The headline story of early 2019 for investors has been the dramatic upswing in global markets, especially in contrast to the drawdown and volatility spikes we saw in late 2018. But as always, the investment landscape is complex and a number of risks still lurk on the horizon.
China’s economic stabilization is certain to drive increased investment there. Today, most investors are underweight China relative to its share of global markets. We believe there is an increasingly strong case that the time has come for asset allocators to consider a standalone allocation to China.
Investors have been diversifying their portfolios into real assets and related alternatives for the last two decades and we expect this to continue. But the evolving global macro forces impacting regional economies and currencies underscores the need for a local market focus vs. a regional or global focus for real asset investments.
Sustainable investing has been around for at least 20 years. But in the last few years, investors have begun to understand that rather than just a ‘feel-good’ option, sustainability can also help improve and safeguard investment returns.
For fixed income investors, the US Fed’s decision to hold off on further rate hikes puts it in closer alignment with generally dovish central banks globally, which should help carry strategies continue to generate positive contributions to total returns for the remainder of 2019.
The strengthening US and Chinese economies should support emerging markets assets, which have provided a rich source of potential alpha for investors. But these markets also require a long-term strategy.
In the current economic environment, we believe active equity managers have an advantage with valuations that are no longer stretched on traditional metrics. In a world that is heavily exposed to passive equity and fixed income investments, we see a number of opportunities for excess returns that are only available to active managers.
With insights across both traditional and alternative asset classes, we trust you will find our mid-year update thought-provoking and helpful in meeting the investment challenges that lie ahead.