News releases

Why we are shifting gears for a volatile environment

We’ve been shifting our investment strategy down a gear by increasing diversification. Schroders’ Global Head of Multi-Asset Investments, Johanna Kyrklund, explains why: 

If the US economy continues to grow through the second quarter, the current expansion from trough to peak will equal and then surpass the second longest on record (106 months recorded between 1961 and 1969). Such figures naturally raise questions about the longevity of the cycle; therefore, we are closely monitoring the 'vital statistics' of the US economic expansion and are on high alert for any sign of slowdown.

This is important for investors because the US equity market has been the leader in the bull market which started in 2009. At the beginning of the year we listed a number of indicators we were watching, we provide an update on each indicator below:

  • Our cyclical models continue to point to the 'expansion' phase of the cycle which is typically still positive for markets.
  • Although the US Federal Reserve (Fed) continues to raise rates, it has not surprised investor expectations. The US 10-year yield remains below 3% which is critical for the sustainability of US equity valuations. On top of this, despite inflation measures rising more recently, they remain in line with forecasts, therefore lowering the risks that the Fed is forced to accelerate their hiking cycle in the near-term. For now, the risk of tightening liquidity too quickly is not evident.
  • The shape of the US yield curve has been stable over the quarter and does not point to recession risk for now.
  • The US dollar has remained weak as we predicted and this has supported global liquidity and our emerging market positions.

Trade wars or clever strategy?

Talk of 'trade wars' has been the main surprise of 2018. The topic has taken centre stage recently with the US announcing its plans to impose tariffs of up to 25% on $60bn of Chinese exports. We see this as part of a bargaining strategy on the part of the US administration, which has been quick to grant exemptions from its earlier steel tariffs and has been wary of putting tariffs on goods which the US consumer would notice; for example iPhones.

These moves suggest that trade wars are not the end game here. Instead, it is likely to be a deal with China that can be held up as a victory ahead of the US mid-term elections in November.

We may be wrong of course and the recent shift in White House personnel is a cause for concern. If we see a more sustained shift towards protectionism, we would view this as a challenge for growth expectations as global trade has been the main factor driving the global expansion over the last year. We are less concerned about the inflationary consequences of protectionism as we believe that the effects would be lagged and complex. Indeed, more generally, we continue to be more worried about growth disappointing on the downside than inflation surprising on the upside.

All in all, we are very conscious that we are in the late stages of the cycle and market prices have moved to reflect a lot of our views; US and emerging market equities have outperformed, the dollar has weakened and the Japanese yen and emerging market currencies have strengthened.

We cannot afford to be complacent and have therefore increased diversification in our portfolios across asset classes. Based on our indicators, the traffic light is still green but expensive valuations pose a speed limit to returns and we have shifted our strategy down a gear.  

Technology under scrutiny

On another note, the technology sector has also come under political scrutiny of late with Facebook being in the eye of the storm. This is a not a sector we have emphasised due to concerns about lofty valuations against a backdrop of rising rates. Recent concerns about greater regulation only underpin our concern about valuation.

A full breakdown of our latest asset allocation views can be found here.


For further information, please contact:


Andy Pearce, Institutional         Tel: +44 (0)20 7658 2203/

Charlotte Banks, Intermediary   Tel: +44 (0)20 7658 2589/

Lucy Cotter,   International        Tel +44 (0)20 7658 3365/


Notes to Editors

Important Information: The views and opinions contained herein are those of Schroders’ Global Head of Multi-Asset Investments, Johanna Kyrklund, 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. The material 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 guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. 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. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document 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.