IN FOCUS6-8 min read

Video - CIO Lens Q2 2022: invest the opposite way to the last decade

Get up-to-date with the latest views of Johanna Kyrklund, CIO, and other investors around Schroders, as well as our asset allocation views and where our economists see the greatest risks.



Johanna Kyrklund
Group CIO and Co-Head of Investment

I grew up in Rome, a city inextricably linked throughout its history to politics. It was there that as a teenager 30 years ago I first became interested in current affairs.  

At the time, the Italian political framework which had been in place since World War II was being dismantled amid a wide-ranging corruption scandal. Many political parties and senior political figures disappeared as a result.

I have been endlessly fascinated by political, social and economic trends ever since that tumultuous period. Fortunately for me, identifying and understanding these trends is an important part of my job as an investor.

Three factors contributing to profound change

Right now, I believe that we are now in the middle of a period of profound global change on many levels.  

Climate change is making it imperative that the world develops a more sustainable growth model.

Income inequality and its negative consequences have been exacerbated by the effects of quantitative easing.

The vulnerability of global supply chains has been highlighted by the Covid-19 pandemic and the war in Ukraine.

These three factors are leading to an intense focus on de-carbonisation and a reassessment of the risk of global supply chains, as well as much greater levels of government intervention. The impact on how we need to invest is far-reaching.

What does this mean for our portfolios?  

Firstly, let’s take the situation in Ukraine following Russia’s invasion. Above all there is the human perspective, which is tragic and horrifying. But our clients also need us to examine it from an investment perspective. This means we need to step back and focus on the medium-term implications of the conflict.

Commodities - pulled in opposite directions

This translates as more supply disruption across a broad range of commodities and a greater focus on Europe’s energy security. Coinciding with a global focus on net zero targets and the energy transition, this means that commodities and resources markets are being pulled in opposing directions.

We have long argued against an exclusionary approach to meeting net zero commitments. This is because we need to also ensure that our portfolios have sufficient flexibility to cope with different market environments and time horizons.  

The path to decarbonisation was never going to be linear. Right now, there is a case for owning commodity-related investments as a hedge against inflationary pressures. However, we should also be investing in the energy transition which, more than ever, remains a strategically important area.

In many instances, through an active approach, we believe we can identify investments which serve both objectives.  

Impact of rising rates

Secondly, there is the prospect of rising rates in the face of rising inflation. Although technically base effects may lead to inflation peaking later this year, central banks around the world are acutely aware that they are behind the curve and are moving to tighten monetary policy.  

We’ve previously talked about how with interest rates at zero the old proverb of “a bird in the hand is worth two in the bush” became untrue. That’s because the bird in the hand (cash or bonds, for example) was worthless, so investors were forced to invest in riskier assets (the two in the bush) to generate returns. However, rising rates now pose a challenge to returns from risk assets. That is, the "bird in the hand" starts to be worth something.  

While the last 10 years have been characterised by tight fiscal policy and loose monetary policy, this status quo is set for a turnaround. With a more interventionist approach from the government being accelerated by the pandemic and geopolitical conflict, we are seeing a return to looser fiscal policy and tighter monetary policy.

Bonds - moving from red to amber

Bond prices have fallen dramatically over the last few months, with the US 10 year yield rising from a low of 1.20% in 2021 to more than 2.50% and the 10 year German bund rising from -0.7% to 0.8%.

Similarly, the yield on the US credit index has risen from 1.75% to 4.5%.

Percentage changes such as these haven't been since the 1980s. At these levels we would argue that the traffic light for bonds is moving from red to amber.  

What prevents us from getting more bullish is that investors will require more yield to compensate for the increased volatility. We also need to keep a close eye on European bond yields which have now moved into positive territory, as this removes an important underpinning for global yields.  

Equities - look below the surface

Equity markets have bounced back from oversold levels as investors have become more accustomed to pricing in the risk of the war in Ukraine. Although the news is bleak, we now have more information on the reaction functions of Putin and NATO. However, the risk of an even more significant escalation can't be discounted.  

At index level, we expect equities to be caught between the cross-currents of rising interest rates and commodity prices leading to the expectation of more muted returns this year. However, below the surface we still see opportunities for more value-oriented investments. Looking at the last 20 years, there is still plenty to go for with this trend.

Time to invest the opposite way to the last decade

In short, it is a time for investors to consider what they did in their portfolios over the last 10 years - and then do the opposite.  

Investors need to take a forward-looking approach, and to expect the unexpected. They might be well served by following the White Queen’s instructions to Alice in the Lewis Carroll novel Through the Looking Glass and think of "as many as six impossible things before breakfast”.

Please find our full CIO Lens below. It features the views of investors around Schroders, such as Nils Rode, CIO Private Assets, and Andy Howard, Global Head of Sustainability.

It also includes our latest asset allocation views from the Multi-Asset Investment team and the latest macro risks from our economists.

Read the full report

Schroders CIO Lens -Q2 202219 pages | 1,534 kb


Important Information:

This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.


Johanna Kyrklund
Group CIO and Co-Head of Investment


In Focus
Fixed Income
Emerging Markets
Multi-Asset Solutions
Private Assets
Market views
Our sales team is available to discuss with you any investment opportunities.
Follow us

This website is owned and operated by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473).  Your access to this website is subject to the Terms of Use found by clicking the ‘Important Information’ link below.  By using this website, you agree to be subject to these Terms of Use.