Bond Veteran Gibson Smith Stays Defensive; Expects Volatile 2025

As the global economy braces for potential headwinds in 2025, seasoned bond investor Gibson Smith is adopting a more defensive strategy. With market volatility on the horizon, Smith is focusing on stability and predictability in his investment approach. In this article, we explore Smith's defensive strategy, the market conditions leading to this shift, and his recommendations for navigating the anticipated volatility.



Smith's defensive strategy differs from traditional bond market approaches by prioritizing stability and risk management. He favors 'boring but lucrative' investments, such as Morgan Stanley, which offer steady performance without surprises. This approach ensures a balanced portfolio with growth and value stocks, while also considering external factors like labor market dynamics and geopolitical tensions.

The shift towards a more defensive strategy is driven by several market conditions. The Federal Reserve's aggressive rate hikes in 2023 and 2024 have led to a significant increase in interest rates, making bonds less attractive. Additionally, the global economy is expected to slow down in 2025, with recession probabilities slightly increasing. Geopolitical tensions and macro risks from the left tail of the distribution have also emerged, contributing to Smith's defensive stance.

Smith's expectation of market volatility in 2025 is a departure from his historical views on market stability. In 2024, he was optimistic about the broad fixed income outlook, despite questions about the extent of rate declines and the impact of softer growth on credit products. However, his expectation of market volatility in 2025 suggests a more cautious stance, influenced by emerging macro risks and tail risks becoming tangible.

To navigate the anticipated market volatility in 2025, Smith recommends focusing on sectors and asset classes that offer stability and consistent growth. He favors 'boring but lucrative' investments, valuing companies like Morgan Stanley that provide steady performance without surprises. Smith suggests a balanced portfolio combining growth and value stocks, advising against selling strong, enduring companies like Amazon and Apple during market downturns. He is optimistic about under-owned sectors like energy stocks, which he believes offer attractive opportunities in a volatile market. Smith also supports strategic acquisitions for organic growth, as seen with Salesforce.



In conclusion, Gibson Smith's defensive strategy for 2025 reflects his concerns about market volatility and the potential challenges ahead. By focusing on stability, risk management, and informed market predictions, Smith aims to create a balanced portfolio that can weather market uncertainties. As investors prepare for a potentially volatile year, Smith's insights and recommendations provide valuable guidance for navigating the challenging investment landscape.