Asset Allocation

2020 will probably not be a great year for bonds. The low interest rates could even precipitate a shock to the financial system eventually. The outlook for equities is somewhat more promising, even though it’s difficult to grow earnings in the current low-growth environment, says Chris Iggo, CIO of AXA IM, in the second part of our 2020 outlook series. 

The world economy is showing signs of recovery. Over the fourth quarter, investors have anticipated a more stable macro environment by driving up equity market valuations. The ‘very large Phase One Deal’ that was announced by President Trump on Twitter earlier this month may not be as comprehensive as suggested. But markets have given Trump the benefit of doubt and have continued to move up.

The value factor has been disappointing investors for years. However, combining value with quality turns underperformance into stable outperformance, according to French boutique asset manager Seeyond AM. Seeyond has called the ‘new’ factor smart value.

Factor investing in bonds is making inroads with both institutional and wholesale investors, according to a study by Invesco. However, there’s still a perceived lack of suitable products.

Millennials are more interested in thematic investing than other age groups. Especially funds that focus on sustainability, education, infrastructure innovation, food and urbanisation are popular with Generation Y.

This transpires from the results of a study by Schroders among 25,000 investors who plan to invest at least 10,000 euros in the coming year.

A sudden liquidity drought is a serious threat to investors in European corporate bonds, so warns Ludovic Colin, manager of the Vontobel Bond Global Aggregate Fund. It means corporate bond markets on the continent are vulnerable to a correction.