Key points of our Investment Committee:
Given the limited likelihood of the dollar strengthening, we are reducing US dollar exposure in our portfolios.
Our investment scenario remains cautious and focuses on a balanced, diversified allocation.
We continue to trust in gold as a diversification and defensive asset, and which harbours potential for a rise in the medium term.
Our bond strategy favours credit risk over duration risk.
The stark fact though is that whoever inherits the keys to the White House, he/she will face a multitude of national and global challenges, many of which are shared by most of the world’s governments. Of particular importance to investors is the question of how to structure and deliver impactful fiscal policy to complement monetary measures that are appearing increasingly exhausted, in order to reflate our economies.
Eerily, the equity markets seem to be relatively well composed, with US, UK and Emerging Market bourses tending towards the top of their 52-week ranges and most European and Japanese equities trading towards the middle of their price ranges. Although most fixed income markets are showing impressive year-to-date returns, during the past month or so we have witnessed a back-up in yields that deserves attention. It is possibly too early to call a definitive end to the multi-decade bull market, but with inflation expectations edging up, US and European economies on the whole likely to avoid recessions, and central banks doing a reasonably good job of managing expectations, we believe we may have seen the low in yields for now, and a degree of normalization is warranted. Inflation and inflation expectations, along with the Fed’s interpretation of such data, will certainly be major focus areas in the next several months. As long as the base-effect jump in inflation we forecast doesn’t induce a temper-tantrum rout, we expect yields breaking above the 2 to 2.25% level on 10-Year US Treasuries to attract buyers.
There are still many «known unknowns» out there to throw the cat among the pigeons, and there will also and always be «unknown unknowns». Valuations across many classic equity and bond markets remain high, though not extreme. Whilst it remains possible to generate low single-digit returns from a classic balanced portfolio, risks have increased. Investing in today’s markets to achieve a blend of capital growth, income yield, and wealth protection is more challenging than ever. We believe increasing exposure to Private Equity, specific investment themes, and alternatives to traditional fixed income securities will be key to successful diversified investing in the future. We hope you enjoy our analyses and insights.