Globalisation to the fore

In our Outlook 2020, we highlighted four investment themes which we thought would be important over the next few months when considering an investment: globalisation; tactical hedging and strategic diversification; enhancing total returns with yields; and from monetary to fiscal policy. In January we have already had several events showing that those four themes are likely to be important topics in 2020.

Globalisation is already key

The debate around globalisation is omniscient. From the geopolitical tension in the Middle East between the US and Iran, to the signing of “phase one” of the US-China trade agreement, and notwithstanding the divergent views regarding climate change expressed at the World Economic Forum in Davos, questions regarding globalisation and cooperation have already been front and centre in 2020.

We expect that this will continue to be the case, with the coming US presidential elections probably the most significant geopolitical event this year.

Nervous financial markets call for diversification

While US equities are posting all-time highs, global markets have been nervous whenever unexpected events happened. Performances have still reflected a feeling of general apprehensiveness.

It is not the typical cyclical sectors that have outperformed so far in 2020 but rather the more defensive and qualitative companies. Equally, as we expected, gold continues to help diversify a portfolio and performed well in January. After breaching 1,500 US dollars an ounce (USD/oz)  at the end of 2019, it almost reached 1,600 USD/oz at the peak of the geopolitical tension in the Middle East early in January.

With uncertainty still high and stretched valuations, we continue to like tactical hedging and strategic diversification such as the one gold provides in a multi-asset portfolio context.

Value in yields

Although markets have started the year on a positive note, we would expect price returns to be relatively muted in 2020 and much lower than the stellar performance achieved across asset classes in 2019. In that context, we think it is important to find opportunities to add yield to a portfolio. With interest rates close to record lows across the world, yield strategies can include selective emerging market sovereign debt, “alternative” strategies focusing on carry or finding sustainable yields through companies with strong cash flow in equities.

As with all of our 2020 investment themes, we think that the best approach is to focus on active management rather than passive investment.

Fiscal stimulus to grow in importance

Liquidity continues to be an important factor for financial markets. But we would expect fiscal stimulus to become more prominent as a theme in 2020. As previously mentioned in our Outlook 2020, it will be about targeted stimulus rather than large overall economic stimulus.

March’s UK budget will provide a first indication as to what to expect in that respect. Fiscal spending is likely to be an important feature of the US presidential election campaign. It is too early to find targeted investment opportunities, but we believe the shift to fiscal stimulus will become more relevant this year.

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