By Amey Stone

After several years of market returns dominated by Magnificent Seven large-cap tech names, returns in 2025 are likely to come from a broader mix of stocks and bonds, said participants at a panel of chief investment officers at the Barron's Advisor Women Summit in Palm Beach, Fla., in early December.

"I expect 2025 to be a good year," said Mary Ellen Stanek, the founder and co-chief investment officer at Baird. She expects the economy to remain strong even though volatility will likely be high.

Shannon Saccocia, CIO at Neuberger Berman Private Wealth, said she expects "above-trend economic growth." Deregulation, changes to industrial policy, and merger and acquisition activity could boost a broader range of stocks than just large-cap tech. "We think it puts the equity market in a position where we will see some broadening out" to small- and mid-cap stocks, she said.

Stanek agreed small-caps are an area of opportunity. She quoted Joseph Milano, an equity portfolio manager of the Baird Equity Opportunity Fund (BSVSX), who told her, "The small-cap cycle has started."

Both CIOs were lukewarm on investing outside the U.S. "Europe is a challenge," said Stanek. Saccocia said that U.S. dollar strength created investing challenges outside the U.S. She is neutral to underweight China. The panel was moderated by Cameron Dawson, CIO at NewEdge Wealth.

Bond outlook. In fixed income, both Stanek and Saccocia said they see an opportunity for attractive total returns above the level of inflation. Volatility is higher than normal for bonds, which could create opportunities, said Saccocia. "Think about fixed income as an allocation that can be managed a bit more actively."

Stanek pointed to municipal bonds as a lower-risk way investors in high tax brackets can earn attractive returns. Tax-equivalent yields are currently 6% to 7%. She also said there are attractive short-term bond funds that are ideal for clients who can't handle volatility. "It can help them sleep at night," she said.

Private credit is one area where the two shared somewhat opposing views. Saccocia said investors could find higher yields by turning to private credit funds. But Stanek suggested advisors should to "be careful," given that enthusiasm for the sector right now creates risks and there are often high fees and liquidity constraints. "There are some animal spirits out there," she said.

Tips for advisors. Both CIOs had specific advice for advisors in the audience. Saccocia said advisors should take advantage of the resources offered by the chief investment offices of their firms and of asset managers they work with. "You can tap into their thinking so when you talk to clients it feels like you, but has current elements," she said.

She also said advisors should realize that the next generation of wealth management clients, who are now young adults, have different attitudes about investing than their parents. For one, they are more interested in going outside traditional stock, bond, and cash allocations. They likely want to explore options like collectibles or crypto. They often see those asset classes as defensive against the risks of highly valued public markets, she said.

Stanek recommended dollar-cost averaging with new client cash over a few months this year as a way to protect portfolios from heightened volatility and the potential for a sudden downdraft soon after putting a big chunk of money to work.

She also praised advisors for bringing a focus on long-term planning. "The value of that plan is so important," she said. "It allows your clients to stay the course" and cope with volatility. "We all know it is time, not timing, that drives portfolio values over time."

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 20, 2024 14:30 ET (19:30 GMT)

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