Snapshot

Our multi-asset investment views - July 2020


Multi-Asset Investments

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Key

MAIN ASSET CLASSES

 
 

Equities

We maintain our neutral view. The fundamental outlook is still weak but central bank support continues to be beneficial. The two-tier market within equities is likely to persist; this means we think we are likely to see “growth/quality” stocks continue to outperform those classified as “value”.

 

Government bonds

We believe that the upside to bonds is limited, but it does not make sense to reduce our exposure given our holdings in riskier assets.

 

Commodities

We remain positive on commodities as prices continue to move slowly higher as global economic activity begins to return to normal. The energy sector has been leading the price recovery.

 

Credit

Whilst the fundamental picture remains weak, central bank support and robust investor demand will continue to support credit going forward. 

Equities

 
 

US

With levels pricing in a “V-shaped” economic recovery, valuations have little room for manoeuvre if the recovery is slower than expected. We see more attractive opportunities elsewhere.

 

UK

With Brexit still unresolved and the lockdown continuing to hurt economic activity, we see few encouraging signs in the UK equity market.

 

Europe

Europe remains our preferred developed market. Lockdowns are easing and we have seen a credible and coordinated response from the authorities. 

 

Japan

Having done a comparatively good job in containing the spread of Covid-19 and with demand starting to pick up, there remains upside potential for Japan.

 

Pacific ex-Japan

The region has been supported by fiscal and monetary policy and has weathered the Covid-19 fallout much better.

 

Emerging markets

We maintain our neutral view, but have upgraded China with the recovery progressing unabated and the market overlooking trade tension risk.

 

Government bonds

 
 

US

Although we are concerned that the efficacy of government bonds as a hedge is deteriorating, we believe US government bonds can still be useful in portfolios given our riskier positions elsewhere.

 

UK

Yields and fiscal dynamics remain unattractive.

 

Germany

We have a negative view on Germany, also due to unattractive yields and fiscal dynamics.

 

Japan

Our view remains unchanged due to continued expansionary monetary policy from the Bank of Japan.

 

US inflation linked bonds

Inflation expectations remain depressed. It is too early to be concerned about the risk of significant rises, but markets are unduly pessimistic about the medium-term outlook.

 

Emerging markets local currency bonds

We maintain our positive stance to benefit from looser monetary policy in the emerging world as well as taking advantage of cheap valuations in emerging currencies.

 

Investment grade credit

 
 

US

We remain positive on US investment grade (IG) credit, driven by the Federal Reserve’s liquidity injections and financing programmes.

 

Europe

We believe support measures from the European Central Bank will strengthen the European corporate bond market.

 

Emerging markets USD

With the recent tightening of spreads, we continue to favour local currency debt over dollar denominated, where we see better credit quality (issuing companies’ ability to pay back their debt).

 

High yield bonds (non-investment grade)

 
 

US

Our bias is for the US over Europe, as US policy initiatives continue to underpin the high yield (HY, meaning non-investment grade)market.

 

Europe

Our view on European HY credit is unchanged due to stimulus through the expansion of the Pandemic Emergency Purchase Programme and the European Recovery Fund.

 

Commodities

 
 

Energy

As lockdowns continue to ease, demand for energy is returning. The production cuts agreed by the Organisation of the Petroleum Exporting Countries (OPEC) continue to support the recovery in energy prices.

 

Gold

Whilst gold has performed strongly, we believe that there is the potential for further gains as gold is one of the main beneficiaries of central bank support measures.

 
 

Industrial metals

The disruption to supply and the lack of scrap metal availability added to the recent rally in industrial metals. However, activity in areas such as copper are returning to pre-Covid 19 levels.

 

Agriculture

Prices remain attractive as the agriculture market has been a laggard in the economic recovery rally this year. The US-China trade deal is also likely to provide further support.

 

Currencies

 
 
 

US $

Downgraded as Covid-19 infection rates in the US have spiked significantly, compounding the weak growth outlook. We believe the US will underperform the rest of the world.

 

UK £

The economic impact of Covid-19 in combination with the risk of Brexit will continue to weigh on the performance of pound sterling.

 

EU €

We expect to see further upside following the monetary and fiscal support measures announced by the European Central Bank to boost economic recovery in the eurozone.

 
 

JPY ¥

The stimulus packages announced by the Bank of Japan should support the currency as the coronavirus lending programme was increased to more than $1 trillion.

 

Swiss franc ₣

We remain neutral on the Swiss franc given its high price, whilst acknowledging its continued role as a perceived “safe haven” currency.

 

Source: Schroders, July 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.

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