This session will take a deep dive into the macro economic outlook for next year, as well as the medium term and long term; including a discussion of the capital market assumptions that go into that outlook, and the impact on individual asset classes. Importantly it will also discuss asset class correlations and whether investors can rely on their current risk management and portfolio construction tools going forward.[vc_quotes layout=”accordion” 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title=”Speakers” el_class=””][vc_quotes layout=”accordion” 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title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
Dan
We have experienced a shutdown rather than a slowdown so need to navigate a path out of that space.
We look forward to thinking about a sustainable recovery.
There is a solid backdrop for risk assets due to low rates, risk-seeking investor sentiment and policy tailwinds causing the system to be awash with money. Gold is acting as a hedge against unexpected risk.
Most portfolios are not well equipped to deal with a rapid inflation shock, if it were to happen. A shock would place material pressure on valuations and equity markets, increasing the importance of hedging and thinking from a total portfolio perspective.
People are looking to real estate, commodities, gold episodically and infrastructure for returns but you must been highly selective since there is so much money chasing these asset classes.
The dollar has been a great tailwind for investors over the last few years but investors need to rethink those implications.
Bonds continue to be a diversifier, but the issue is that they are not as much of a diversifier as we want them to be so therefore we need to expand our defensive toolbox. Low volatility equities or hedges on growth equities growth are a possible alternative.
There are pockets of opportunity in 2021 including emerging markets Asia ex Japan, emerging market debt and the future of real estate.
Millan
There is a feeling that in 2020 and 2021 we are only papering over the cracks. What will the long-term cost be? Arguably all we have done is bring forward future growth, but where will sustainable growth come from in those future years?
The board is asking three important questions:
1) What is the performance expectation of assets?
2) What is the view on interest rates? And most importantly;
3) What is the view on inflation?
The inflation outlook is more uncertain than it has been over the last few decades. Natural hedges including diversification through geographies will help.
There is no easy answer to identifying an alternative to bonds for defensive purposes.
Geographically diverse investment in real assets provides positive opportunity in 2021 and beyond.
Bruno
Our view is subdued. What will the long-term COVID legacy be? The scale of the policy response this time is unprecedented, which has caused immense debt load. GDP may more positively in 2021 and 2022, but the same cannot be the said for debt levels, quick the opposite in fact. There is a lot of money chasing good return in good investment and that is usually not a good recipe.
With bond yields so low, we should ask ourselves what is the purpose of a potential allocation to bonds. The answer to this question will help identify a potential alternative solution to achieve the same goal, including currency diversification.
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