Asset Allocation Views: Prolonging the Expansion

Read our key takeaways from our 2020 Asset Allocation Outlook, including how we are positioning multi-asset portfolios in light of our outlooks for the global economy and markets.

Following a bumpy 2019 for global growth, we see economic momentum recovering in 2020. While the global health crisis adds uncertainty to the economic outlook, we believe the economic and market risks will be temporary. With the cycle extended and recession risks reduced, we favor equities over hard duration and generic corporate credit, and have started the year with a constructive view toward risk. Active management remains important and, as always, we will monitor potential risks and disruptions that could loom large in an environment where expected returns are capped by valuations.

Here is how we are positioning asset allocation portfolios in light of our outlook for the global economy and markets.

Overall Risk

This diagram shows a dial with underweight on the left-hand side and overweight on the right-hand side. An arrow on the dial points slightly to overweight.

On the back of global monetary easing and a reduction in geopolitical tensions, we believe that the time to the next global recession has extended and, thus, favor a modest risk-on posture in multi-asset portfolios. However, we recognize that elevated asset prices may draw down due to an unforeseen shock. For this reason, we are selective regarding various sector and regional exposures, while also emphasizing relative value opportunities within asset classes.


Illustration shows a dial pointing slightly towards overweight for equities overall. A series of horizonal scales show a moderate overweighting for the U.S., and a slight overweighting for Japan. Europe is slightly underweight, and emerging markets is neutral.

Though global equity valuations appear rich in absolute terms, they are less so when normalized for cost of capital. Macroeconomic stability and a rebound in earnings growth support our constructive view on equities. As we consider divergent growth trajectories regionally and across sectors, we are selective. We favor the U.S. and Japan in the developed world and believe there are attractive entry points in high quality, cyclically exposed sectors.


Illustration shows a dial with a neutral weighting for rates. A series of horizonal scales show the U.S. and emerging markets having slight overweightings, and Europe is slightly underweight. Japan’s weighting is neutral.

Globally, markets are priced for low neutral rates and low term premium. Both factors make the asset class less attractive, though we believe it continues to serve as an important portfolio hedge against risk-off events. Despite the valuation headwind, the probability of major central banks hiking rates appears low as muted inflation lingers. We favor U.S. duration given its defensive characteristics as well as the absolute yield advantage versus other developed markets.


Illustration shows a dial with a moderate overweight for credit. A series of horizonal scales show securitized debt having a moderate overweight rating, while emerging markets being slightly overweight. Investment grade debt is moderately underweight, while high yield debt is neutral.

We are modestly overweight credit overall given our selective, yet risk-on portfolio posture. We emphasize caution on generic nonfinancial corporate credit risk, but we also see value in select areas given the bifurcation in credit markets. We continue to favor agency and non-agency mortgage-backed securities (MBS), which we believe offer an attractive valuation, a reasonable carry, and an attractive liquidity profile relative to other spread assets.

Real Assets

Illustration shows a dial with slight underweight for real assets. A series of horizonal scales show inflation-linked bonds having a slight overweighting, while commodities, MLPs, and gold having slight underweightings.

We expect inflation to remain subdued in 2020 and for that reason are underweight real assets broadly. However, consistent with our selective approach, inflation risk does appear underpriced in some asset classes. For this reason, as we view real assets as a portfolio diversifier and an effective tail risk hedge against rising inflation, we expect to maintain a modest allocation to attractively valued opportunities, such as U.S. Treasury Inflation-Protected Securities (TIPS).


Illustration shows a dial with a moderate overweight for currencies. A series of horizonal scales show the U.S. dollar and euro having slight underweightings, while the yen and emerging markets having slight overweightings.

We have a nuanced view on currencies, and expect alpha opportunities to emerge outside of the majors. We are close to neutral on the U.S. dollar versus other majors, but do prefer modest long positions in the Japanese yen, which offers “safe-haven” properties and which our valuation models find cheap. With the trade-weighted U.S. dollar at multi-decade highs, valuations and carry support higher-yielding EM currencies, such as the Brazilian real and Mexican peso.

For detailed insights into our views across asset classes, our quantitative approach to business cycle forecasting, and our insights into possible secular disruptors, please read our 2020 Asset Allocation Outlook.


Erin Browne is a managing director and portfolio manager in the Newport Beach office, focused on multi-asset strategies. Geraldine Sundstrom is a managing director and portfolio manager in the London office, focusing on asset allocation strategies.

The Author

Erin Browne

Portfolio Manager, Multi-Asset Strategies

Geraldine Sundstrom

Portfolio Manager, Asset Allocation, EMEA



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A “safe haven” currency is a currency perceived to be low risk due to the stability of the issuing government and the strength of the underlying economy. All investments contain risk and may lose value.

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