The Big Picture: Global Asset Allocation 2021 Q2

The big picture

Our preference for cyclical assets with a focus on Europe and emerging markets (EM) has worked well since publication of the 2021 outlook. Should we stick with the same allocations, twist (go even more aggressive) or fold (become more defensive)?

Our answer is to stick, with a continued preference for the same set of assets and regions within our Model Asset Allocation. However, we are reducing the allocation to commodities (to Neutral) and adding to government bonds (still Underweight). We also temper the bias towards Europe and EM, while reducing the Underweight to US assets.

Model asset allocation

In our view:

  • Equities offer good returns as the global economy recovers. We stay at slightly Overweight.
  • Real estate has the potential to produce the best returns. We stay at Maximum.
  • Corporate high-yield (HY) is favoured among fixed income assets. We remain Neutral.
  • Corporate investment-grade (IG) now holds no advantage over cash. We stay at zero.
  • Government debt outlook has improved but is still unattractive. We add but remain Underweight.
  • Cash returns are low but stable and de-correlated. We stay at Maximum.
  • Commodities are supported by the cycle but some are expensive. We reduce to Neutral.
  • Gold is threatened by rising yields and a stronger USD. We remain at zero.
  • Regionally, we favour Europe and EM (and are Underweight US assets) but less than before

Our best-in-class assets (based on 12m projected returns)

  • UK equities
  • EM real estate
  • US high-yield
  • USD cash

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • Data as of 26 February 2021 unless stated otherwise.

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.