In our latest asset allocation monthly, we examine the critical issues investors should consider when fine-tuning portfolio allocations.
The ebb and flow of US real interest rates, inflation expectations and the future level of policy rates remain the principal drivers for asset returns globally.
In fixed income, the most significant change in the market dynamic was the balance between the contribution from real yields and that from inflation expectations.
In equities, after the first positive vaccine results in November, cyclical and small-cap stocks led the gains in US and global equities. With the passage in Congress of the latest multi-billion dollar US stimulus package, the value style took the lead over growth. Looking ahead, we expect cyclicals and small caps to continue to outperform, but see greater near-term potential for value stocks.
The 150bp increase in US Treasury yields since last June has yet to pose a problem for equities, though there is a worry that further rapid increases could prove too much for them to bear. We do not, however, see a significant risk on this front.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.