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As we head into 2025, the beginning of which featured a major political event, notably the inauguration of Donald Trump on 20 January, a number of financial indicators merit particular attention from investors. In this economic environment subject to constant change, investors must above all stay vigilant and use solid data to adjust the asset allocation strategies within their portfolios.
Market trends are rapidly evolving under the influence of a range of factors, both macroeconomic and geopolitical. It is nevertheless advisable to adopt a cautious approach while actively monitoring trends to adjust allocations and take advantage of fresh opportunities. This month, the focus is on three areas of particular relevance to investors.
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Firstly, the recent surge in price of Bitcoin’s share price, which recently surpassed USD 100,000, and leads us to contemplate a potential exposure to this cryptocurrency in a multi-asset portfolio. Second, high-yield US bonds and their excess returns in relation to equivalent European assets, in particular. Finally, the market for reusable plastic packaging offers investment opportunities thanks to its interesting growth prospects while helping to reduce plastic pollution worldwide.
1. Bitcoin: exceptional performance but the volatility it brings to a portfolio is underestimated
In early December 2024, Bitcoin rose above the USD 100,000 mark for the first time in its history, bringing its return to 120% over the entire year1. The crossing of this symbolic threshold led to heightened interest from institutional investors, including pension funds2.
We do not see Bitcoin as a financial asset in the same category as the instruments we use to put together our clients’ portfolios
Nevertheless, we need to remember that despite its potential for high returns, Bitcoin remains an extremely volatile asset. Even a very low Bitcoin allocation in a multi-asset portfolio increases the risk within it disproportionately.
This is shown in the chart below, which models allocations of 2%, 5% and 10% in a portfolio. As we pointed out in early January in our investment insights, a Bitcoin allocation of 10% doubles the overall volatility of the portfolio (see chart below).
Moreover, the use of Bitcoin in unlawful or criminal activities (which could be as high as 23% of all transactions performed in cryptocurrency, according to Europol3) remains a major risk for portfolios. This cryptocurrency thus positions itself more as a speculative instrument than a stable asset.
An in-depth analysis and continual monitoring are essential to integrate Bitcoin effectively into a diversified investment strategy
It is vital to remember that we do not see Bitcoin as a financial asset in the same category as the instruments we use to put together our clients’ portfolios.
We therefore emphasise that it is crucial for investors to evaluate the impact of Bitcoin on the global risk profile of the portfolio with great care before deciding to hold cryptocurrency: an in-depth analysis and continual monitoring are essential to integrate Bitcoin effectively into a diversified investment strategy.
Will high-yield US credits offer a similar performance in 2025 compared to last year? The performance appears to be carried by a US economic exceptionalism which should continue in 2025, backed by favourable market conditions and economic policies that are focussed on growth.
The resilience of the US economy coupled with a robust labour market and a business-friendly environment on the domestic market should enable high-yield US credits to outperform other bond segments
The dynamic should therefore continue on its current trajectory, supported by a number of factors: first, the “America First” strategy championed by Donald Trump during his presidential campaign, seems to resonate in the signing of numerous executive orders, from the day of his inauguration onwards, in favour of domestic businesses, especially through a more flexible regulatory environment and prolonged fiscal stimulus4.
Second, the resilience of the US economy coupled with a robust labour market and a business-friendly environment on the domestic market should enable high-yield US credits to outperform other bond segments.
Furthermore, a contained default rate and historically low spreads (i.e. between high-yield bonds and government bonds) suggest the prospect of attractive returns in the coming year.
The chart below attests to this: in January 2025, the credit default swap (CDS) on high-yield US bonds with a five-year maturity stands at around 30 basis points, which translates into a relatively low risk of default for these bonds. This resilience is explained in part by the solid business fundamentals and easy access to funding.
Nevertheless, a rigorous selection of issuers remains essential, notably in sectors such as automotive and, in particular, health, which are especially sensitive to political and regulatory developments. In this US credit segment, we favour high-yield issuers in the sectors of energy (supported by Donald Trump’s measures in favour of hydrocarbons) and luxury hotels, which are benefiting from an increase in business travel.
Reusable packaging: reduction in plastic pollution and opportunities for business
More than ever before we need to rethink our relationship with plastic in order to accelerate the transition to an economy which is circular, sustainable and nature-friendly. According to a report by the UN Environment Programme (UNEP)5, reducing plastic pollution by 80% by 2040 would prevent more than USD 3.25 trillion in damages linked to health and environmental impacts, especially with regard to the climate, pollution and marine ecosystem degradation.
A recent study by the World Economic Forum (WEF) highlights that the conversion of 20% of single-use packaging to reuse models by 2040 could reduce plastic spills by 20%
The UNEP further states that in order to remedy the situation, plastic reuse and recycling remain a priority. Single-use plastic today still accounts for 50% of global plastic production, while only 9 – 10% of plastic waste is recycled at a global level. The rest is incinerated, sent to landfills or, even worse, dispersed in the environment in the form of microplastics and unmanaged industrial waste.
A recent study by the World Economic Forum (WEF)6 highlights that the conversion of 20% of single-use packaging to reuse models by 2040 could reduce plastic spills by 20%. A plastic spill is plastic rubbish such as microplastics and industrial waste, that escapes management systems and ends up in the environment, causing serious pollution to oceans and soil.
The global market for reusable packaging has seen strong growth, backed by innovation and stronger regulatory pressure on single-use plastic, which could represent a major investment opportunity.
The global market for reusable packaging was valued at USD 132.8 billion in 2024 and should reach USD 214.3 billion by 2032
According to a recent Global Market Insights report7, the global market for reusable packaging was valued at USD 132.8 billion in 2024 and should reach USD 214.3 billion by 2032, based on conservative estimates. This is equivalent to a compound annual growth rate (CAGR) of 6.1% over this period. And this market is not limited to food or industrial packaging but also extends to the logistics and wholesale sectors as well as cosmetics where reuse alternatives could reduce costs and improve the sustainability of supply chains.
At Lombard Odier, we believe that investors have a key role to play in the transformation of the value chain of plastic, thus accelerating the transition to a sustainable, nature-friendly economic model. While regulations are becoming tighter and consumer demand is changing in favour of sustainable solutions which respect the environment, businesses which are able to adapt their business models to these new requirements could gain a major competitive edge and generate substantial returns.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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