De-globalisation relief and reflation – positive geopolitical news has caused markets to trade in a reflationary fashion. We feel this may last in the short term, but further out, things look trickier.
Fixed income most at risk – we still see fixed income markets as being most at risk from a sustained move to a reflationary environment.
Weak data, but no imminent recession – we acknowledge the slowdown in the macroeconomic data, but we think it is too early to call a recession just yet.
Key differences to Q4 2018 – while the macro feels similarly weak, the central bank stance, valuations and positioning are clearly different.
MFA portfolio optimiser – having introduced our new asset allocation portfolio optimiser which uses factor analysis to map core asset views to factor exposures, we will now also communicate views from a ‘factor viewpoint’.
Factor exposure – in the overall factor exposures from our current views, the standout is an overweight in Market Risk. Other factor exposures are light.
Overweight equities – we remain nimble and in a recent dip we added equity overweights, the main contributor to the overweight in the Market Risk
Underweight core EMU duration – we aim to be nimble and have reduced short exposure given yield moves. But risks from reflation remain large for rates.
Search for yield – we still believe in searching for yield. We remain in a high-carry EM external debt position and have added EMU REITs.
Robust portfolios – we continue to hold trades with asymmetries to our risk scenarios, e.g. long US breakeven inflation and several de-globalisation trades.