Asset Allocation

Investors awaiting higher yields on government bonds have systematically been missing out for four decades. While market rates are rising, bondholders remain on the edge of their seat. With central banks set to tighten monetary policy, the question is: who is going to buy government bonds?

European mutual funds that promote green investments saw assets increase by some 22 percent in the fourth quarter, to more than 4,000 billion euro, and will overtake traditional ‘grey’ assets in terms of asset volume no later than the summer of 2022, Morningstar said in a research report on the effects of the SFDR sustainability regulation introduced last year.

Record levels of funds invested into private asset strategies has led to the phenomenon of “too much dry powder” in which new investments fuel higher entry valuations for the slower-growing number of underlying investment opportunities. Nils Rode, Schroders Capital’s Chief Investment Officer, explained that avoiding this involves locating successful investments, those that benefit from a “complexity premium”, as private assets move into a new phase.

In the search for yield, some high yield investors are shifting to a broader mandate to invest in “below B”, the riskiest segment of high yield. PGIM recently repositioned two high yield funds to invest in CCC and CC bonds.

2022 will be another exciting year for financial markets. Investors operate in an environment of persistent inflation, foggy central bank policy and uncertainty about the Omicron variant. It is a search for yield and protection in the portfolio. But how?

An equity portfolio can be approached in various ways. There is a division between domestic shares and foreign shares, or a division based on market capitalisation with the three categories largecaps, midcaps and smallcaps. And there are distributions based on sectors, factors and, of course, regions.

Each classification has its advantages, but also disadvantages. This year, investors should look for shares that do not fit into any of these boxes.

Infrastructure is becoming a must in all portfolios. It is a decorative asset. Private companies are helping along with governments to achieve this. Whitehelm Capital’s fund continues to perform strongly and should benefit from major investment programmes in the major developed countries. 

In its outlook for 2022, JP Morgan Asset Management makes no bones about the fact that equities remain attractive, even if inflation sticks around a bit longer than expected. In times of inflation and negative real interest rates, equities have almost never given a negative return in the past, according to JP Morgan’s outlook with chief strategist Vincent Juvyns (photo).

Pierre Lamelin, manager of the Comgest Growth Europe fund, has made finding value in growth companies the cornerstone of his strategy. These companies, with their unique combination of value and growth characteristics, are invariably labelled quality. The manager is convinced that these companies, given their higher and predictable earnings growth, will outperform the market in the longer term. 

The current inflation surge is similar to the one after World War II. It then took two years for inflation to cool. Long-term interest rates should start to rise, according to the online Outlook 2022 conference organised by Candriam. Anton Brender and Florence Pisani, both economists, conducted the webinar.