Multi-Asset

Multi-Asset Strategy Quarterly – April 2021

In this edition, Philip Saunders looks at the recent narratives around inflation and US Treasuries, while we also explore the changing regulatory landscape facing Big Tech, and what the future may hold. Russell Silberston reviews recent policy announcements by the major central banks, and we close with a summary of our asset class views.

20 Apr 2021

20 minutes

In this edition, Philip Saunders looks at the recent narratives around inflation and US Treasuries, while we also explore the changing regulatory landscape facing Big Tech, and what the future may hold. Russell Silberston reviews recent policy announcements by the major central banks, and we close with a summary of our asset class views.

Chapters

01
Market observations
02
Thematic viewpoint
03
Policy review
04
Summary of high conviction asset class views
05
Equities
06
Fixed Income views
07
Currency views
08
Commodity views
00

Market Review - Q4 2020

Close-up view of beautiful curved glass building
The mood was heavily in favour of risk assets over the quarter, with news of successful vaccine trials prompting a sharp rotation into cyclically exposed assets.

Global risk assets moved materially higher in the final quarter of 2020 following positive developments regarding key issues such as COVID-19 vaccines, fiscal stimulus in the US and a Brexit deal. Vaccines with better-than-expected efficacy rates were developed, authorised and deployed in the UK, Europe and US. In light of continued economic challenges, central bankers confirmed they would keep financing conditions favourable, whilst in the US an agreement was made with respect to additional fiscal stimulus. Elsewhere, a Brexit separation deal was finally agreed towards the end of the year. In the US, Joe Biden was elected as the next US President and the market rallied, particularly in those areas most directly linked to his fiscal stimulus and renewable infrastructure. Economic data through the quarter broadly indicated that the recovery still had momentum, although US jobs data showed some cause for concern. More concerning for investors was the increase in COVID-19 case numbers and subsequent reintroduction and/or tightening of restrictions across a number of countries.

Following the vaccine news, global equities posted double-digit-plus returns during the quarter with cyclically exposed assets leading the charge. Emerging market equities in aggregate outperformed developed market equities, led by Asia-ex Japan. The S&P 500 index ended the year at another record level, posting double-digit returns, while Europe and the UK reached post pandemic highs. There were similar outsized risk-on moves in the high yield corporate bond market, as Europe outperformed the US. In emerging markets, both sovereign bonds and currencies posted positive, and in some cases high, returns.

As a “risk-on” rotation prevailed, performance of developed market government bonds was mixed. In reaction to a slew of positive news, US Treasuries sold off and the yield curve steepened, whilst other developed market sovereign bonds, such as those in the UK and Germany, generated a small positive return. Investment grade corporate bonds in both the US and Europe generated positive returns, attributed to a supportive technical backdrop as the asset class continued to see inflows from both central banks and investors. The US dollar weakened to fresh lows since April 2018 amidst the cautiously optimistic tone seen in the markets and the commitment to highly accommodative policy from the US Federal Reserve, with this benefiting other currencies such as the euro and the Japanese yen, whilst sterling also made gains following the post-Brexit trade deal agreement.

Gold had a challenging start to the quarter but recovered in December to generate a small positive return of c. 1%, ending the quarter just below $1,900/oz.  

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Specific risks
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

Commodity-related investment: Commodity prices can be extremely volatile and significant losses may be made.

Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss.

Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company.

General Risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

Multi-Asset team

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

All rights reserved. Issued by Ninety One.