Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
After the Global Financial Crisis, investment markets embarked on a prodigious rally, it was the best of times. The breadth and ubiquity of asset price rises over this period arguably set in motion the decline of active management. The question of how best to invest had been solved – buy, hold, repeat. This crude formula, worked immaculately, until it didn’t.
That ‘everything rally’ was brought to a sharp conclusion with the ‘everything crash’ in 2022, when both equity and bond markets delivered double digit loses. The basic portfolios that had become so popular – 60% stocks, 40% government bonds - were left nursing losses in excess of 15%1. Since then, a new dynamic has taken hold: stock market investments have continued to grow, but at a materially slower pace than in the 2010s, while government bonds are making their way towards a lost decade.
Growth in the value of £100 invested in government bonds
The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index. Source: Bloomberg, 30/06/2025. Bloomberg Global Aggregate Treasuries Index, GBP hedged.
The post-financial crisis period was in fact an exception. Consistent economic growth, very low levels of inflation, falling interest rates, and unprecedented geopolitical stability supressed market volatility. This reduced the benefits of diversification and dynamism alike. This was unlike any market regime that had come before it, and unfortunately it looks as though we are now returning to normality.
There are several important structural forces likely to create new economic challenges going forwards. The joint demands of defence and social security spending will inflate national deficits and in turn running the risk of fiscal dominance challenging central bank independence. Meanwhile, political uncertainty discourages private sector investment and undermines capital formation, a reality made painfully clear this year. Finally, if globalisation continues to recede, so will its force of inflation suppression.
In this sort of environment government bond and equity returns are going to be challenged by higher inflation and lower growth respectively. Generating appealing performance in this new world requires access to a broader array of return drivers. Emerging market debt and high yield credit will benefit in the higher inflation, higher interest rate environment. Gold and commodities can provide valuable ballast during periods of geopolitical uncertainty. While property and infrastructure can act as return enhancers, especially if positioned to benefit from the structural uptick in capital spending related to the roll out of artificial intelligence and renewable energy.
Further, in this environment, standing still no longer makes sense. When returns were concentrated, it was difficult to add value by making active decisions, but now as they broaden out, there is more opportunity to outperform. By the same token, it is much easier to add value through active asset allocation than through security selection. Stock market returns tend to be concentrated – only 28% of stocks in the MSCI All Country World equity index outperform the index itself - stacking the odds against stock pickers. By contrast, almost twice the proportion of sectors within that index outperformed it– 46%2. It is finally worth noting that the breadth and dynamism mentioned above complement one another, with greater portfolio breadth creating more levers with which to adjust portfolio positioning.
The post financial crisis period was arguably the heyday for investing. Markets were back-stopped by the strength of the economy, the will of governments, and the watchful eye of central banks. However, the investment landscape has shifted from an era of simplicity to one of complexity. The passive, one-size-fits-all approach that thrived in the post-crisis bull market is no longer sufficient in a world marked by geopolitical tension, fiscal strain, and economic divergence. We are leveraging the breadth of asset classes available across our investment platform to build portfolios suitable for today’s market environment. We overlay this with dynamic positioning, and focus on delivering it at an exceedingly competitive price. Success will come not from standing still, but from adapting—thoughtfully, deliberately, and with a wider set of tools at hand.
Source:
1 BlackRock and Bloomberg, 30/06/2025 Equity = MSCI All Country World Index in local currency, Government Bond = Bloomberg Global Aggregate Treasuries, GBP Hedged.
2 Data from Bloomberg based on MSCI ACWI Index in local currency from 31/12/2021 – 30/06/2025, analysis conducted by BlackRock
There is no guarantee that any forecasts made will come to pass.
Important information
Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.
Important Information
This document is marketing material
In the UK and Non-European Economic Area (EEA) countries: this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
© 2026 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.
