Here's Why 2025 Has Seen Popular Investment Strategies Fall Apart
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I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. The ongoing changes create the opening for a global euro moment.

Even if you're a dollar-based investor, you should be thinking about increasing your allocations to non-dollar investments. You know, we got up to 115 in euro dollar and then pulled all the way back down to 111. Like, that kind of thing is going to keep happening. There is a declining trend of the US exceptionalism, and particularly when we talk to global investors, the willingness to diversify on a global basis, I think it's getting higher.

These days, if you blink, you risk missing a market meltdown. A lot has changed in the world in the first few months of 2025. There's been a whirlwind of announcements from the Trump White House. Europe is racing to rearm. Germany's loosening its purse strings. The pace of change has set investors on edge. Many are now questioning what were considered established market principles, ones that had a track record of making money. Until now.

Here's why 2025 has seen popular investment strategies blown apart. Our Markets Live Managing Editor, Christine Aquino, joins me now for more. Christine, good to talk to you. Can we start with some examples? What were the ideas or principles that investors used to rely on and have been thinking differently about since the start of this year? Yeah, absolutely, Stephen. I mean, we have a lot of these that are long-held principles in markets that

have really started to be challenged, especially in the beginning of this year, right? So one of them is definitely this idea that the U.S. dollar and treasuries are foolproof havens during times of stress. There's also the notion that there's no way to go for the magnificent seven but up.

because even in times of inflationary environments, they tend to be more resilient because they have a lot of cash flow. They have enough growth in the companies that are in that group. And then, of course, the 60-40 investment strategy. Now, that's been questioned even prior to the start of this year, but I think even more so since the beginning of 2025. The 60-40 portfolio, 60% invested in stocks, 40% invested in bonds, something that we hear a lot about.

Are all of these changes because of Donald Trump? He was definitely a big catalyst ever since President Donald Trump took office. And it's particularly because of some of the known aspects of his policy approach, right? We knew even before he took office that he was going to take a look at the U.S.'s trade deals with the rest of the world and attempt to redraw a lot of that policy. And then, of course, a lot of focus on immigration as well. And, you

a lot of people really bracing for a renewal of inflation in 2025. So what are the other factors at play then outside of the United States? Well, Stephen, you know, because the U.S. has enjoyed this sense of exceptionalism, I would say over the past decade, the

results of that is that a lot of valuations outside of the U.S. have really become cheaper, you know. And now that we're seeing U.S. markets being on a little bit more shaky ground, that cheaper valuation outside of the country has really become a bigger draw for investors, right? Because they're cheaper and now they're looking like more of a viable alternative to U.S. assets.

And outside of markets, we've also seen a number of leadership changes in a lot of other countries. 2024 was a big year for global elections. And, you know, a lot of leadership changes means that for countries, their diplomatic relationships are bound to change. At the focal point of that, of course, is President Donald Trump and how he's really shifting the U.S.'s diplomatic relationships with some of its more traditional closer allies and also its farther flung counterparts.

So money managers have to adapt their strategies all the time, right? But how does this moment compare to other periods in the past where we've seen big fundamental shifts? I think what we're really hearing from money managers is the fact that they're having to contend with a higher than usual level of volatility. And what that really means is that their reaction time has to be faster. It has to be more tactical. You know, we're not necessarily seeing a lot of money managers changing

making big calls and making long-term proclamations because it's really difficult in this current environment to do that. And so now they have to be quick twitch, they have to be really reactive, which is quite a different environment, especially if you're a money manager who's used to making big investment decisions once a year, maybe changing up your portfolio every month, but not really having to mix it up all that much. But yeah, now this is a really...

different environment. And I think the other thing too, that we spoke to earlier is the idea that there are a lot of these long held quote unquote truths in markets that are now really being challenged. And so a lot of money managers really just can't rely on those anymore.

Yeah, even that expression, quick twitch, makes me nervous when I hear it. What about the lasting effect of these changes? Can we say, for example, that the era of US exceptionalism is over? Well, I don't think anyone's quite ready to proclaim that just yet, but you do definitely see...

see enough of a diversification shift potentially that some of these previously held notions and markets become a more watered-down version of their previous selves, right? Even though the U.S. will always have the advantage of TINA, which is there is no alternative because a lot of its markets, both in stocks and fixed income, deepest, biggest, broadest markets in the world. But we might be

seeing enough of a shift in portfolio flows that even though that's still true to some extent, it probably won't be to the same degree as we have seen in years past. Now, Christine, you are queen of markets at Bloomberg. Are there any unusual market trends that you're keeping an eye on in the coming months? Well, I'm always a macro person at heart. And so I'm really, really interested in the shift in the dollar's role and how investors are viewing it, because we have seen it

shift from a foolproof trusted haven during times of previous episodes of turmoil. I'm talking about the global financial crisis and even during the COVID years. And now it's really struggled to rally. And it almost has become the face of the sell America trade. And that's really interesting that investors have been so quick to shift their views on the dollar. And I'm curious to see whether it regains back momentum

a lot of that status that it enjoyed before, or is it now fundamentally changed? The other thing that I'm really looking at with interest is this idea that macro factors taking a backseat to politics in terms of driving markets. Is that the new world order now? You know, are we going to have to become, in addition to economic opportunity,

armchair experts? Are we going to have to become policy and politics experts as well in this sort of market? And, you know, just the question of, for instance, Federal Reserve policy playing second fiddle to whatever the Trump administration's policies are. So something that I'd like to keep an eye on for sure. We'll be dusting off our politics books to read up on some of the precedents of the past. Thanks to our Markets Live managing editor, Christina Kino.

For more explanations like this from our team of 3,000 journalists and analysts around the world, go to bloomberg.com slash explainers. I'm Stephen Carroll. This is Here's Why. I'll be back next week with more. Thanks for listening.

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