Asset Allocation

Asset Allocation Update

Energy, inflation and asset allocation

We doubt that the recent surge in energy prices will be sustained, but still think that investors are underestimating the likely strength of broader price pressures in the US over the next few years. This Update explains our view, puts it in historical context, and considers the implications for asset allocation.

15 October 2021

Asset Allocation Update

Correlation between US equities & Treasuries not set in stone

While many observers seem to have been surprised by last month’s joint sell-off in US equities and Treasuries, there is no reason in principle why the two assets should be negatively correlated. It all depends on the economic and policy backdrop. Our view is that future returns from both will disappoint.

11 October 2021

Asset Allocation Update

Infrastructure & reconciliation unlikely to mean Q1 rerun

While the large fiscal stimulus passed in the US in the first quarter of this year appears to have been a key reason why equities there outperformed Treasuries at the time, we think that the infrastructure and reconciliation bills currently making their way through Congress point in the opposite direction.

6 October 2021

Our view

We forecast that long-term bond yields will rise across most major economies and especially in the US, where we think inflationary pressures are particularly strong. Otherwise, we think that the returns from most risky assets from here will be far less impressive than they have been since the spring of last year. That reflects not only a view that bond yields will climb further, but also how we see limited room for global growth to surprise on the upside and how, in many cases, valuations already appear quite stretched. Meanwhile, we think that the US dollar will grind higher from here on the back of a hawkish shift by the Fed relative to most other major central banks, and ongoing uncertainty around the strength of the global recovery.

Latest Outlook

Asset Allocation Outlook

Tempering our optimism

We no longer expect equities and corporate bonds to outperform “safe” government bonds by anything like as much as we did a couple of quarters ago, and we continue to forecast that some other “risky” assets, including most commodities, will struggle over the next couple of years.

21 July 2021