Whole portfolio resilience
As a result, we favor looking through any near-term market volatility. We increase our overall pro-risk stance by upgrading equities on a tactical basis, and take a sectoral approach. We like tech and healthcare due to the pandemic’s transformative shifts – and balance this with a preference for prime beneficiaries of the economic restart, such as emerging market (EM) equities and U.S. small caps. We are overweight Asia ex-Japan equities and Asia fixed income on the region’s effective virus response, and favor assets exposed to Chinese growth.
The policy revolution has big implications for our strategic views as we see a more muted response of nominal yields to a higher inflation regime. Central banks appear committed to limit any rises in nominal yields even as inflation picks up. Investors will need a new playbook to navigate this. We underweight government bonds and maintain a higher strategic allocation to equities than in typical periods of rising inflation.
Sustainability is a key component of our views as we see a tectonic shift to sustainable assets playing out over decades. Contrary to past consensus, we expect this shift to help enhance returns. Private market exposures are one way to pursue portfolio resilience with a sustainable lens.
Read our full 2021 Global Outlook PDF report