Asset allocation monthly – February 2019

01 Feb 2019


  • It’s all about growth – Markets have gone through violent swings lately, with the latter part of 2018 seeing a sharp re-pricing of economic growth assumptions juxtaposed by a strong rebound of risky assets more recently.
  • A lot of bad news in the price? – Macro data has been weak but at face value, risky assets fell by more than was justified late last year. With consensus EPS expectations now cut sharply as well, the bar was arguably low for a bounce.
  • Central banks to the rescue? – Dovish signals from the Fed and renewed stimulus in China have eased markets recently. With quantitative tightening (QT) on the cards in the medium term, we think that hopes that central banks will support markets beyond the short term are misplaced.
  • Earnings delivery will be key – In this new paradigm, we see the scope for multiple expansion as limited and in such an environment, earnings will have to do the heavy lifting.
  • Downside risks still lingering – We are in an atypical late cycle and the balance of risks around our base case economic outlook are to the downside still, not least because key issues such as QT and China-US trade tensions are far from resolved.

Asset allocation

  • Strategically neutral equities – More volatility is still our base case. With risk assets sat bang in the middle of our scenario analysis range, our structural directional conviction on equities remains low. Our preferred long-term allocation is neutral.
  • Underweight fixed income – We remain underweight EMU bonds given the prospect of ECB monetary policy normalisation.
  • Aiming to be tactical – We have adopted an ever more tactical approach, most recently entering a tactical short position in equities into the recent bounce.
  • Diversifying – To build robust portfolios, we continue to hold positions and RV trades with asymmetries.
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