This is a sponsored article from PineBridge Investments.
Too much capital is chasing too little cash flow, and these capital movements appear to be creating waves of short-term market volatility. PineBridge Global Multi-Asset Portfolio Manager Sunny Ng, CFA, provides some insights on what investors can do to manage risks while staying ahead of growth opportunities.
Positive developments in China, including a greater-than-expected fiscal stimulus after the National People’s Congress in March and a possible easing of US-China trade tensions, combined with a cautious Federal Reserve, easing financial conditions, and strong consumer demand globally, should bode well for developed markets and support emerging market (EM) growth and asset valuations.
However, this more stable picture of the global economy is ironically greeted with greater uncertainty and amplitudes in markets. A lingering post-crisis global savings glut mixed with outsized central bank balance sheets has resulted in too much capital chasing too little cash flow. The tsunami of capital movements unleashed by each jolt of new information appears to create waves of short-term volatility that are notably disproportionate to the significance of the triggers.
How can investors position their portfolios in this environment? We believe investors need a dynamic approach to asset allocation in order to flexibly adjust their portfolios as market changes unfold, thereby mitigating risk while continuing to capture growth opportunities.
At PineBridge, our multi-asset allocation decisions are informed by the Capital Market Line (CML), which represents our five-year, forward-looking view into risk and return across the asset class spectrum. We believe the asset classes that lie near the line are close to fair value, asset classes well above the line are deemed attractive (from an intermediate-term perspective), and those well below the line are deemed unattractive.
Capital Market Line as of 31 March 2019 (USD View, Unhedged)
Today, we believe equities remain the most attractive asset class, contributing to a relatively steep CML. We find select exposures in EM equities attractive, particularly China A-shares, India, Korea, and Brazil, where we see signs of positive shifts. In fixed income, we maintain our low duration stance and favour investment grade collateralised loan obligations (CLO) debt, with a tilt toward AAA tranches. In alternatives, we continue to expect copper to benefit from a recovery in China’s infrastructure spending. In contrast, most fixed income and private assets remain uninspiring.
Lingering market uncertainty challenges investors to be more agile and selective. We believe a dynamic approach offers investors the ability to have the right blend of assets at the right time. By moving between markets and asset classes and selecting attractive insights, dynamic multi-asset portfolios are better equipped to anticipate market shifts and deliver the alpha investors need to meet their goals.
To learn more about multi-asset investing, visit the PineBridge Multi-Asset Insights website.
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Last updated 4 March 2019
This is a sponsored article from PineBridge Investments.