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Monthly Investment Outlook

Monthly Investment Outlook

We publish a Monthly Investment Outlook that highlights our convictions on equities and bonds, as well as recent asset allocation changes.


  • MONTHLY INVESTMENT OUTLOOK - Risk management remains key entering 3Q 2020; shifting focus to alpha in credit
  • GLOBAL TACTICAL ASSET ALLOCATION - Focus on asymmetry and selectivity
  • UBP ECONOMIC OUTLOOK - Desynchronised global recovery
  • UBP ECONOMIC OUTLOOK - Onshoring industrial activity
  • GLOBAL BONDS - Pivoting to more active credit selection
  • GLOBAL EQUITIES - Headwinds building amid high valuations
  • RECENT VIEW CHANGES - Adding credit with selectivity

  • Enthusiasm for risk is reluctantly receding with global equities and credit rallying in June. However, credit has begun to outpace riskier equities following the early June peak in stocks.
  • With the Fed pausing its balance sheet growth just as US COVID-19 cases resumed an upward trend following the lifting of lockdowns and the spread of protests across the country, further headwinds look set to emerge for equities. This comes as the earnings season begins to reset expectations about the prospect of the fastest post-recession earnings recovery in history which is currently priced into markets.
  • Beyond this, the summer months will shift focus to the American political landscape as the presumptive Democratic nominee for President, Joe Biden has opened up a significant lead on incumbent Donald Trump. With increased corporate tax rates high on the Biden agenda, the market’s optimistic earnings outlook appears even more misplaced.
  • Moreover, the 3rd quarter will require an acceleration in fiscal momentum in both the US and Europe. In the US, the expiry of extended unemployment benefits and rent/mortgage holidays may restrict demand without any renewed fiscal measures. Similarly, in Europe, agreement on the EU budget is key to kick-starting the recovery phase of the post-lockdown European economy.
  • With headwinds building and valuations near historic highs, we estimate that in both relative and absolute terms a 10-15% pullback in the S&P 500 would be needed to ease the valuation burden for investors even assuming a typical post-recession earnings recovery.
  • So, we expect the protection we have restored in portfolios in May and June to serve us well moving through this potentially turbulent summer period.
  • In addition, following the dramatic decline in credit spreads, the prospect of further spread compression relative to rising defaults/bankruptcies in the months ahead leaves near-term capital gain prospects limited. As a result, just as we have pivoted to more active selection in equities, we have taken a similar approach in credit by adding long-short credit exposure, seeking to drive returns via active credit selection moving ahead.
  • In FX, with rising uncertainty surrounding Brexit, we have moved to neutral GBP exposure in GBP portfolios.
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