The sustainable investor for a changing world

We have been turning more cautious in multi-asset portfolios amid doubts over market forecasts of a ‘soft landing’ in the face of hawkish inflation-fighting central banks and rising bond yields. For us, this argues for being short duration in bonds. On equities, we have opted to be short Europe, but we are upbeat on Japan and China. We are long commodities.  

For central banks, inflation has now been sticky enough for them to drop the ‘transitory’ label and start acting. At the same time, markets do not expect the US Federal Reserve, or the ECB, to tighten policy for long; the rate rising cycle is expected to reverse from 2023.

Bonds are generally not yet signalling recession, but equity prices more so. There is a ‘Covid-feel’ to markets: moves in yields and weakness in major equities are reminiscent of March 2020.

While credit spreads have widened, the liquidity premium on corporate bonds has risen relatively modestly. We ask whether current spreads can truly reward investors for a deterioration in credit risk as the circumstances become more challenging.

We believe investment-grade credit is valued particularly attractively in both the US and Europe. We see credit as a clear buy opportunity should our appetite for taking more risk grow.


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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