Asset Allocation

While interest rates in the bond market are rising uninhibitedly, the stock market may be in a dead-cat bounce, or a “sucker-rally”. Some market specialists do not trust the rally and declare equities “a lost cause”. In terms of allocations, the traditional appeal of a 60-40 portfolio appears to make a comeback now that the ‘earnings yield spread’ between stocks and bonds is narrowing.

The Sustainable Finance Disclosure Regulation marks its second anniversary next month. Although it was quickly adopted as a sustainability label, its actual purpose was to provide a framework for communicating the extent to which sustainability plays a role within an investment fund. Adjusted rules that took effect in January 2023 caused a stir in the sustainable fund landscape.

Although professional investors - on average - are still considerably underweight equities, there is one category they are massively allocating to. Never before has the allocation jump in emerging markets equities been so large in three months. EM is hot.

Index products have seen significant inflows at the expense of active products, reflecting increasing interest from both institutional and retail investors. The outlook for Europe remains positive in the coming years. Bond ETFs in particular still have strong growth ahead of them.

Last year was a tough one for financial markets, and the ETF segment was not left behind as assets under management - at the global level - fell for the first time since 2011. 

For this week’s Morningstar Top 5, we look at the best-performing funds investing in emerging market local currency bonds. These funds ended 2022 with a loss of 9.9 per cent, measured in dollars, or 4 per cent in euros. The outlook for this risky asset class does not seem favourable at first glance, although some fund managers say there are opportunities.

Europe’s economy is heading for recession. The war in Ukraine, an energy crisis, rising inflation and rising interest rates are increasingly starting to hamper economic growth. With cyclical sectors in particular are expected to be affected, as they are the most sensitive to the state of the economy. However, the impact of an economic slowdown can be different for each sector. In any case, the price performance of the various sectors this year shows no in any case, no unambiguous picture and there is also a large dispersion in returns.

Quintet sees little cause for celebration when the world rings in the new year, the Luxembourg private bank said in its 2023 outlook. The year ahead will be one of two halves: once central banks stop raising interest rates, a new cycle of uneven, global growth will begin. High-dividend and low-volatility equities may provide an opportunity to reduce portfolio risk, the firm’s investment officers said.

European investors this year found safety in short-term US debt and the dollar. This week’s Top 5 by Morningstar takes a look at the performance of US government bond funds in the year to date.

Central bank gold reserves have risen to their highest level in nearly half a century. Particularly emerging market central banks bought the precious metal big this year, influenced by a strong dollar and international sanctions against Russia.

High-yield bonds are not equal. In the US market this year, the difference in spreads between bonds with credit ratings of CCC and below versus BBs rose from 4.6 percent to 9 percent.