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Overview
2025 saw the third consecutive year of positive returns across all asset classes – a first for this century. Positive sentiment on AI and interest rate cuts helped drive returns higher, despite increased volatility and a short but sharp equity drawdown after Liberation Day.
Gold led returns for a second year, surging nearly 65% as investors sought safety amid U.S. policy concerns, persistent inflation, and heightened uncertainty. It was the strongest single-asset annual performance since 2009, more than doubling in price over two years.
Emerging market equities surprised, returning over 30% in their best year since 2017. A weaker U.S. dollar and Asia’s improving outlook fuelled AI-driven investment in China, Korea, and Taiwan.
U.S. equities were more subdued than the past two years, returning 16% as tariff concerns weighed on sentiment. Surging gold prices drove Australian equities to a respectable double-digit return. High valuations are increasingly concerning across all asset classes as momentum drives markets to record highs.
The asset class quilt’s appeal lies in its unpredictability – any class can lead in any year, regardless of past performance. This underscores the importance of diversification, where low or negative correlations between asset classes reduces portfolio volatility while preserving upside.
Asset Class Quilt of Market Returns (2006-2025)
Source: Bloomberg
