Wells Fargo offered guidance for investors planning to navigate the next 18 months in a note this week, highlighting five key portfolio ideas.
Looking to 2025, Wells Fargo expects opportunities to “expand equity exposure” during market downturns and potentially “increase portfolio returns” if interest rates remain high.
They also recommend looking at “non-traditional asset classes” such as commodities and hedge funds to enhance returns and manage risk.
Here are the top five ideas for their investment portfolio:
Buy the dip in large stocks: Wells Fargo expects potential market declines due to the upcoming election and inflation concerns. She advises using these declines to add to her holdings of US large-cap stocks, her favorite stock class.
Securing returns through longer-term bonds: With interest rates at multi-year highs, Wells Fargo sees an opportunity to generate income through “short-term U.S. taxable fixed income.” The bank suggests looking at longer maturities to secure attractive rates when yields reach the high end of the range (4.25%-5.00%).
Investing in growth sectors: With infrastructure spending and advances in AI, Wells Fargo recommends increasing allocations to energy, industrials and materials. It also highlights data center REITs and energy companies poised to capitalize on AI’s data storage and power needs.
Hedging uncertainty with alternatives: Alternative investments such as relative value and event strategies can add diversification and offset market volatility. Additionally, Wells Fargo sees private equity emerging as a compelling option due to trends such as artificial intelligence and lower valuations.
Hedging risks through geopolitical plays: Given the growing economic and geopolitical uncertainty, Wells Fargo suggests using the US dollar, US stocks, and investment-grade fixed income as hedges. It also favors commodities and precious metals to potentially hedge against inflation and mitigate supply chain disruptions caused by global conflicts.