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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.



Summary

  • MONTHLY INVESTMENT OUTLOOK - The world begins its transition from COVID-19 relief to recovery policies
  • GLOBAL TACTICAL ASSET ALLOCATION - Staying invested with downside protection
  • UBP ECONOMIC OUTLOOK - Ongoing recovery despite some clouds on the horizon
  • UBP ECONOMIC OUTLOOK - New budgetary support emerging in the US and Europe
  • GLOBAL BONDS - Exploiting opportunities in CoCos and managing risk in high yield
  • GLOBAL EQUITIES - Better than expected Q2 earnings
  • RECENT VIEW CHANGES - Continuing credit rotation: staying long gold

  • While equities rallied, credit investors saw better risk-adjusted returns, while equity-credit hybrids like convertible bonds actually outpaced global equities in July.
  • With the European Commission having struck an agreement to fund its EUR 750 billion European Recovery Fund, Europe looks set to transition from stabilising its economy following the COVID-19 shock to funding efforts to spur recovery and growth in 2021.
  • In contrast, still hampered by rising infections, the US is also plagued by political infighting over an additional round of economic relief measures going into autumn. With formal campaigning for the US Presidency set to begin in August, historically, this has been a challenging period for markets should a change in White House occupant appear likely.
  • With an uneventful start to the earnings season, key risks heading towards autumn are focused on a prolonged delay in passing a substantial additional round of US economic support, the potential for escalation in geopolitical tensions as a campaign tool from the Trump administration, as well as hardening rhetoric about increased corporate taxes from challenger Joe Biden.
  • As a result, we maintain our asymmetric positioning across portfolios – participating in the rally in risk assets while actively managing our safe haven, risk-off assets to protect portfolios should these risks be realised.
  • Our gold safe haven allocations were well rewarded in July in light of the nearly 10% rise in the month. While impressive, we believe gold and silver are still in the early days of a longer-cycle bull market.
  • As markets trend higher, we look within asset classes to both manage risk and exploit opportunities. Within fixed income, we have become increasingly active especially as credit spreads are now probing post-March lows.
  • For US investors in particular, this poses a risk as OPEC’s decision to increase production looks likely to add pressure to the energy sub-sector of high yield credit, which has contributed as much as 150 bps to spread compression since the March highs.
  • So in portfolios, in addition to the rotation towards long-short credit strategies in June, we have also exited our full duration, index oriented USD high yield bond exposure in favour of bank hybrid securities in Europe.
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