Big year for old-fashioned Wall Street trades gets lost in AI hype

For all the triumphant talk about AI, the rising retail spirit and whiplash crypto trading, a calmer trend unfolded in global markets in 2025: Diversified strategies posted some of their strongest returns in years.
It’s an achievement that has largely gone under the radar.

Simple portfolios split between stocks and bonds delivered double-digit gains, the best year since 2019. Multi-asset “quant cocktails” – a mix of commodities, bonds and global equities – outperformed the S&P 500. A Cambria Investments exchange-traded fund with 29 ETFs spread across global markets posted its best year ever, buoyed by big gains abroad.This week’s inflation report was a lesson in their wisdom. Softer-than-expected U.S. inflation data led to a rare simultaneous rally in both stocks and bonds on Thursday. So-called risk parity funds posted gains this week, a reminder that market conditions still reward balance, even in a world where artificial intelligence continues to obsess investors.

But while 2025 may have marked a comeback for old-fashioned caution on Wall Street, it will also be remembered as a year in which investors continued to walk away from those same strategies. Capital has continued to migrate toward concentrated exposure to Big Tech, thematic trades from nuclear energy to quantitative computing, and blunt hedges like gold.

“Despite all the focus on the AI ​​story, 2025 was not an equity story,” said Marko Papic, chief strategist at BCA Research. “It was all about global diversification.”

As market valuations rise and concentration deepens — especially in tech-hit U.S. benchmarks — some strategists warn that abandoning diversification now could leave portfolios exposed at exactly the wrong time.

Private investors in particular have been distancing themselves from balanced and multi-asset funds for years. The category – which includes public risk parity funds and 60/40 portfolios, which traditionally invest 60% in stocks and 40% in bonds – has seen outflows for 13 straight quarters before a modest recovery this fall, according to JPMorgan Chase & Co. While money has continued to flow into dedicated bond and equity funds, the middle one – traditional mixed strategies – remains out of favour.Nikolaos Panigirtzoglou, a strategist at JPMorgan, points to a multi-year period of disappointing performance, exacerbated by unusual cross-asset correlations that weakened returns. The 2022 bond market crisis – caused by aggressive central bank tightening – further damaged confidence in fixed income as a buffer within multi-asset portfolios.

“That just destroyed the psyche of retail investors about the bond market,” says Jim Bianco of Bianco Research. “And that’s the most important thing: that’s why investors keep jumping from asset to asset.”

April delivered another scare. When President Donald Trump announced new trade tariffs during a televised “Liberation Day” speech, markets sank. The S&P 500 fell 9% in a week; a benchmark 60/40 portfolio fell more than 5%. Government bonds rose while gold fell. Bitcoin fell sharply and then bounced back.

But beneath the surface there has been a widening for most of the year. Value-oriented equity ETFs, many of which eschew the top-heavy tech complex, raked in more than $56 billion this year, the second-largest annual inflows since at least 2000. Cambria’s Global Value ETF rose about 50%, the best since launch. International equities recovered on the back of fiscal reforms and a weaker dollar. Small caps performed better in the fourth quarter.

Some strategists believe this shift will continue into 2026. Greg Calnon, global co-head of public investments at Goldman Sachs Asset Management, expects U.S. earnings growth to broaden, with small caps and international stocks outperforming. He sees continued strength in municipal bonds, supported by attractive tax-adjusted yields versus government bonds and robust investor demand.

JPMorgan Asset Management’s David Lebovitz leans towards emerging market government bonds and UK government bonds, while maintaining selective exposure to US and AI stocks.
Still, others see signs of foam. Bank of America Corp. notes that 2025 saw the second strongest buying impulse in almost a century. Emily Roland, co-chief investment strategist at Manulife John Hancock Investments, says markets have become increasingly disconnected from fundamentals.

“This year has been every short-term investor’s dream,” she said. “We would be cautious about picking waste lately. It has been a momentum-driven year in which fundamentals and earnings growth have been seemingly irrelevant.”

But even as investors move away from classic 60/40 bets, many haven’t given up on the multi-asset approach. Capital has flowed into alternative assets – from private credit and infrastructure to hedge funds and digital assets – as investors seek exposure outside public markets. In some cases, the search is less about portfolio balance and more about access to alternative assets, returns or insulation from public market volatility.

“They’re not losing confidence, but the 60/40 is evolving and it’s important to recognize that what has worked for the last 25 years may not work so well for the next 25,” JPMorgan’s Lebovitz said. “The core concept of diversification still applies, but investors today have many more levers to draw on.”