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Asset allocation update – Adjusting our risk-taking views

Maya Bhandari
By MAYA BHANDARI 14.07.2022

In this article:

    In our multi-asset portfolios, we are using current market opportunities to make tactical adjustments. These changes reflect valuations as well as our view that European bond yields do not reflect the potential for moves higher – and likely ECB action – in the face of sticky eurozone inflation.  

    First, credit is upgraded to ‘favour’, in particular European investment-grade credit, where we are seeing pronounced distress and an increasingly attractive valuation opportunity.

    Second, after the sharp rally in European duration, we are tactically deepening our short position.[1] In our view, inflation is not going away in Europe anytime soon, so the ECB looks unlikely to be cutting interest rates by early 2023 as markets have it priced now. Bond yields should be higher, not least to reflect the shift in the fiscal paradigm thanks to the Next Generation EU programme.

    Third, our equity positioning is back at ‘neutral’ by selling our modest emerging market equity exposure, while we keep our long Chinese and Japanese equity exposures against a short in European equity. We see this as a ‘cleaning-up’ trade rather than a shift in our underlying views.

    Asset allocation views as of 13 July  

    [1] European investment-grade credit takes 10% in multi-asset terms, European sovereign exposure is -5%. Our fixed income colleagues are neutral, but also with a short tactical bias at current pricing.


    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. 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.

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