Investment themes and megatrends driving future growth

The COVID-19 pandemic has killed thousands, upended daily life, halted the economy and shattered asset valuations. While a pandemic may be new to most of us, market volatility is not. Shocks like these remind us why we rely on our investment principles and how important it is to have portfolios that are aligned with our clients’ overall plans and goals. This crisis has also sharpened our focus on what we do best: advising clients on which building blocks can help weather the storm, finding securities that are not reflecting their fundamental values, and identifying trends that will drive growth in the future. To help shed light on the current market environment, we’ve outlined below the key investment themes and “megatrends” that have emerged.

Navigating volatility

Even though we are in the early stages of recovery, there is still no “all clear” sign for risk assets. The outlook remains uncertain—and uncertainty breeds volatility. Valuations are high and corporate debt levels have only increased. Understanding this, we recommend a focus on traditional and alternative diversifiers while keeping some dry powder in order to take advantage of sell-offs.

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Portfolio insulation

We believe that traditional diversifiers, such as core fixed income and gold, as well as hedge funds with less correlated return streams, can serve as portfolio buffers.

High-quality growth exposure

Dividend payers, companies with strong balance sheets and participation in lower-beta strategies can help protect capital on the downside while allowing participation on the upside.

Capitalizing on volatility

Volatility can create opportunities, and investors with capital to deploy may be rewarded when volatility results in value. We see opportunities ahead in structured notes, real estate and through proven active managers who can quickly reposition portfolios.

Understanding this, we suggest a focus on traditional and alternative diversifiers while keeping some dry powder in order to take advantage of sell-offs.

Finding yield

With continued policy support from governments and central banks, we see little reason to expect rising inflation. So yield-seekers are faced with the same challenges that characterized the recovery from the Financial Crisis. We prefer an active approach to both short- and long-term fixed income investments, given exposure to interest rate risk and the unfolding default cycle.

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Opportunities for short-term liquidity

Global central banks acted swiftly to lower interest rates to support the economy—and demand for safe havens from investors also drove down yields. Central banks will likely continue to be supportive, keeping policy rates low and maintaining asset purchase programs. Given this backdrop, it’s important to revisit strategic cash balances and consider other means to maximize yield.   

Opportunities for longer-term liquidity

If you have excess cash, we believe opportunities in high-quality municipals and corporates as well as in select cross-over strategies can offer meaningful yield increases over cash.

Enhanced yield

To add to yield, look to assets that have an attractive spread over sovereign yields—upper-tier high yield, preferred equities and select emerging market and municipal bonds. Be open to expanding your toolkit to include assets outside of traditional fixed income, such as private credit and real estate.

Please reach out to discuss these topics in further detail. We stand with you, ready to help, offer advice and share our best thinking.