- Head of Multi-Asset Strategy – APAC
Singapore, Individual
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
Key points
- A challenging 2023 has kept investors on their toes, making asset allocation decisions difficult.
- One way to think about this is as a period of transition — a bridge between two investment eras: the old and the new.
- As the new investment era takes shape, three areas of focus emerge for 2024: higher yields, the importance of stock selection and how to position for structural change.
2023 had a knack of keeping investors on their toes. On a macroeconomic level, uncertainty around the direction of interest rates and inflation made it difficult for investors to understand how best to position portfolios amid recession concerns. The markets contributed their own challenges, with equity market concentration further intensified by speculation over which megacaps might be best placed to benefit from AI. It’s no surprise that cash has been a safe haven for investors recently, especially given the attractive levels of income on offer.
From the old investment environment to the new
When the road ahead is unclear, playing it safe can be a logical approach. However, I think there are ways to extract clarity from a seemingly incoherent investment landscape. One way of thinking about this year is as a bridge between two different investment environments — the old and the new. I see this transitional period as having characteristics of both regimes.
The old environment was characterised by low and stable inflation, near-zero interest rates and moderate economic growth, supported by a policymaker focus on economic efficiency. Globalisation gave rise to increasingly free movement of goods, services and people.
By contrast, the new environment is likely to look quite different. Investors can expect higher and more variable inflation, higher interest rates and fluctuating economic growth. With policymakers likely needing to focus their attention on a new set of priorities, such as inequality and strategic autonomy, economic efficiency may fall by the wayside. Globalisation is beginning to unwind, creating barriers for cross-border flows and fracturing supply chains.
This journey between these two regimes is further complicated by its backdrop: concentrated equity markets, a complex and rapidly evolving geopolitical landscape, divergent policy cycles and accelerating structural change within AI, health care and other important themes.
The transition from the old investment era to the new one is likely to be somewhat messy. The path ahead won’t be straightforward, so investors waiting for a clear trajectory forward might find themselves stuck on the sidelines. However, a number of opportunities are beginning to crystallise. The start of the year provides a good prompt for investors to review portfolios to see if they are positioned for the future, rather than the past.
We see three key areas of focus for investors.
Opportunities within higher yields
Higher inflation and rising interest rates have been painful for investors, but there is an important flipside in the shape of yields that are now higher than they have been for a very long time. This is making fixed income a much more attractive asset class, especially now that inflation is beginning to fall and central banks appear to have stopped hiking rates.
This presents opportunities for investors looking for income in their portfolios but is also beneficial for investors seeking to grow their wealth, given the power of income to accumulate steadily over time. Consistent streams of income can also help smooth the path of returns in portfolios. Attractive investment opportunities exist across the full spectrum of fixed income as well as other income-generating assets, such as dividend-paying equities.
Stock selection is more important than ever
The old environment was generally supportive for companies, bestowing them with low funding costs along with a broadly stable macroeconomic backdrop. As capital becomes more expensive and volatility becomes the new normal, there is likely to be greater divergence between winners and losers, creating more opportunities for skilled active managers to add value.
A tougher corporate environment should also make it easier to distinguish good management teams from poor management teams, especially as many of these teams will not have been tested by similarly challenging circumstances. Companies that differentiate themselves through, for example, strengthening their supply chains or adapting and responding to labour challenges may be better placed to prosper in the coming months and years. Being able to identify well-run companies could become a powerful advantage in an increasingly competitive landscape.
Positioning for structural change
Recent technological breakthroughs, especially around AI, have led to huge interest and large market rallies in specific companies. However, the best way to think about AI is not as a tactical trade but as something that fundamentally changes the future for many sectors and industries. AI is likely a multi-decade step-change — a significant turning point that will generate ongoing opportunities for investors for many years to come. However, understanding which companies are likely to benefit and which companies are likely to be left behind is a complex task, requiring a deep understanding of changes within technology, business models and society.
Investors seeking to benefit from innovation within sectors such as technology, health care or finance should, in my view, take a holistic perspective, seeking to understand structural growth trends to capitalise on the drivers and beneficiaries of innovation.
Above all, expect a new normal. While the transition to a new investment era may continue to challenge investors, opportunities can be found, provided that portfolios are looking forwards, rather than backwards.
Showing
of
Insights Posts
Chart in Focus: Compelling opportunities in four higher-yielding credit sectors
Portfolio Managers Campe Goodman and Rob Burn share insights on where they are seeing compelling opportunities in high-yielding credit sectors.
Quick Take
2025-03-11
Annual message from our CEO: At a crossroads
CEO Jean Hynes offers perspectives on the current macro and market environment, including the need to challenge long-held assumptions, prepare for persistent disruption, and consider the resulting investment opportunities and risks.
Whitepaper
2025-01-31
Credit: Better opportunities to add risk on the horizon
ur experts review current macro dynamics impacting the bond market and discuss where they see opportunities and risks across credit sectors.
Article
2024-12-31
Could being boring pay dividends for equity income investing?
Can being boring be a good thing? Our expert explains why he believes for equity income investors, it can be.
Article
2024-09-29
Chart in Focus: Income investing is not just about “chasing yield”
Higher yield doesn’t necessarily mean higher total return. What are the trade-offs investors need to be aware of when looking for income?
Quick Take
2024-10-31
Novel therapies changing the course of health care
Several new drug classes represent a growing investment opportunity set that could reshape the health care sector.
Article
2024-10-31
Chart in Focus: Cash vs. bond returns in rate hiking cycles
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
Quick Take
2024-08-31
Three themes (and what they mean) for income investors
With several macro crosscurrents at play, Portfolio Manager Peter Wilke suggests that income-oriented investors not lose sight of the “big picture” in their quest for yield.
Article
2024-08-31
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
Quick Take
2024-08-31
Asia Tech: Building the technology for everything, everywhere, all at once
Yash Patodia articulates the investment opportunities within generative AI and mixed reality - two themes that are supercharging the tech industry. He outlines how Asia is the bedrock of the innovation and where he believes the world’s future growth will be.
Video
2024-07-31
Activism – History and evolution in Japan
Investment Specialist Toshiki Izumi examines the history of shareholder activism in Japan, with particular emphasis on the differences between current and historical attitudes toward activism.
Quick Take
2024-06-30
URL References
Related Insights
Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees. Source: Wellington Management
© 2023 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.
The content within this page is issued by Wellington Management Singapore Pte Ltd (UEN: 201415544E) (WMS). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Information contained on this website is provided for information purposes and does not constitute financial advice or recommendation in any security including but not limited to, share in the funds and is prepared without regard to the specific objectives, financial situation or needs of any particular person.
Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk. The price and value of investments is not guaranteed. The value of the shares of the funds and the income accruing to them, if any, and may fall or rise. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. Investors should read the prospectus and the Product Highlights Sheet of the respective fund and seek financial advice before deciding whether to purchase shares in any fund. Past performance or any economic trends or forecast, are not necessarily indicative of future performance. Some of the funds described on this website may use or invest in financial derivative instruments for portfolio management and hedging purposes. Investments in the funds are subject to investment risks, including the possible loss of the principal amount invested. None of the funds listed on this website guarantees distributions and distributions may fluctuate and may be paid out of capital. Past distributions are not necessarily indicative of future trends, which may be lower. Please note that payment of distributions out of capital effectively amounts to a return or withdrawal of the principal amount invested or of net capital gains attributable to that principal amount. Actual distribution of income, net capital gains and/or capital will be at the manager’s absolute discretion. Payments on dividends may result in a reduction of NAV per share of the funds. The preceding paragraph is only applicable if the fund intends to pay dividends/ distributions. Performance with preliminary charge (sales charge) is calculated on a NAV to NAV basis, net of 5% preliminary charge (initial sales charge). Unless stated otherwise data is as at previous month end.
Subscriptions may only be made on the basis of the latest prospectus and Product Highlights Sheet, and they can be obtained from WMS or fund distributors upon request.
This material may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management.
