22 June 2016: Navigating the politics of 2016
– Many investors have been focused on uncertainty over votes in the UK, Spain, and the US. Those hoping for greater political clarity before returning to risk assets may face a long wait.
– We prefer to mitigate political risk through diversification, while concentrating on long-term trends in economic performance, earnings growth, and the outlook for central bank policies.
– The prospects for the US economy remain positive, and earnings growth should rebound in the second half of the year. Meanwhile, financial easing continues in the Eurozone.
– We are overweight in US equities, European high yield credit, and US investment grade credit relative to high grade bonds. In currencies, we are overweight the US dollar and Norwegian krone relative to the Australian dollar and euro, respectively.