutoring systems are boosting education access.Students in remote areas,for example,can now learn more easily in their native l

325、anguages.Virtual classrooms offer adaptive learning experiences,tailored to individual needs.Meanwhile,reduced administration will enable teachers to focus on student engagement.Exam grading biases,lack of transparency in EdTech AI models,unequal access to technology,and students becoming over-relia

326、nt on technology are some of the risks.WEALTH OUTLOOK 2025 ENHANCED AGRICULTURE AI is making agriculture more sustainable and efficient.Precision agriculture uses real-time data from sensors,drones and satellites to monitor crop health,soil and weather.This informs decisions about irrigation,fertili

327、zation and pest control,ultimately optimizing resource usage and minimizing waste.Another key use is predicting crop yields and potential issues such as disease outbreaks,enabling proactive intervention.Automated machinery,such as self-driving tractors and harvesters,is further helping to streamline

328、 labor-intensive processes.By enhancing productivity and reducing environmental impact,AI can help bolster food security.Software and data flaws,crop yield forecast errors,overly expensive capital equipment and supply chain disruptions are among the challenges for users,makers and investors.POTENTIA

329、L AI OPPORTUNITIES AND RISKS We believe the AI revolution has far to go,creating ongoing demand for many of the chips and other AI infrastructure and services.Leading chipmakers and cloud providers may still thus have scope to grow sales and profit margins.In software,we would focus on specialty com

330、panies with distinct advantages over rivals.At the same time,we anticipate both the potential business benefits and investment performance of AI to spread out.AI may make healthcare,industrials(including suppliers of AI-enhanced agriculture)and financial services firms more productive,boosting earni

331、ngs over the medium term.We also see potential in education technology and robotics makers.Not all potential future AI leaders and beneficiaries may be accessible via public markets.Instead,suitable and qualified investors may consider seeking exposure to innovative technologies via venture capital

332、and growth equity strategies see complementing core portfolios with private asset classes.We expect AIs potential business benefits and investment performance to spread out Naturally,we expect losers as well as winners.One risk is that investors grow impatient with AI investment,penalizing firms tha

333、t cannot convert capital expenditures into earnings quickly.As AI models are deployed by some,stragglers may face disruption.Ultimately,advances in technologies like quantum computing which can perform complex calculations much faster than traditional computers could also significantly disrupt the current AI landscape.56 WEALTH OUTLOOK 2025 climate:investing in innovative technologies Lowering gre