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Investment expertise

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.



Summary

  • MONTHLY INVESTMENT OUTLOOK - In the acceleration phase for earnings and, temporarily, inflation
  • GLOBAL TACTICAL ASSET ALLOCATION - Focus on companies with high earnings quality
  • UBP ECONOMIC OUTLOOK - Stronger growth and higher inflation ahead
  • UBP ECONOMIC OUTLOOK - Tracking the recovery
  • GLOBAL BONDS - Favor short duration carry strategies
  • GLOBAL EQUITIES - Approaching the peak in earnings momentum
  • RECENT VIEW CHANGES - Beginning a pivot towards high quality companies

  • The respite in the rising US yield backdrop that weighed not only on bonds but also on market leading growth equities in March, allowed bond investors to partially recoup yearto- date drawdowns and growth equity investors to narrow their performance gap versus value equities year-to-date.
  • We expect this softening in bond yields may prove temporary, as is already happening in Europe, where investors have begun to look towards a summer re-opening combined with the deployment of US fiscal stimulus and funds from the European Recovery Plan.
  • Thus, despite German 10-year yields sitting at their highest levels since mid-2019 and the recent retreat in US 10- year yields, the risk of higher yields exists not only for USD investors but also EUR investors.
  • As a result, short duration carry focused strategies should provide shelter in such an environment, though likely only modest return prospects given the tight spread backdrop. With inflation protected securities already anticipating much of the expected acceleration in inflation, investors should look to equity markets to capitalize on this leg of the reflation trade in progress.
  • Within portfolios, we expect our cyclical exposure to benefit from this, even transitory inflation pickup. Our financials exposure should benefit from this acceleration phase in growth and inflation, while our global mining and targeted cyclical recovery exposure should profit from the continued rise in commodity prices and the benefit to corporate cash flow looking ahead.
  • These typically cyclical sectors should drive the next leg of earnings recovery as well, as we expect earnings growth to accelerate into mid-year. However, as cyclical recovery and the rebound in cyclical earnings become increasingly priced in by markets in the months ahead, investors should prepare for the next stage of the economic and market cycle that lies ahead.
  • As overall earnings growth moderates in the 2nd half of 2021, the quality and reliability of earnings streams will increasingly come into focus. However, with tax changes around the world potentially on the horizon, this should inject increased uncertainty into markets in the second semester for investors, with the prospect of near-term, though we expect, temporary volatility potentially in typical ‘quality’ sectors such as global technology and healthcare as they adapt to this potential new tax regime. High quality consumer staples companies should benefit, we expect.
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