In recent years, investors have encountered profound shifts in their financial landscape as the yield on ten-year government bonds dipped below 2%, ushering in what can be termed as the "1.0 era." This phenomenon is reshaping popular investment strategies that thrived in a high-interest environmentTwo key investment approaches are facing significant disruptions: traditional fixed-income products, including those with rigid repayment structures, and the era of selecting local growth assets spearheaded by fervent active fund managers.

As we step further into this new economic territory, the crucial question arises: How can investors effectively navigate these unfolding changes and safeguard their portfolios?

A comprehensive outlook report has been released, providing foresight into the expected evolution of the Exchange-Traded Fund (ETF) market by 2025. This study delves deeply into innovative strategies for global asset allocation in a domestically low-interest-rate setting, spotlights emerging trends, and outlines a blueprint for investment amid a diversifying asset landscape.

The report begins by emphasizing local high-yield assets, which include high-dividend stocks and Real Estate Investment Trusts (REITs). However, it is essential to approach these assets with caution, as cross-border investment restrictions imply that they could become the focal point of a localized "carry trade," which may amplify their volatility.

Meanwhile, on the horizon lie overseas growth assets—particularly those linked to leading companies within the global technology supply chain and stocks from countries and regions that are experiencing significantly better-than-expected economic growthSubsequently, the analysis shifts to alternative assets with low correlation to traditional equities and bonds, such as gold and other precious metals, which are increasingly being viewed as a hedge against market fluctuations.

Despite their appeal, it is vital to bear in mind that investing in these alternative assets generally carries more considerable risk, requiring investors to prepare for potential price volatility

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Over recent years, many of these assets have displayed robust performance, prompting a reevaluation of their future price gain expectations.

As we survey the investment landscape from the vantage point of early 2025, various considerations are evident:

1. The initiation of the "1.0 Era" in local interest rates suggests that a "Fixed Income + Diverse Assets" strategy represents a more suitable combination for investorsShould interest rates continue to trend down, traditional fixed-income products may struggle to cover operational costs, leading to a contraction in size within the sectorConsequently, investment opportunities will become increasingly scarce, forging a new narrative centered around "Diverse Assets + Portfolio Volatility Reduction" within the broader investment landscape.

2. Emphasis on cash flow is paramountCash flow-related assets (such as dividends, cash flow-focused ETFs, and REITs) are becoming increasingly attractive to a wide array of investors, with their penetration continuing to rise and downward risks remaining relatively manageableIn the future, investors will require a more open-minded approach to embrace any assets capable of yielding cash flow, even with the inherent volatility that may come with them.

3. Notably, the global stock market has mirrored the ongoing trend of diversification since 2025, shedding light on trading themes that favor a multipolar economic landscapeDespite a lack of substantial improvement in the European economy, European stocks have remarkably outperformed expectationsBy the close of 2024, U.S. equities comprised nearly 70% of the FTSE Global All Cap Index, suggesting rising pressure for a market correctionIn simpler terms, a potential rebalancing of global equity assets appears imminent for 2025-26, with European and Chinese stocks poised to benefit in this contextThis scenario undeniably favors investors focusing on asset allocation.

The intersection of active management and ETFs signifies the dawn of a transformative era in investing

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The year 2024 has emerged as a landmark period for China's ETF market, with total assets surpassing 3.7 trillion yuanNotably, the proportion of ETF holdings in investment portfolios eclipsed that of actively managed funds for the first time, catching the market's attention.

Drawing insights from the rapid expansion of ETFs in the U.S. market, this report identifies the low-interest environment's significant influence on index-based investmentsOn one hand, the return expectations from domestic assets have declined, making it increasingly difficult to locate excess returns from active managementConcurrently, investors have grown more sensitive to fees due to these altered expectationsConversely, the low-interest climate has been conducive to the growth of high-yield and cross-border assets, areas that domestic asset management firms previously underestimated.

Interestingly, while passive investing enjoys undeniable popularity in China, the U.S. has witnessed a contrasting trendBetween 2023 and 2024, proactive management ETFs in the U.S. have surged in issuance, nearly equaling their passive counterparts.

In the realm of active ETFs, three distinct forces are notably shaping the landscape:

- The "Star Group," exemplified by Cathie Wood, employs bold strategies to attract retail investors in an era dominated by individual asset holders, seeking to foster wealth creation through aggressive investment styles wrapped in ETFs.

- The "Transformation Group," such as Dimensional Fund Advisors, represents established players in traditional closed-end fundsThey are adapting actively by incorporating traditional strategies into ETFs, harnessing the benefits of active management.

- The "Disruption Group," typified by JPMorgan's JEPI, is breaking new ground through innovative products and strategies, catering to investors’ specific needsThese three exemplars are collectively driving the active ETF movement forward.

As the ETF market matures, a growing number of investors are leveraging both active and passive ETFs collaboratively to develop more resilient investment portfolios

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