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Article | Global Markets Overview

Global Investment Outlook – 2020

Investments
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By David Hoile | March 5, 2020

Our outlook for 2020/21 and the next decade.

Over the past two to three years, our outlook of positive but low long-term asset returns has had mixed results. Our focus on the attractiveness of selective assets with high betas to growth and also U.S. government bonds has done well. On the other hand, equity returns have been much higher than we expected, especially in 2019 and in the U.S. Here, we underestimated the sensitivity of equity markets to higher global liquidity as central banks preemptively cut interest rates and U.S. bond yields fell much more than we expected.

How are we to make sense of these moves? What do they mean for our forward-looking outlook? We attempt to answer these questions in this report. In particular:

  • We discuss how the large decline in bond yields has moderated our concerns about an economic downturn in 2020/21 compared with 12 months ago; however, we retain the view that market-related downside risks are still prevalent and that a diversified portfolio that is balanced to different outcomes is optimal.
  • As we start a new decade, we also discuss the longer-term, structural drivers of financial markets in greater detail. The backdrop to building resilient portfolios over the next decade is one of large-scale change, which presents both exciting investment opportunities and important risks. In particular, we discuss climate change and the related issue of inclusive economic growth – key areas for our work this year and for public policy, business and investor decision making. Importantly, we approach these from a financial perspective; that is, what are the implications for economic outcomes, corporate cash flows and investment returns?

We believe that our portfolio recommendation of diversity with downside protection and active management continues to be the best way to maximize the chance of long-term investment success and offers a much better chance than a simple equity bond portfolio.

For portfolio strategy, unquestionably, a simplistic equity-bond portfolio would have fared very well in recent years, particularly over 2019. We believe that our portfolio recommendation of diversity with downside protection and active management continues to be the best way to maximize the chance of long-term investment success and offers a much better chance than a simple equity bond portfolio. Indeed, we feel our diversified, risk-managed approach has kept pace with simpler portfolios over the past decade, with historically lower volatility; however, we are not complacent. We continuously compare portfolio outcomes with our expectations and use this feedback loop to assess three big issues:

Opportunities and risk
1. Where are the big opportunities and risks in the near and long term?
diversification
2. How diversified should we be?
resiliance during major change
3. How do we deliver both returns and resilience in a world of transformational change?

We do not present the complete answers here but instead set out the key principles. Download the PDF to learn more.

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Global Investment Outlook 2020 PDF 1.4 MB
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