Asset Allocation

The decision of the US Federal Reserve to cut interest rates once more and restart QE was expected by investors. But not on a Sunday afternoon. Asset managers characterise the sudden decision as ‘a defining moment’, for more than one reason.

The Fed and the Bank of England responded to the coronavirus fall-out with emergency rate cuts of 50 basis points. Now, all eyes are on the ECB.

The Fed’s rate cut was not the most clear-cut answer to the corona crisis, says Hendrik Tuch, head of fixed income at Aegon Asset Management. 
But he understands the decision.

Investors did not respond to the Fed’s surprise 50 basis points rate cut with a relief rally. To the contrary, markets closed almost 3% lower as investors interpreted the rate cut as a warning the macroeconomic situation is likely to worsen.
 
Fed president Jerome Powell stated shortly after Wall Street opened that the negative effects of the coronavirus are slowly becoming visible.

The coronavirus is causing ‘a clear shock to the world economy’, according to Columbia Threadneedle. Janus Henderson calls the global spreading of the coronavirus ‘a real game changer that has dashed hopes of a V-shaped recovery in global growth.’ 
 
‘So far we are seeing two clear consequences: lower consumption and less supply,’ says Neil Robson of Columbia Threadneedle. He illustrates the first concern citing the Adidas market update last week, showing a 85% decline in activity in China. 

ETFs can be a source of systemic risk because they can induce important feedback effects in markets, such as increased volatility in periods of market stress. However, these effects can be mitigated by regulators, according to a research paper by Maureen O’Hara (pictured) of Cornell University and assistent-professor Ayan Bhattacharya of the City University of New York.

Global dividends rose 3.5% in 2019 to a new record of  1.43 trillion dollars (1.32 trillion euros), according to the Janus Henderson Investors Global Dividend Index. Dividend growth in Europe lagged other markets.

Earning no yield on gold is better than a negative yield on bonds. Therefore investors should shift the allocation of their portfolios from negative yielding bonds to gold, according to Quintet.

Quintet (formerly KBL European Private Bankers) is positive about alternatives and tends to have an overweight in gold both for the long and short term.  

Between 2016 and 2020, China spent more than 5.5bn renminbi (715bn euros) on environmental investments. But these massive sums of money are yet to translate into interesting investment opportunities in the country. Fund manager Yi Du of Pictet Global Environmental Opportunities (GEO) explains why this is the case.

Equity markets are starting 2020 on an optimistic note. Investors are celebrating the preliminary US-China trade deal and equities are trading at record highs. Investment Officer asked three prominent investors  representing global asset managers for their views. Today, we ask Stefan Kreuzkamp, CIO of DWS.