Investing in the age of AI

Why Smart Diversification Matters More Than Ever

For decades, the traditional 60/40 portfolio - 60% equities and 40% bonds - has been a go-to strategy for building balanced portfolios. It offers growth from equities and downside protection from bonds. That approach worked well in a world of low inflation, low interest rates and low volatility.

But 2025 has made one thing clear: long-standing market assumptions can- and should – be questioned. US tech dominance faces fresh competition, investors are reconsidering the US-centric market cap-weighted exposure, and the safe-haven role of US Treasuries and US dollar – the former already tested during 2022 – are under pressure. This brings into question if the 60/40 portfolio is still fit for purpose.

How the HSBC Global Strategy portfolios remain relevant in an increasingly uncertain world

HSBC’s Global Strategy portfolios are a range of low-cost, globally diversified funds tailored to different client risk levels. The Balanced portfolio is similar to a traditional 60/40 in that it has a similar equity/bond allocation mix. However, not all 60/40 portfolios are alike. We outline the three key differentiators that keeps HSBC Global Strategy relevant in today’s increasingly uncertain world.

Dynamic asset allocation

In today’s environment, markets can swing sharply on sentiment, long before fundamentals catch up. A key feature of our portfolios is our dynamic asset allocation, allowing us to shift away from certain markets and regions that are overvalued or have weaker fundamentals to other, more stronger areas. Having that flexibility to respond in these moments can help protect against downside risk and smooth out returns, as it did for our portfolios during the April market volatility period.

Why does this matter now? In the past, the beta bull market supported a more passive approach to building portfolios. Looking forward, as we continue towards a regime of increasing uncertainty and dispersion in returns, dynamic asset allocation will become more of a “Essential” feature and a key differentiator for performance.

Disciplined investment process

Dynamic doesn’t mean reactive. Nor should changes be made for the sake of it. Our active positioning runs through a structured, risk-aware investment process that enables us to evaluate the full multi-asset opportunity set in a comprehensive and disciplined way. It is the anchor that enables us to avoid behavioural biases or short-termism which can easily succumb to fleeting market news or narratives.

Our process also balances risk control alongside cost efficiency, to ensure position sizing remains well balanced and returns remain attractive after transaction costs are considered. In an environment where value and suitability matters are increasing in focus, we believe our multi-dimensional active allocation approach, set at a competitive price, offers a compelling proposition for clients.

Diversification beyond traditional means

With bonds no longer the same buffer they once were, diversification needs to work harder. Opportunities for dynamic allocation are not, and arguably should not, be confined to one or two key directional views, which can easily be whipsawed by markets. Instead, we focus on breadth, spreading a greater number of diversified granular views across the portfolio.

The application of granular views not only lowers the chances of any one idea dragging down the portfolio but also increases the probability of generating alpha. Moreover, these granular active levers can be applied within the constraints of a traditional low-cost 60/40 portfolio.

Case Study: Implementing HSBC Global Strategy active views

The table below outlines the two levels of active asset allocation we deploy in the portfolios. The first are the headline views across the broad asset classes, which is currently overweight equities and government bonds balanced by an underweight in credit and tilt towards safe haven currencies to express our cautious optimism amidst continued market uncertainty.

Directional asset allocation: How we tilt the overall risk exposure across broad asset classes.

We then explore for more granular opportunities within markets. Through our comprehensive and disciplined investment process, we have identified opportunities in Spanish and emerging market equities. Within bonds, we favour UK and Australian markets. These positions, otherwise known as relative value, can be structured against the broader market, a specific region or even within a country’s market. The portfolio also implements relative value currency views.

Source: HSBC Asset Management, as of 31st August 2025. Diversification does not ensure a profit or protect against loss. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. For Illustrative only. This shouldn’t be considered as an investment advice.

The bottom line

We operate in a more fragmented, uncertain world. Tariffs are just one sign of deeper shifts - toward economic nationalism, reshoring, and strategic competition. The days of relying on static portfolio structures are likely behind us. Dynamic positioning remains key for capturing near-term dislocations but must fit within a coherent, resilient strategic framework. Diversification - in its truest, multi-dimensional form - has never been more critical.

Key Investment Risks

• Counterparty Risk: The possibility that the counterparty to a transaction may be unwilling or unable to meet its obligations

• Credit Risk: A bond or money market security could lose value if the issuer’s financial health deteriorates

• Default Risk: The issuers of certain bonds could become unwilling or unable to make payments on their bonds

• Derivatives Risk: Derivatives can behave unexpectedly. The pricing and volatility of many derivatives may diverge from strictly reflecting the pricing or volatility of their underlying reference(s), instrument or asset

• Emerging Markets Risk: Emerging markets are less established, and often more volatile, than developed markets and involve higher risks, particularly market, liquidity and currency risks

• Exchange Rate Risk: Changes in currency exchange rates could reduce or increase investment gains or investment losses, in some cases significantly

• Interest Rate Risk: When interest rates rise, bond values generally fall. This risk of this happening is generally greater the longer the maturity of a bond investment and the higher its credit quality

• Investment Fund Risk: Investing in other funds involves certain risks an investor would not face if investing in markets directly. Governance of underlying assets can be the responsibility of third-party managers

• Investment Leverage Risk: Investment leverage occurs when the economic exposure is greater than the amount invested, such as when derivatives are used. A Fund that employs leverage may experience greater gains and/ or losses due to the amplification effect from a movement in the price of the reference source

• Liquidity Risk: Liquidity risk is the risk that a Fund may encounter difficulties meeting its obligations in respect of financial liabilities that are settled by delivering cash or other financial assets, thereby compromising existing or remaining investors

• Operational Risk: Operational risks may subject the Fund to errors affecting transactions, valuation, accounting, and financial reporting, among other things.

The risk factors listed above are not exhaustive. Please refer to the official product documentation for the full and detailed risk disclosures.

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Important information:

For Professional Clients only and should not be distributed to or relied upon by Retail Clients.

The HSBC Global Strategy Portfolios are sub-funds of HSBC OpenFunds an Open Ended Investment Company that is authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director is HSBC Asset Management (Fund Services UK) Limited and the Investment Manager is HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semiannual report, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8, Canada Square, Canary Wharf, London, E14 5HQ, UK, or the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID.

HSBC Global Strategy Portfolios are actively managed.

The funds may use derivatives for the purposes of efficient portfolio management i.e. to meet the investment objective of the Fund and it is not intended that their use will raise the overall risk profile of the Fund. Please note derivative instruments may involve a high degree of financial risk. These risks include the risk that a small movement in the price of an underlying security or benchmark may result in disproportionately large movement; unfavourable or favourable in the price of the derivative instrument; the risk of default by counterparty; and the risk that transactions may not be liquid.

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