Our multi-asset investment views - May 2021





Company earnings look strong while the re-opening of economies continues to gather pace and bond yields remain stable. We remain positive, with a bias to economically sensitive stocks, and “value” stocks (value stocks befit the value style of investing which focuses on stocks that appear to trade at a lower price relative to their fundamentals, such as dividends or earnings).


Government bonds

Although valuations have slightly improved, we continue to believe break-even inflation rates will move higher and momentum with the economic recovery will be a headwind. This justifies our negative view. Break-even inflation rates are market-based measures of expected inflation.



Supplies remain under pressure as stocks have plummeted to decade lows. Vaccine distribution and fiscal stimulus continue to support the recovery. Fiscal stimulus is a tool used by policymakers in an attempt to manage economic fluctuations.



The probability of a vaccine-led recovery in Q2 2021 has positive implications for credit; however, the tightening in credit spread levels has made valuations less attractive. The credit spread is the margin that a company issuing a bond has to pay an investor in excess of government yields and is a measure of how risky the market perceives the borrower to be.




Earnings continue to positively surprise while monetary stimulus (another tool used by policymakers to manage economies) remains supportive. Our preference is for economically sensitive and value stocks over defensive and the ”growth” stocks (growth stocks befit the growth style of investing which focuses on stocks whose revenues and earnings are expected to increase at a faster rate than the average company).



The UK continues to offer attractive exposure to the economic recovery and cheap valuations, but the strength of the pound still weighs on a market with high foreign revenues.



An increased pace of vaccinations, coupled with support by the European Central Bank (ECB), leads us to believe that Europe will benefit from an expected summer re-opening.



Export growth is accelerating, which we expect to continue as the economic recovery progresses. The slow vaccine rollout, however, remains a headwind.


Pacific ex-Japan

We continue to favour Korea and Taiwan as their manufacturing outlook remains bright, with low semiconductor inventory and an environment of high global demand.


Emerging markets

Attractive valuations are offset by renewed virus outbreaks and China’s tightening and regulatory action.


Government bonds



We remain negative as we believe we haven’t seen the ceiling yet for US bond yields and there is no change in the concerns over the inflation narrative that is driving the bond market.



We maintain our negative score for UK government bonds as the re-opening plan remains on track and the vaccine rollout continues to progress.



A combination of poor returns versus cash and accelerating momentum with the economic recovery leads us to believe German bonds will underperform.



Recent moves have been consistent with the rest of the bond market. There has been no change of view within a multi-asset portfolio context.


US inflation linked bonds

The economic recovery, price pressures faced by companies and the US central bank’s stance continue to point to higher levels of inflation.


Emerging markets local currency bonds

Although the US remains a headwind, adjustments in Latin America have been material and yield curves are aggressively priced, which has led us to upgrade our view to neutral. The yield curve is the difference between the interest rate on a longer-dated bond (debt issued by a corporation or country) and a shorter-dated bond.


Investment grade credit



Valuations are very tight but could test all time lows. Although fundamentals are improving, the high duration of IG bonds leaves them exposed to the risks from interest rate rises. Duration is a measure of the sensitivity of the price of a bond to a change in interest rates, with short duration bonds being less sensitive. 



We prefer Europe over the US as the region is earlier in the credit cycle, has stronger technical factors underpinned by the ECB, and more appealing valuations.


Emerging markets USD

We maintain our positive view and believe the key driver for defaults and credit spreads is the extent of fiscal deterioration and the level of real (inflation-adjusted) interest rates.


High yield bonds (non-investment grade)



Despite a positive supply and demand backdrop and benign fundamentals pushing credit spreads tighter, we retain a negative view as valuations are incredibly rich.



While there is an acceleration in the vaccine roll-out, the lack of a co-ordinated fiscal recovery programme increases the possibility of higher future default rates.





OPEC+ – an alliance between OPEC members (Organization of the Petroleum Exporting Countries) and other oil producing states – reiterated its goal to increase in production through Q2. However, global inventories continue to be drawn down as the market remains in deficit.



We see little opportunity for real (inflation-adjusted) yields to compress further with growth surging and imminent talk of “tapering”, the process by which central banks reduce, or taper, asset purchases associated with monetary stimulus programmes such as quantitative easing. Downgraded due to a less favourable risk to return ratio.


Industrial metals

Despite moderated demand in China, demand in the rest of the world should recover strongly as economic activity normalises after the vaccine rollout.



Supply is under pressure, amid strong global demand and Brazilian weather disruption. However, planting is ahead of schedule and we expect supplies to improve by Q3.




US $

Although the US growth outlook is still strong, a reversal in the US dollar (USD) this month leads us to moderate our view.


UK £

The rollout of vaccines coupled with the anticipated removal of further restrictions has been positive; however, the yield differential between the USD versus the British pound has narrowed.


EU €

Although vaccine progress could lead to a strong bounce in Q2, we remain neutral while we await a growth catalyst in the coming months.



This score continues to reflect the better vaccine story, higher growth, inflation and interest rate outlook in the US, along with the positive yield differential of USD versus the Japanese yen.


Swiss franc ₣

Still negative as the outlook for Europe has improved following the acceleration in the rollout of Covid-19 vaccines as well as the ongoing recovery in global growth.


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