Our multi-asset investment views - October 2020





Despite ongoing pandemic risks, equities remain attractive compared to bonds and an expected shift into economic recovery should continue to support equity performance.


Government bonds

Although bond prices remain at historically high levels and have limited upside, central banks will likely be successful in keeping volatility low in government bond markets.



We have downgraded our view as we await better visibility on fiscal stimulus plans after the US presidential election.



We retain a positive view overall, with a preference for higher quality, “investment grade” corporate bonds over lower quality non-investment grade (“high yield”).




We continue to prefer the US equity market which should continue to outperform other regional equity markets due to ample liquidity.



Ongoing Brexit negotiations and a resurgence of Covid-19 infections make the UK our least preferred equity market.



With Covid-19 infections on the rise, many countries have been forced to increase lockdown measures. This will likely weigh on economic activity and delay their recoveries.



Whilst the economic recovery in Japan is underway, it remains to be seen whether the policies of newly appointed Prime Minister Suga will be different from his predecessor.


Pacific ex-Japan

We expect the region’s recovery to continue, aided by fiscal and monetary policies and hopes for a Covid-19 vaccine.


Emerging markets

EM remains one of our preferred equity markets, driven by the strong recovery in China, US dollar weakness and commodity prices.


Government bonds



We continue to have a preference for shorter dated US Treasuries (US government bonds) as longer dated bonds are more vulnerable following the Federal Reserve’s (Fed) announcement to target an average inflation rate. The prices of shorter dated bonds are less sensitive to changes in interest rates.



We maintain our view that there is less value in gilts (UK government bonds) given their poor relative returns.



Germany remains a very expensive market. The strong euro is also creating an additional headwind for the European Central Bank. 



Our view is unchanged. With inflation still likely to remain significantly lower than target, the Bank of Japan will need to keep unconventional policies in place.


US inflation linked bonds

The Fed recently said it would move to average inflation targeting and tolerate a moderate overshoot of inflation pressures, indicating that monetary policy will remain loose.


Emerging markets local currency bonds

We see medium-term opportunities in Latin America and Asia as they are likely to provide higher real (inflation-adjusted) yields.


Investment grade credit



Although credit spreads have limited room to tighten further, record issuance continues in the US.



We remain positive, despite valuations appearing stretched on a historic basis as fundamentals have surprised given depressed expectations.


Emerging markets USD

We continue to favour higher quality corporate credit based on more attractive valuations and a weaker US dollar.


High yield bonds (non-investment grade)



US high yield (HY) is less attractive than European HY as we see the fundamentals as weaker and recovery rates remain near record lows.



This remains our preferred market as stimulus packages announced so far should support European HY bond issuers.





We have downgraded as supply/demand fundamentals will be less favourable over the next three to six months while volatility will remain elevated.



We have downgraded our view in light of the deepening bipartisan divide and the high hurdles for the Fed to further ease monetary policy. We prefer to wait for policy clarity before re-investing.


Industrial metals

Prices are supported by strong demand from China, mine supply and scrap metal constraints.



We have downgraded as prices are now falling back towards pre-Covid levels. However, research and development expenditure remains supportive for productivity gains to continue.




US $

We have upgraded the US dollar as it offers defensive properties at a time when government bonds offer less protection against financial loss.


UK £

We remain neutral as an increase in Covid-19 cases and Brexit uncertainty are creating headwinds for the pound.


EU €

We have downgraded as the upcoming US elections will likely generate some volatility in the euro. With Covid-19 cases on the rise, we prefer to wait for clarity before re-investing in the euro.   



As government bonds offer less protection against financial loss, we turn to the perceived safe haven of the yen to offer a degree of protection against the risk of a growth scare and/or escalating US tension.


Swiss franc ₣

We maintain our neutral stance on the Swiss franc given its high relative valuation, while acknowledging its longstanding role as a perceived “safe haven” currency.


Source: Schroders, October 2020. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e. duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

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