- Multi-Asset Strategist
- 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.
Recently, I’ve been thinking about whether we are transitioning from the post-GFC market regime to something new and what that could mean for asset allocators and portfolio positioning. While allocators can’t assume they will be able to spot the next regime’s winners, they can be careful about their exposure to the prior winners and think broadly about which areas of the market are likely to offer more compelling returns over the next 5 – 10 years.
In terms of prior winners, growth stocks certainly stand out. We’ve been in a decade-long period in which growth dominated, aided by innovation and technologies that transformed the economy and fundamentals. But as I’ve said before, there is clear historical evidence of a growth/value cycle (Figure 1), and so I expect to see value regain leadership eventually. We may also be moving into a more volatile world in which stability takes priority over innovation, which would tend to favor value.
Value — In this new world, valuations should begin to matter in a way they haven’t at times during the last decade. Value could provide a margin of safety when we’re in volatile markets, meaning that stocks with lower valuations should sell off less in some scenarios. In addition, the sector mix in the value universe, which tends to include areas like energy, natural resources, and financials, may be more attractive in what I believe will be an inflationary regime.
Stability — There’s an adage that when growth is scarce, growth stocks outperform, and this was true for much of the last decade. Going forward, I believe, stability will be scarce and stable stocks are likely to outperform. In terms of specific types of strategies that fall into a “stability” bucket, low-volatility strategies may have a place, but it’s worth noting that they tend to be challenged in rising-rate environments. I would look to “compounders” (equity strategies focused on companies with high and stable free-cash-flow yield and the potential to grow modestly but steadily over time) and to defensive global equity strategies that seek to preserve capital in adverse markets while providing equity-like returns in up markets. (Our Fundamental Factor Team provides some additional thoughts on the need for defensive strategies here.)
Income — Equity income hasn’t been an area of focus among allocators for some time, but that may change. The immediate cash flow may be more attractive in an inflationary world, but I also look to dividend growers as another source of calm in a storm: Companies that are able to grow their dividends over time may provide an element of quality and stability.
Growth — While we may be approaching a long-awaited pivot to value, investors in an uncertain world may be well advised to maintain a diversified factor footprint, and that includes exposure to growth. That said, allocators may need to consider a different kind of growth in the next decade — it might be steadier, self-financing, and less-speculative growth, for example. Or it might be growth driven by long-term thematic trends that will transform the way we live.
In a recent paper, I consider changes in four additional areas — inflation, the business cycle, interest rates, and active management — and how allocators can prepare.
Spread the risk: Our top three fixed income diversifiers for 2023Continue reading
CLOs: Poised to outperform in 2023?Continue reading
Can US bank loans “carry” investors through 2023?Continue reading
Multi-Asset Outlook — A rocky road to recovery in 2023Continue reading
Could Japan face a UK-style pension crisis?Continue reading
Small-cap value: Strong past, bright future?Continue reading
Annual message from our CEO: Forward thinkingContinue reading
Spread the risk: Our top three fixed income diversifiers for 2023
Fixed Income Strategist Amar Reganti highlights three types of strategies that may be well positioned to provide fixed income portfolio diversification going forward.
CLOs: Poised to outperform in 2023?
Collateralized loan obligations (CLOs) have been sparking investor interest lately — and with good reason, say Investment Director Andrew Bayerl and Investment Specialist Celene Klimas.
Can US bank loans “carry” investors through 2023?
Fixed Income Portfolios managers Jeffrey Heuer, CFA and David Marshak and Investment Director Nick Leichtman describe what they see as the most prudent approach to the bank loans asset class in 2023 and why.
Multi-Asset Outlook — A rocky road to recovery in 2023
Markets may be jumping the gun when it comes to expectations for a policy pivot and the likely risk-asset rewards. Members of our Investment Strategy team still see bumps in the economic road, though their outlook has brightened a bit when it comes to China and other emerging markets.
Could Japan face a UK-style pension crisis?
Investment Director Masahiko Loo explores the risks of Japan facing a UK-style pension crisis and identifies fundamental reasons that make Japanese pension funds inherently less vulnerable.
Small-cap value: Strong past, bright future?
While equity markets have had a challenging recent past, history teaches us that there may be several reasons to be optimistic about small-cap value.
Annual message from our CEO: Forward thinking
After a year of profound economic and market change, CEO Jean Hynes discusses the path forward, including the role of alternatives and sustainability, the firm's investments in talent, and the importance of stability and innovation.
Take credit: Our five best credit market ideas for 2023
Fixed Income Strategist Amar Reganti highlights credit market opportunities that he expects to arise over the course of 2023, against a backdrop of slowing growth.
US recession risk: No longer if, but when and how bad
Portfolio Managers Brij Khurana, Brian Garvey, and Nick Petrucelli believe many observers are underestimating the severity of a potential US recession this year.
Navigating the new global economy in 2023
This executive summary distills the points of view of several of our 2023 Outlook authors. Discover the risks and opportunities they see as we enter a new economic and market regime.
Picture this: Our 2023 economic forecast in five charts
We explain the shifts the market is undergoing, analyze the implications for different asset classes, and identify potential risks and opportunities in a series of visuals.