The New Investment Reality: Adapt or Get Left Behind

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” — Charles Darwin

For many Europeans who grew up with the ideals of the American Dream, investing has become undeniably more challenging.

Even in prosperous times, investing is no easy task. The real challenge isn’t whether to invest—but where. Which asset class? Which stocks? And how do we anticipate the second-order effects of our decisions?

For Europeans, it now feels as though the dependable “big brother” we once admired—the one with the firm hand, powerful military, cutting-edge technology, and vast resources—has just announced he’s packing up and moving out.

Given recent US actions, emotions are understandably running high. Remaining rational in the face of uncertainty is even harder—especially when making investment decisions.

From my experience in Frontier Markets, I’ve learned two key lessons that are highly relevant to navigating today’s landscape:

1. Politics is a powerful driver of government bond returns — especially in the short term.

An IMF paper has highlighted how politics significantly impacts sovereign bond yields in developing markets. This matters because government bond yields influence valuations across all asset classes.

Politics will undoubtedly be a major force shaping European bonds and equities in the coming year. Germany’s dramatic policy reversal—where the ruling party shifted 180% to increase debt—offers a stark example. The announced spending plans exceed 10% of Germany’s GDP. This is a geopolitical win for Europe, European growth, but means losses for “safe” EUR government bond investors.

2. The right question is not “What should happen?” but “What is most likely to happen?”

It’s easy to debate what governments should do, but investment success depends on correctly predicting what they will do. In Frontier Markets, I’ve seen firsthand that having strong opinions about what a country’s leadership should do is often irrelevant—what matters is understanding the actual incentives at play.

Focus ought to be on where we have highly probable outcomes. At the moment, an unprecedented number of variables—many we previously assumed to be fixed—are now in motion. However, two key trends seem inevitable:

• Discount rates will rise due to increasing uncertainty.
• European governments will need to borrow and spend more.

These two lessons will hopefully be helpful in staying rational in an increasingly volatile investment environment.

As Head of Fixed Income, I see two of our specialist strategies that should appeal to Swedish investors in this uncertain landscape:

• Nordic High-Yield Bonds: Offering attractive coupon payments with limited interest rate sensitivity and hedged currency risk.
• Frontier Bonds: Uncorrelated to European markets, too small to be affected by US tariffs, yet delivering equity-like returns at half the volatility and also hedged currency risk.

Finally, as we adapt to this new reality and grow up, we will discover whether the “big brother” is merely going through a rebellious phase—or if he will remain by our side in the long run.

For deeper insights into our High Yield and 5-star-rated Frontier Debt Fund, please reach out to your Coeli contact or follow our dedicated LinkedIn pages.

Maciej Woznica

Portfolio Manager & Head of Coeli Fixed Income. Born in Poland, educated in Nigeria, Austria, and the UK, currently residing in Denmark. With Coeli since 2021. AAA rated at Citywire.