As we review the market landscape of the first quarter of 2025, one theme remains consistent: the power of diversification.

At the heart of our Q1 analysis is the asset class quilt chart—a familiar tool we use to visualize the performance of various asset classes. Once again, our focus is on the black square, representing a well-diversified portfolio composed of equities, fixed income, commodities, and REITs. Despite US equities ending the quarter in negative territory, the inclusion of international equities, bonds, REITs, and commodities helped generate a modestly positive return for investors.

Let’s take a closer look at what drove performance this quarter.

International Equities Show Strength

Developed international equities delivered solid results in Q1, benefiting from a weakening U.S. dollar and producing returns above 6%. While emerging markets didn’t keep pace with their developed counterparts, they still posted positive returns.

Within developed markets, Europe was a standout. Major European economies helped lift performance, driven by low valuations and expectations that increased spending and production would be necessary in response to shifting U.S. trade and geopolitical policies.

Emerging markets saw varied results: China’s struggling economy showed some signs of recovery, while Brazil and Mexico posted gains supported by favorable trade developments.

Fixed Income: A Steadying Force

Fixed income played a stabilizing role for many portfolios this quarter. The 10-year Treasury yield started Q1 at 4.7% and fell to around 4.2% by quarter’s end, boosting bond prices in the process. Broad bond indices and Treasuries were up over 2%, while Treasury Inflation-Protected Securities (TIPS) gained more than 4%.

This performance not only added value but also helped reduce portfolio volatility, especially for those invested in fixed income. Although yields have since ticked back up to around 4.3% at the time of this writing—slightly offsetting earlier gains—the quarter still delivered meaningful contributions from bonds.

Asset Allocation Proves Its Value

Unlike past years where US equities dominated performance, Q1 2025 reinforced the value of a diversified approach. A thoughtful asset allocation strategy not only provided positive returns but also helped cushion portfolios against volatility caused by large-cap weakness in the U.S. market.

Thank you for reading. Stay tuned for more insights from the Investment Research Team in the months ahead.

Sources
MSCI, YCharts. Data as of 3/31/2025
Bloomberg. YCharts. Data as of 3/31/2025