Bonds are back as a key portfolio engine, with a focus on quality
Bonds
Equity
Real & Alternative
The new 60-40
A challenging risk-return profile will call for increased diversification.
Chinese and EM equity will help boost returns.
US remains favoured in the developed world.
Value sectors + IT + green transition leaders.
Supply-chain bottlenecks and PPI-CPI pass through
2022
Geopolitics fuel inflation through commodity prices
US and Euro aggregate space will be favoured, but expect higher volatility.
In the search for higher yields, EM bonds will be favoured.
A key tool to enhance portfolio risk-adjusted returns.
Psychological dimension is starting to kick in
Inflation has a critical psychological dimension that depends on forces of memory, forgetfulness and policymaker’s behaviour.
While consumer demand and labour markets are strong – especially in the United States - investors should be aware of the wage inflation loop, which may become self-fulfilling.
Go global and add real assets to target returns similar to a 60-40.
Structural factors: the greenflation
Structural factors such as the energy transition will add to inflationary trends in the medium/long run.
This, coupled with the still limited production capacity of renewable energy and high demand for commodities needed in the transition, will push up the energy bill and boost green transition-related commodity prices.
Structural factors: the greenflation
Japanese govies will still offer lower returns with higher volatility.
High yield will be challenged by higher expected defaults.
Expect higher volatility.
Lower returns vs history for DM.
Japanese equity is the laggard.
Defensive sectors.
Real estate and infrastructure return expectations have been downgraded to incorporate physical risks
Liquidity and shortfall risk are factors to monitor
All asset classes are valuable diversifiers, particularly infrastructure
Hedge funds are favoured in the medium-volatility space, private equity in the high volatility space
Source: Amundi, data as of 31 December 2022. For illustrative purposes. Source Bloomberg for historical data and Amundi Quant Solutions Team portfolio optimization on CMA for expected returns and allocations.
2002 - 2022
2023 - 2033
6.9%
Expected
return
6.8%
Historical return
DOWN
UP
UP
DOWN
UP
DOWN
US
Equity
60%
US
Aggregate
40%
EM
Equity
16%
Real
Alternative
15%
Global
Aggregate
15%
EMBI &
Global HY
23%
DM Equity
31%
DOWN
UP
DOWN
UP
Inflation is back, and it’s everywhere
Inflation is not just another news headline. From the grocery store to the gas station, everyone has been confronted by the stark reality of higher and higher prices.
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