Investing

The US asset manager expects inflation to be slightly below 2% for developed economies over the next 10-15 years, despite the unprecedented fiscal and monetary stimulus. ‘We expect a lot of volatility in the short term, with inflation possibly temporarily exceeding central bank targets. But in the medium term, we will return to the pre-pandemic structural trends,’ says Vincent Juvyns, macro strategist at JP Morgan AM. 

Investment grade corporate bonds remain more attractive than core European government bonds, which are bound to deliver negative returns of 3-5% in the coming years, according to  Lion Trust Asset Management’s Head of Fixed Income David Roberts.

In an interview with Investment Officer, Roberts notes fixed income portfolios have become particularly sensitive to interest rates over the past decade due to a sharp increase in duration.

Optimism about an imminent end to the coronavirus lockdowns and the announcement of substantial financial support packages has boosted value stocks worldwide, and Japan has been no exception. But in the land of the rising sun, the value rally already seems to have run out of steam. Richard Kaye, manager of the Comgest Growth Japan fund, knows why.

US stocks are historically expensive. But this applies in particular to large caps. Small caps are still cheap, despite a strong price rally in the past six months. ‘On average, the companies in our portfolio trade at around 11 times earnings,’ says Blake Harper, one of the managers of the Orchard US Small Cap Value Fund.

There’s no reason to worry about the recent rise in interest rates and the threat of inflation. The important thing is to select companies that somehow have, or will have, the wind in their sails. Banks, tech companies and companies that will benefit from the infrastructure boom are particularly attractive now, according to Joakim Ahlberg, portfolio manager of the North American Stars Equity fund at Nordea Asset Management.

Investors have always worried about what rising bond yields mean for markets. But today, such fears appear unfounded, argues Daniele Antonucci, Chief Economist at Quintet Private Bank.

Bonds are among the best performing asset classes of the past 40 years. But it’s not unlikely the next 40 years will show a radically different picture. 2021 and 2022 could even yield negative returns as above-average economic growth and rising inflation could push bond yields up from their record-low levels.

The table below shows that bonds have done great over the past four decades. However, returns have fallen steadily from 222.7% in the period 1980-1989, to 109.9% in 1990-1999, to 84.7% in 2000-2009 and to 44.5% in the ten years from 2010-2019.

Dividends paid by European companies on an underlying basis have sunk by more than 28% in 2020 to €141 billion, according to the Janus Henderson Global Dividend Index. This is the lowest figure since 2009.

Expensive US growth stocks need not suffer from reflation and rising interest rates. On the contrary, they will thrive thanks to their pricing power, says Ton Wijsman, senior portfolio manager at AllianceBernstein and former director at W.P. Stewart.

Carmignac says all lights are green for an investment in emerging markets. The weakening dollar and the rapid recovery of economies mean increasing your allocation to EM equities and bonds is a must.