Schroder Investment Management: Investors should consider allocating funds to securitized credit and insurance linked securities.

Schroders' global investment commentary states that while there are compelling reasons to support the outstanding performance of the US stock market, investors still need to adopt a more balanced and diversified investment strategy to flexibly deal with an environment where interest rates are expected to remain at higher levels for a longer period of time (higher-for-longer) and inflation. Integrating European stocks, exploring opportunities in US non-large cap stocks, and diversifying sources of income are all key steps in building a diversified and resilient investment portfolio. By expanding the scope of investments, investors can better capture potential excess returns and establish stable sources of income in an ever-changing market environment. The impressive upward trend of the S&P 500 index in the past two years is one of the strongest performances since 1928. Strong corporate profit growth has driven this momentum, but investors also question whether this trend can continue. For active investors seeking income and capital growth, the US is clearly not the only focus in the current investment landscape. For the US stock market to continue its strong performance, local corporate profit growth rates may need to exceed expectations by more than 10%, with expectations for large tech companies even higher, around double that of the overall market. However, the significant uncertainty surrounding government policies and their potential impact on inflation and interest rates adds complexity to the current environment. As the S&P 500 index becomes increasingly expensive, the investment market dynamics are changing. Different innovators, including DeepSeek, may introduce more efficient technological models, raising doubts about whether the US can continue its lasting advantage in industries such as artificial intelligence (AI). This indicates that it may be time to broaden focus and investment scope, not just concentrating on US large cap stocks, but also capturing growth opportunities from global themes. Focus on Europe Europe is often overlooked, but its attractive market valuations could provide substantial investment opportunities. The current market sentiment is largely negative, but this pessimistic sentiment may pave the way for impressive performances in the future that can outperform the broader market. Despite political uncertainties, the investment market has already absorbed most of the news. The potential for economic recovery in Europe is huge, especially if Germany relaxes its fiscal policies. Upcoming elections may trigger changes in fiscal policies, accompanied by continued interest rate cuts by the European Central Bank. Ultimately, whether the European market outperforms expectations or moves in sync with the US market, its risk-return characteristics are quite attractive. Embracing these new opportunities can better prepare investors to face various challenges that the investment market may bring. Explore New Opportunities The above observations bring a key point: the value of shifting from over-concentration on US large cap stocks to diversified investments. Various sectors in the financial markets can provide abundant investment opportunities. Seeing the exciting potential in other areas of the US market, such as finance, energy, and small cap stocks, especially with the Trump administration's focus on deregulation and tax cuts providing valuable support to businesses in different sectors. The high uncertainty of US government policies and the chain reactions to inflation and interest rates all suggest that focusing on building stable sources of income by 2025 will be more important than ever before. Diversify with Multiple Income Sources To further enhance portfolio diversification and diversify investments, investors should consider allocating funds to alternative income sources beyond traditional credit and equities. Here are two asset classes to consider: Securitized credit: In an environment of rising interest rates, this asset class has historically outperformed other fixed income assets. It is related to multiple economic drivers such as consumer behavior and the real estate market, and typically has lower correlation with traditional corporate credit, making it a robust diversification tool. Insurance-linked securities (ILS): ILS can provide attractive risk-adjusted returns with lower correlation to traditional asset classes like stocks and bonds. These securities aim to transfer insurance risks related to large natural disasters, opening up unique investment opportunities.