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A more challenging balance between growth and policy

Investment strategy


Asset allocation September 2019


  • A more challenging balance between growth and monetary policy – Our ‘fragile goldilocks’ base case assumes that central banks can offset the ongoing growth slowdown. In our view, that assumption is now more tenuous in Europe, but still holds in the US.
  • Trade tensions and central bank policy resolve are key worries – Trade tensions continue to be the main source of a negative shock to growth and most major economies, including the US, are feeling it. Falling inflation expectations are testing policymakers’ resolve.
  • Resilience and fiscal and monetary policy room in the US – The US has a better chance of remaining in ‘goldilocks’ mode than Europe for two key reasons. First, it has more room for monetary and fiscal policy easing. Second, it is generally more resilient to external shocks.
  • Less room to manoeuvre in the eurozone – Investors are losing confidence in the fire-power of eurozone policymakers. So far, hints of fiscal stimulus have not been enough to reverse the sharp fall in core EMU bond yields.

Asset allocation

  • Bought the dip in US equities – We went long US equities tactically in line with our approach of buying dips so long as moderate growth and policy stimulus support a ‘fragile goldilocks’. This is still the case in the US where company earnings have been healthy, the economy has been robust, and there are ample policy levers. Our market temperature and technical indicators were also supportive.
  • Long carry assets – The ‘search for yield’ environment is still in place given the global monetary easing moves; we remain long emerging market hard currency debt.
  • A focus on robust portfolios – Aside from our core views, we continue to focus on building robust portfolios by holding trades that would benefit in more extreme scenarios such as a deeper slowdown or a revival of inflation.

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