Download July 2017
High Conviction Ideas
Multi-Asset: overall we maintain a risk on stance, played mainly through equities (Europe, Japan and selective Emerging Markets). Nevertheless, we do not think that the current investment environment is without risk for investors: market complacency - in terms of low volatility and high correlation among asset classes - has increased further and some areas of the market (notably US credit) seem priced for perfection. Therefore, we believe it is important to be selective on credit and strive to shield investor portfolios from tail risks through hedging. >Overall assessment
Fixed Income: valuations are getting expensive across the board. In Developed Markets (DM) government bonds remain unattractive and exposed to interest rate risk, especially in consideration of the future unwinding of Central Banks’ extraordinary monetary policy. Therefore we maintain a focus on short duration and we prefer corporate over government bonds in the US and Eurozone. We believe it is important to take a more cautious approach to High Yield (HY), due to excessive spread tightening in this segment, while searching for income opportunities in Emerging Market (EM) bonds. >Overall assessment
Equities: we are positive on equities, especially in Europe, thanks to the earnings outlook, investor flows and stronger economic momentum. We also favour Japan and EMs, where earnings have been revised up for the first time in 5 years. In EMs, we prefer selective stories at a country/sector level. We are cautious on US equities which are exposed to the risk of disappointment from policy implementation. >Overall assessment
Real Assets: we believe there is value along the liquidity continuum in particular in the leveraged loan space. We are more cautious overall on private equity because of the valuation issue. In a reflationary scenario, there is still some value left in European real estate (attractive property valuations and possible rent increase), to play through diversification.