- Co-Head, Investment Strategy
- About Us
- My Account
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. For professional, institutional, or accredited investors only.
iStrat is the investment strategy and solutions group within Wellington. We are allocators and investors, like our clients. So, where do we think the investment focus should be in the coming year? I’ll highlight three areas that are top of mind:
Over the last few decades, the negative correlation between equities and bonds has provided an excellent balance to many allocations. This last year saw both markets decline, and this positive correlation turned the equity/bond relationship from risk-mitigating to risk-additive.
As our team explained in a recent article, the shift in correlation was driven by the evolving economic environment. Over the past decade, markets came to assume that central banks would respond to any deterioration in macro conditions by cutting interest rates and doing, as former ECB President Mario Draghi once put it, “whatever it takes”. This helped maintain the negative correlation: a struggling economy is negative for equities but positive for duration when the response is lower rates. But now central banks face higher inflation, setting up the potential for a difficult choice: loosen monetary policy if the economic outlook worsens or hike rates to stem inflation. Bonds will struggle in this environment and especially if central banks are perceived to be behind the curve in the inflation fight.
We think inflation will remain a challenge (even if it’s not at current 40-year highs) and central banks and governments will be forced to wrestle with this growth/inflation trade-off. While bonds may still play an important role in portfolios given their potential for income, liquidity and total return enhancement, this high-inflation regime may limit their diversification and downside protection roles. To prepare, allocators may want to consider strategies that can complement the protective role of bonds, including:
In the new economic reality described above, where central banks can no longer focus exclusively on maintaining stable growth, our macro strategist team has argued that we will see a return to a traditional economic cycle with distinct and possibly more frequent moves from one phase to the next. We also expect more cyclical divergence between countries as policymakers make different decisions about the growth/inflation trade-off and as globalization is unwound. Cyclical volatility will likely translate to increased volatility in macro-driven assets, including rates and currencies. This may create challenges but also opportunities to consider:
We believe that we are in the midst of regime change — that is, the economic shifts we’re witnessing are likely structural rather than cyclical (hear more on the subject from Macro Strategist John Butler). With this in mind, we think 2023 will be a year for allocators to ensure they are positioned for the change.
2024 Insurance Outlook: Position portfolios for the unexpected
Tim Antonelli offers two critical ideas for insurers' 2024 investment planning: doubling down on diversification and rethinking risk, including geopolitical and default risk.
Embracing uncertainty: Three alternatives ideas for a macro-driven world
Even as investors wrestle with the economic unknowns heading into 2024, Multi-Asset Strategists Nick Samouilhan and Adam Berger see opportunities to put alternative investments to work.
Trends and transformation: Ideas for 2024
Explore our latest views on risks and opportunities across the global capital markets as we look ahead @to 2024
Beyond China: what does the rest of the EM equity world have to offer?
For investors contemplating a separate allocation to EM ex-China equities, members of our iStrat Team share their research on the composition of the opportunity set, the growing divergence in the behavior of EM ex-China equities and Chinese equities, and the long-term market outlook.
You snooze, you may lose: The case for bonds
There are signs the Federal Reserve's rate-hiking cycle may be nearing an end, but some uncertainty remains. With that in mind, Multi-Asset Strategist Nanette Abuhoff Jacobson considers the timing of a move from cash to bonds.
Investing at the biopharma frontier
Rebecca Sykes details groundbreaking innovations happening today in the biopharmaceutical industry. She explains key advancements and the investment landscape for therapies targeting diabetes, cancer, and Alzheimer's disease, three of the deadliest and most expensive diseases facing the world today.
Climate mapping in action: Investment case studies
We describe our Climate Exposure Risk Application (CERA), which can help our investment teams visualize and quantify physical climate risks.
Deglobalisation and divergence: opportunity or threat?
John Butler and Supriya Menon discuss the drivers underpinning growing macroeconomic divergence and deglobalisation and what it may mean for asset allocators.
Thematic investing focus: a new era for medical innovation
Advances in science, tools and technologies are transforming the face of healthcare, revolutionising the diagnosis and treatment of complex diseases. How can thematic investors identify promising opportunities?
Early 2024 resolutions: Enjoy the yield but be smart with your surplus
What should insurers expect from markets as we approach the end of the year? Tim Antonelli, Head of Multi-Asset Strategy – Insurance and Portfolio Manager, offers his views and identifies areas that may be worth a closer look.
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.