The Almanac

Preface

Investment portfolios and society itself have transformed dramatically over the past 125 years. Waves of innovation have reshaped our lives, the global economy and investment opportunities. Because markets and investable assets are constantly evolving, there have often been many periods when investors have needed to make deliberate changes to portfolio structures to preserve relevance and maintain an appropriate risk-return profile.

Together, Sarasin's Compendium and The Almanac are designed to support investors in making timely, well-supported decisions by combining long-term perspective with a clear framework for interpreting change. At their core, they seek to address a simple question: how can investors best use today's opportunity set to meet their objectives, both now and over the coming years?

In the Compendium, we set out the asset classes we would expect to see in a multi-asset portfolio and examine how they have behaved historically across a wide range of market environments. Our focus extends beyond returns to include risks, trade-offs and structural characteristics that shape how asset prices behave over long horizons. The Compendium also addresses the practical skills and questions investors must consider when developing a bespoke investment policy, including governance, diversification and the interaction between objectives and constraints. In this new publication, we build on those foundations.

Regimes don't last forever: they change when the underlying political and economic foundations shift. A central aim of The Almanac is to ground investment decisions in durable medium-term trends by placing today's choices within a broader context.

This first edition is structured in three parts:

Adapting portfolios to changing market dynamics is seldom comfortable and rarely straightforward. In an ever-noisier world, we believe a regime-based framework can help investors stay focused on the long-term while providing a clear rationale for when more fundamental change is warranted. However, these thoughts are only ever a starting point for a discussion. Ultimately, we are a client-driven, solutions-led business, building investment strategies and portfolios that are designed to meet an individual client's specific objectives, constraints and requirements.

We hope you find the combination of the Compendium and The Almanac thought-provoking and a robust framework for policy setting, designed to support the pursuit of attractive returns over the period ahead.

Identifying and interpreting these regimes sits at the core of our investment philosophy.

The regimes we have identified and outlined below span several decades, reaching back to the end of the Second World War in 1945. When examining these periods, it is important to recognise that, within any given regime, variables such as growth, inflation, interest rates, and bond yields oscillate around distinct trends. However, these trends do not persist indefinitely; regimes shift when imbalances accumulate over time – for example, during the global financial crisis of 2008–09, or the breakdown of the Bretton Woods system in the early 1970s (which had maintained fixed exchange rates, with the US dollar convertible into gold at $35 per ounce).

Regimes can also shift in response to external shocks, such as the end of the Cold War in the early 1990s, or more recently, the global Covid-19 pandemic. These transitions are often marked by sharp market movements, followed by a gradual adaptation to the new trend.

Our Post-War Regimes in Historical Context

With this in mind, we can look at these specific regimes in more detail. We divide the post-war period into six distinct regimes (Figure 1A.1).

Figure 1A.1

From Global Cooperation to Global Fragmentation

The post-war global economy was characterised by Multilateralism, with the establishment of cooperative international institutions that helped stabilise prices and reduce inflation volatility. A post-war baby boom and widespread reconstruction further fuelled strong global economic growth.

Post-Bretton Woods covers the tumultuous period following the collapse of the gold standard in 1971, driven by persistent US current account deficits. The OPEC oil embargo of 1973, followed by the Iranian Revolution in 1979, triggered a dramatic surge in inflation. With monetary and fiscal policies remaining too loose, inflation expectations became unanchored and the global economy entered a period of stagflation.

The 1980s and 1990s brought the Great Moderation, marked by the reassertion of monetary discipline, supply-side reforms and the end of the Cold War. This ushered in a multi-decade period of stable, low inflation and reduced economic volatility. Interest rates declined, and business cycle fluctuations diminished sharply.

China's accession to the World Trade Organization (WTO) and the expansion of internet connectivity across the economy represented a positive supply shock. Globalisation accelerated, goods prices experienced sustained deflationary pressure, and inflation continued to decline.

This regime of relative stability came to an end with the global financial crisis of 2008, which ushered in a prolonged period of deficient demand – Secular Stagnation – as the balance sheets of banks, households and governments came under severe strain. In response, central banks pursued an aggressive strategy of financial repression: policy rates were cut to the zero lower bound, and large-scale asset purchases compressed term premia across fixed-income markets.

Crucially, we believe that in recent years we have entered a new regime of Global Fragmentation. The post-pandemic global economy is shifting decisively away from an open, co-operative framework towards a more fragmented system dominated by power politics.

Regimes in Practice: The Role of Inflation

As long-term investors, regimes define the broad contours of the investment landscape. They drive the behaviour of key variables that we monitor closely: inflation, interest rates, term premia, growth and economic volatility.

In this context, regimes are best illustrated by the behaviour of inflation in the post-war US economy. While US inflation has averaged about 3.5% over the past 75 years, there have been wide divergences sustained over long periods.

After 1945, as multilateral institutions were established, inflation averaged around 2%, and its volatility declined sharply. In the early 1970s, the breakdown of the Bretton Woods arrangement, coupled with accommodative monetary policy, unmoored inflation, which averaged nearly 7% per year. In the early 1980s, policymakers adopted aggressive measures to re-anchor inflation expectations. Supported by supply-side reforms, inflation fell to around 4% during the 1980s and 1990s.

With the acceleration of globalisation in the early 2000s, inflation declined further, averaging about 2.7%. Following the global financial crisis of 2008, inflation continued to drift lower despite unprecedented monetary accommodation, settling at an average of 1.7%. Today, inflation has proved more persistent, remaining around 3% since 2021, and we expect it to stabilise within a 2.5%–3% range.

Chart 1A.2

US Inflation During Market Regimes

It is worth noting that there can be persistence across regimes. The drivers of this decline have differed over time. During the Great Moderation, central banks adopted explicit inflation targets. In the era of Globalisation, China's integration into the global trading system acted as a sustained positive supply shock. During Secular Stagnation, the global economy experienced persistent shortfalls in demand.

Inflation is not the only variable to display regime-dependent behaviour. Interest rates, economic growth, term premia and volatility have also followed distinct patterns in response to shifting macroeconomic regimes.

Regimes in the Context of Our Themes

For us, examining long-term regimes goes hand in hand with our focus on thematic investing – capturing the enduring trends that influence markets and economies over extended periods.

Slow-moving drivers such as demographics and technological change are key sources of thematic growth, expressed through our themes of Evolving Consumption, Ageing, Climate Change, Automation and Digitalisation. However, when a regime shifts due to material change in the macroeconomic or geopolitical environment, it can act as a catalyst for new thematic opportunities. At Sarasin, we have often introduced new themes at these regime turning points.

For example, in the early 2000s, as the Globalisation regime gathered momentum, we introduced our now-retired Global Convergence theme. This led to increased allocations to emerging markets – an approach that, in hindsight, proved highly successful. In the early 2010s, in the aftermath of the global financial crisis, we recognised the emergence of Financial Repression and reflected this in our asset allocation through a measured pro-risk bias.

More recently, following the global Covid-19 pandemic, we identified the breakdown of Secular Stagnation and the emergence of a new regime, which we define as Global Fragmentation. We subsequently explored the implications of this regime shift for equity markets and introduced a new equity theme under the heading Security.

How Regimes Inform Our Investment Choices

We believe that applying a regime lens enables us to calibrate investment decisions more effectively. As we have shown, the distinct behaviour of inflation, interest rates, term premia, growth and volatility within each regime shapes asset returns, correlations between asset classes and, ultimately, broader market structures.

While we were not personally investing fifty years ago, history offers clear lessons. After the breakdown of Bretton Woods in the 1970s, rising inflation pushed up both bond yields and equity risk premia, eroding their diversification benefits within multi-asset portfolios. In contrast, during Globalisation, disinflation lowered interest rates over time while also helping to anchor inflation expectations.

Today, as we transition into Global Fragmentation, we expect inflation to remain elevated and nominal growth to be robust. This view is reflected in default tilts to our asset allocation: a long-term positive outlook for global equities, a preference for short-duration bonds, and selective exposure to alternatives such as gold.

Demographics: From Tailwind to Constraint

For much of the post-war period, advanced economies benefited from favourable demographics (Chart 1B.1). Working-age populations expanded, participation rates rose, particularly among women, and dependency ratios declined (Chart 1B.2). Together, these forces provided a powerful tailwind to growth.

Chart 1B.1

Working-Age Population Growth (%)

That backdrop has now reversed. Populations across most developed economies are ageing rapidly, and growth in the working-age population has slowed sharply or turned negative.

Immigration could offset these pressures, but political realities point in the opposite direction. Public resistance to large-scale immigration has intensified.

Ageing also affects the composition of economic activity. As societies grow older, spending shifts towards health and social care – sectors that are typically labour-intensive and less productive. Over time, this is likely to reduce aggregate savings and place upward pressure on real interest rates.

Chart 1B.2

Dependency Ratios

Technology: Productivity in a Constrained World

Against this challenging demographic backdrop, technological progress has become increasingly important. Digitalisation has supported productivity growth for decades, and recent breakthroughs in generative artificial intelligence represent the next phase of this process.

We believe AI has the potential to meaningfully lift productivity growth over the next decade, particularly in knowledge-intensive services such as finance, professional services and technology.

However, these gains will not arrive overnight. Adoption is likely to be gradual, reflecting the need for organisational change, workforce adaptation and complementary investment. In the near term, the AI transition is more likely to boost investment spending – particularly in data centres, chips and energy infrastructure – than to deliver immediate efficiency gains.

Policy: High Debt, Harder Trade-Offs

Public debt levels across advanced economies are now historically high (Chart 1B.3). Governments face rising interest costs alongside growing spending pressures from ageing populations, rising defence expenditure and the climate transition (Chart 1B.4). At the same time, political support for fiscal restraint remains limited.

Chart 1B.3

Net Debt as % of GDP Estimates and Forecasts

This combination narrows policy choices. Persistent deficits risk crowding out private investment and weighing on long-term growth. Monetary policy also faces a more difficult environment. Regulatory approaches are also shifting, with the US in particular moving toward lighter regulation to support competitiveness and investment.

Chart 1B.4

Fiscal Deficit Composition, % of GDP

Geopolitics: From Integration to Rivalry

Perhaps the most defining feature of the new regime is the shift in the global geopolitical landscape. The cooperative, rules-based system that underpinned decades of globalisation is giving way to a more competitive and fragmented order.

Strategic rivalry, most notably between the US and China, is reshaping trade, investment and technology flows. Governments are making greater use of tariffs, subsidies and industrial policy to protect domestic industries and secure strategic advantages (Chart 1B.6). Supply chains are being redesigned for resilience rather than efficiency, making them more costly and less flexible.

Financial fragmentation is also emerging. The expanded use of sanctions has prompted some countries to reassess their reliance on the dollar-centric financial system. Many foreign central banks have started to shift their reserve holdings away from US Treasuries into gold (Chart 1B.5).

Chart 1B.5

Holdings of Reserve Assets

Chart 1B.6

US Customs Duty Collected Monthly (US Dollar, Billions)

Climate: A Slow-Burn Constraint

Climate change has not defined previous market regimes, but it is becoming an increasingly important factor. The transition to a lower-carbon economy adds further complexity. Large-scale investment, regulation and carbon pricing place upward pressure on costs and add to the fiscal strain.

Conclusion

Global Fragmentation reflects a fundamental reordering of the forces shaping the world economy. Demographic constraints, technological acceleration, high public debt, geopolitical rivalry and climate pressures are interacting in ways that differ markedly from the pre-pandemic era.

Macro Outcomes for the US

In this section, we bring together the key structural regime drivers to form a coherent set of macroeconomic forecasts for the United States over the next five to ten years.

Labour Force Growth

Over the very long run, labour force growth in the United States has averaged approximately 1.2% per year. Looking ahead, we forecast labour force growth of just 0.25%. This represents a meaningful step down from our previous forecast of 0.6% and reflects sharply lower expected immigration flows.

Productivity Growth

We forecast annual productivity growth of approximately 2.0% over the next five to ten years. Our outlook rests on two key pillars: sustained improvement in capital expenditure and the diffusion of artificial intelligence into business processes. We assume AI contributes a net positive effect of around 1.0 percentage point to productivity growth.

GDP Growth

Combining our forecasts, we estimate that real GDP growth in the United States will average approximately 2.25% over the coming years. This is notably above the CBO's forecast of around 1.8%.

Inflation

We forecast average consumer price inflation of approximately 2.5% in the United States over the next five to ten years. This represents a clear regime shift relative to the post-GFC era.

Neutral Interest Rates (r*)

We estimate r* to be approximately 0.85 percentage points below real GDP growth. Given our forecast for real growth of 2.25%, this implies a neutral real interest rate of around 1.4%.

Nominal Neutral Interest Rates (R*)

Adding our inflation forecast of 2.5% to the real neutral rate of 1.4%, we estimate the nominal neutral policy rate (R*) to average approximately 3.9%.

Term Premium and Long-Term Bond Yields

We forecast the differential between the neutral policy rate and the 10-year Treasury yield to rise to approximately 0.85%. This implies an average 10-year Treasury yield of around 4.75%.

Summary of Long-Term Forecasts

Relative to the 2010–2019 period, the next decade is likely to be characterised by slower labour force growth, stronger productivity, higher nominal GDP growth, higher inflation, and structurally higher interest rates.

Global Fragmentation in Numbers: How the Regime Translates Across Regions

The framework is identical across countries. What differs is the intensity of the regime forces, the starting point, and the institutional and structural features of each economy.

Its purpose is to capture how continued fragmentation, driven by intensifying geopolitical rivalry, supply chain reconfiguration and strategic resource competition, is turning security into a central force shaping investment risk and return opportunities.

Figure 1C.1

Sarasin & Partner's Thematic Framework

What We Mean by Security

Security aims to capture the rising importance of resilience, control and continuity in economic and corporate outcomes as fragmentation increases the scope for disruption, leverage and constraint.

How Security Fits Within Sarasin's Wider Thematic Framework

Themes often overlap, and Security is no exception.

Equity Implications

Our thematic philosophy is built on the view that modern equity markets tend to underestimate the impact of structural trends on company fundamentals. Security is creating opportunities in three main areas.

1. Cyber and Defence

Structural demand for defence and cybersecurity is rising. Defence budgets are rising across many regions as countries upgrade ageing capabilities and shift toward readiness, resilience and sustained deterrence.

Cybersecurity sits within the same impulse and broadens it further. As AI expands the attack surface and accelerates both offence and defence, governments and corporates place a higher priority on identity, data protection and operational resilience.

2. Resource Security

Efforts to secure supply chains are making reliability of access and continuity more prominent considerations. Commodities, particularly industrial and precious metals, benefit from structurally higher demand.

3. Protected Markets

Protected markets capture the parts of the economy where fragmentation raises the value of continuity, domestic anchoring and essential service delivery. Financial infrastructure, particularly banks, is one example. Within healthcare, the security-related implications are most pronounced in biopharma.

Conclusion

Under Global Fragmentation, Security shapes economic and corporate outcomes more directly as resilience, control and continuity are rewarded more consistently, while dependency becomes a more explicit cost.

As the Cold War drew to a close in the early 1990s, the United States set out to cement its global leadership. Nowhere is American power more visible than in the dominance of the dollar. Though the US economy represents roughly 25% of global GDP, the dollar accounts for 57% of official foreign exchange reserves and 54% of global export invoicing, and is used in 60% of cross-border loans. Around 70% of global bond issuance is denominated in dollars, as is 88% of currency trading.

Chart 1D.1

US Current Account Deficit as % of GDP

Weaponising the USD

The US is abandoning its long-standing role as a benign hegemon. Washington's liberal use of sanctions and tariffs has put much of the world on edge about the safety of their large holdings of dollar assets.

The Trump administration has expressed the view that a strong dollar has been a key driver of both domestic and global economic imbalances. The implications for the dollar are nuanced — while the administration accepts the dollar's reserve currency status is an 'exorbitant privilege', it simultaneously views the dollar's strength as an 'exorbitant burden'.

Inflation Default on USD

A salient feature of America's chronic trade deficits has been the emergence of US Treasury bonds as the world's pre-eminent safe asset. Looking forward, foreign appetite for US Treasuries is likely to wane. The recent passage of the 'One Big Beautiful Bill Act' worsens an already poor fiscal trajectory.

Transition Not a Rupture

Fragmentation does not imply the collapse of the dollar system. Our base case is gradual erosion, rather than immediate displacement. The dollar remains deeply embedded in global trade, finance and payment infrastructure.

The Pound and the Euro are likely to benefit initially, as both are less overvalued than the dollar. The Yen is heavily exposed to the Fragmentation regime. The largest mispricing in currency markets is relative to emerging markets.

Backdrop: The Core Building Blocks

Most investable assets can be understood as combinations of three underlying exposures: nominal claims (e.g. bonds), claims on tangible assets (e.g. property) and claims on the ownership of enterprise (e.g. equities).

Nominal claims offer contractual clarity, but over long horizons, real outcomes are dominated by realised inflation.

Tangible (physical) assets provide an intuitively direct hedge against monetary inflation but are subjected to persistent frictions including illiquidity and high transaction costs.

The ownership of enterprise is the channel through which capital is allocated to ideas, translated into production, and is one of the mechanisms through which economies grow. Publicly listed equity remains the most scalable and accessible vehicle.

A Brief History of Asset Allocation

In the Sarasin & Partners Endowments Model, we allocate 70–80% to equities from 1900 through to the end of 2025.

Chart 2A.1

Evolution of Sarasin's Endowment Strategy

Significant Moments in Investment

Equities become an institutional solution to inflation risk. In 1947, George Ross-Goobey persuaded the Imperial Tobacco pension fund trustees that equities could deliver better results than bonds. The fund switched virtually all of its investments into equities.

Governance Constraints Shape What Portfolios Can Own

Many British charities were held back by regulation. The Trustee Act 1961 required them to limit riskier investments. The Trustee Act 2000 finally introduced a General Power of Investment.

Domestic Portfolios Go Global

For most of the post-war period, British investors treated the domestic equity market as a natural proxy for domestic economic exposure.

Chart 2A.2

UK Pound to US Dollar Exchange Rate

Once Foreign Exchange Controls were abolished in 1979, capital moved quickly. Annual flows rose from £1 billion in 1979 to £18 billion by 1985. Over time, fully international investment has become the norm.

Expanding into Alternative Asset Classes

Having invested in many alternatives in a small and tactical way since the late 1990s, Sarasin made its first formal strategic allocation to alternatives in 2005. The allocation has produced a positive total return in every calendar year since 2005, except 2023.

Lessons Learned: When to Be Dynamic

There is a common thread – investors who recognise the changing nature of asset classes, and dynamically adjust their portfolios in response, tend to be rewarded over the long-term.

Two Mechanisms Reshaping Public Markets

Mechanism 1: Benchmarking and passive ownership as the default. Once a global market-capitalisation benchmark becomes the 'reference' portfolio, concentration rises, and index outcomes become more sensitive to shifts in the drivers of corporate success.

Mechanism 2: Lifecycle and ownership shift. A larger share of early and mid-stage corporate growth is now financed privately. There are fewer publicly listed companies relative to private enterprises than 20–30 years ago.

Chart 2B.1

Listed Companies in the UK and USA Over Time

Cross-Sectional Concentration: The Facts

Chart 2B.2

Share of Rolling 12 Month S&P 500 Returns Attributable to Top 10% of Contributors

Chart 2B.3

Proportion of Stocks Outperforming S&P 500

Chart 2B.4

US Sector Concentration in 2025

Chart 2B.5

US Sector Concentration in 1900

Chart 2B.6

Geographic Concentration of the Global Equity Market Over Time

Concentration in Context: 3 Paths

Path 1: Crash — when financial value far exceeds economic potential. The 'Nifty Fifty' and the Japanese market decline illustrate this.

Chart 2B.7

PE Ratio of US vs Japan

Path 2: Broadening — as dominant areas lay foundations for new growth drivers. Switzerland's economic progression and mobile/cloud computing illustrate this.

Path 3: Combination — real potential and financial excess together. The railroads and the TMT episode illustrate this.

Implications for Long-Term Investors

The P/E ratios don't suggest a massive relative over-valuation.

Practical Matters: The Poor Performance of Active Managers

The period of concentrated leadership has coincided with an unusually tough period for active managers.

Between 2005 and 2020, investors had a broadly 50:50 chance of finding a fund that beat the index each year. The past 5 years have turned this pattern on its head.

Conclusions

Public equities remain the largest, most liquid and transparent claims on enterprise. However, they increasingly represent a less comprehensive 'enterprise map' than they once did. Concentration is a risk, but the evidence does not yet justify fundamental change.

Context: Why Alternatives Matter

When Alternative Assets Become Investable

For many alternative ideas, the key question is not whether the underlying opportunity exists, but whether it can be analysed, owned and governed in a way that is appropriate for fiduciary-managed client portfolios.

How the Alternatives Mix Has Evolved Across Regimes

Chart 2C.1

Evolved Alternatives Endowment Model

Global Fragmentation

As we have entered the fragmentation regime, we have materially increased our exposure to commodities, concentrated in gold. Our intention is to improve portfolio resilience in scenarios that are becoming more plausible. We have also been materially reducing the interest rate sensitivity of our alternative holdings.

The Elephant in the Room: Is Bitcoin the Next Investable Alternative or a Speculative Bubble with No Fundamental Support?

Bitcoin is increasingly discussed in the same breath as established alternatives. We think of bitcoin as a digital, fungible collectible, closer in economic character to gold than to a productive asset.

Chart 2C.2

Holdings of Reserve Assets

Our current assessment is that bitcoin is approaching the point where it could be used, selectively, as a limited tactical allocation tool within diversified portfolios. For now, it is not a holding, but it may become a tactically deployable option as it continues to mature.

Chart 2C.3

How an Actively Managed Alternatives Allocation Can Perform

Regimes and the Role of Bonds

Each shift in the overall regime often changes the balance of risks for bonds. A shift in the broader regime often changes inflation dynamics, fiscal risk and the policy reaction function.

Why Investors Own Government Bonds

Government bonds play three roles: liquidity and optionality, capital protection in recessionary shocks, and a baseline return. Those roles remain relevant, but they are conditional.

Diversification Is Regime Dependent

Equity–bond correlation is not a structural constant. During the 1960s and 1970s, bonds were a poor companion to equities. From the early 1980s, bond returns benefited from monetary discipline. From 2000 to 2020, government bonds became a more dependable diversifier.

Figure 2D.1

Why Gilts Don't Always Play the Same Role in a Multi-Asset Portfolio

Fragmentation and the Outlook for Nominal Assets

The market stress of 2022–23 illustrated that bonds and equities can fall together. We expect inflation to remain more variable than during the 2000–20 period. Credit spreads have tightened materially.

Portfolio Implications

The case for holding government bonds remains strongest at shorter maturities. Diversification is better approached by using a wider range of assets including cash, inflation-linked bonds, and gold.

Conclusion

The dynamic investor understands that we cannot take the old bond rules for granted. A more fragmented world raises the probability that bonds behave in a more conditional way.

Strategy

When we think strategically, we are considering time horizons of 7–10 years and beyond. We believe strategy should be developed in partnership between the asset owner and the investment manager. Experience tells us that material strategic shifts occur roughly every 5 years.

Tactics

Active judgements can be applied via stock selection or by tilting the asset allocation. Tactics can operate at two speeds: over the medium term (3–7 years) and when markets are materially impacted by short-term sentiment over 12-month periods.

The Foundations of a Model Endowments Portfolio

The Endowments Model projects a total return of 6.8% per annum over the next 7–10 years, with a real return of 4.0%. However, the model makes four simplifying assumptions. Since we first published our Endowments Model twenty-five years ago, this approach has projected long-term real returns ranging between 3% and 5% per annum.

From a Theoretical Model to Real World Outcomes

We suspect a reasonable assumption would be that both the median active manager and the typical passive portfolio will underperform by about 0.35%. On that basis, Evolution 1 could be expected to deliver a real return of 3.7% per annum.

To What Extent Are Results Likely to Deviate Away from Evolution 1?

There are two key factors that will influence returns: markets tend to re- and de-rate, and different fund managers will add or subtract value.

The ARC data suggests that any diversified multi-asset approach that projects much more than 1¼% per annum over the average result, over the longer term, is probably not credible.

Using Our Understanding of Investment Regimes to Add Value to Evolution 1

We adapt the base case by tilting to real assets from nominal assets, building in slightly higher bond yields, and assuming alpha can be generated through active management.

In Evolution 3, we incorporate illiquid assets. We project that both private equity and private credit will still outperform listed markets after higher costs.

These scenarios illustrate the potential returns — and associated assumptions — that could be required to generate attractive, above-average performance over the period ahead. Our models are illustrative and designed to generate a discussion. Ultimately, Sarasin & Partners is a client-focused, solutions-led business, designing investment strategies and portfolios tailored to each client's individual requirements. We would welcome the opportunity to discuss how we can design and implement a portfolio that suits your particular requirements.