Our multi-asset investment views - December 2020





We believe liquidity (i.e. readily available funds) and recovery expectations should continue to support markets, but near term risks still persist in the form of rising fatalities, which will need close monitoring.


Government bonds

We have downgraded as upside is limited and government bond markets remain expensive.



Overall score reflects upgrades to more economically sensitive areas of the market, specifically energy and industrial metals.



With credit spreads having narrowed substantially, credit valuations broadly now look expensive. We have downgraded our overall score to neutral due to the limited potential for future returns. 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.




Downgraded after the recent rally and to reflect our preference for more economically sensitive markets.



The UK remains hampered by a resurgence in Covid-19 cases, accompanying restrictions and Brexit risk. We remain positive as we believe these negatives have been priced in.



We have upgraded Europe. The region should benefit as global activity normalises, which has potential to drive a rebound from its long-term underperformance.



Japan managed the outbreak of Covid-19 relatively well, limiting damage to its domestic economy. We believe export sectors should be the next to benefit from an economic recovery.


Pacific ex-Japan

With positive news on the efficacy of the Covid-19 vaccines, we expect economic recovery to continue, aided by fiscal and monetary policy. Fiscal and monetary policy are tools used by policymakers in an attempt to manage economic fluctuations.


Emerging markets

We continue to be positive on emerging markets (EM), with a preference for EM North Asia, but we do see scope for the more economically sensitive regions, such as Latin America and India, to catch up.


Government bonds



US Treasuries continue to offer protection in our portfolios as we need to be cognisant that the virus still has the ability to derail growth in the short term.



We retain our view that there is less value in gilts given their poor expected relative returns when compared to other developed markets.



We maintain our view that Germany is an expensive market. Bunds offer limited protection against growth disappointment and face the headwind of EU bond issuance in 2021. 



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


US inflation linked bonds

Upgraded as breakeven rates have continued their rise following the announcement of the vaccine. We believe there is more scope for further improvement.


Emerging markets local currency bonds

Our view is unchanged. We still see medium-term opportunities in some markets for positive returns, although the majority of markets have priced out further rate cuts.


Investment grade credit



Improving fundamentals, the increasing probability of a vaccine driven recovery coming through in Q2 2021 and a continuing search for an alternative to expensive government bonds mean our rating is unchanged.



Fundamentals are slightly stronger than for their US counterparts. European leaders have also reached a landmark $2.2 trillion budget agreement that leaves us positive.


Emerging markets USD

We retain our longstanding positive view for high quality corporates. We believe the extent of fiscal deterioration and the level of real interest rates is likely to remain the key driver of credit spreads.


High yield bonds (non-investment grade)



Downgraded as credit spreads have contracted significantly, fundamentals remain weak and the treasury secretary has made policy support less likely than in Europe.



Monetary and fiscal support within Europe, along with far better default and recovery rates versus the US drive our preference for Europe. However, valuations are now at very expensive levels due to further spread contraction.





There is potential for travel-related demand to pick up in 2021 given vaccine rollout. This, coupled with an OPEC deal to control supply, could lead to significant price appreciation.



Recent optimism on the vaccine combined with signs of an economic recovery and a normalising of activity leads us to maintain our neutral view on gold.


Industrial metals

The outlook for industrial metals looks promising as, despite the sector having delivered healthy performance, supply remains tight to meet the recovery in demand.



The sector is resilient due to demand from Chinese trade commitments. Despite this, we remain neutral for the time being.




US $

We have been overweight the US dollar for its defensive properties compared to our pro-economically sensitive positions elsewhere in portfolios, but having reached our stop, we have kept to our discipline and reverted to neutral.


UK £

Whilst a Brexit deal would make us review our score, we are cautious on the longer-term outlook for sterling.


EU €

The euro should benefit from the global economic rebound, as well as technical flows from a rotation into international equities.   



We remain neutral as strength in the short term has been a result of US dollar weakness, but the Japanese yen should weaken in the current positive risk environment.


Swiss franc ₣

Although we have seen some strength from US dollar weakness, we expect the Swiss franc to remain range bound as this strength should be offset by the positive risk environment.


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.