We’re heading into the last quarter of the 2019 calendar year and it’s been another interesting year for investment markets, with a lot being driven by geopolitics.
On the equity side, performance has been relatively strong. Equally, bond markets have rallied quite substantially as bond yields have tracked lower through the year. When we look at the back end of this year and how we’re positioning our portfolios, there are a couple of key issues that we’re focusing on.
The first, and probably the most important, is the US and China trade dispute. Like many investors, we are waiting to see if there will be a resolution on trade, or at least if both the US and China come to some agreement in regard to how they’re going to continue to engage with each other going forward. We view this uncertainty as having an impact on global growth which has been declining throughout the course of 2019 despite financial market performance remaining sound. However, moderating economic growth is not just occurring in China but also across the US as well as Europe, highlighted by the steep decline in German industrial manufacturing through the course of this year.
From our perspective, the trade dispute and increased protectionism will be a big driver of the performance of financial markets going forward. Whether it be equities or bonds, this will impact our asset allocation framework. To this extent, and given the macro backdrop, we have been slightly more defensive in our positioning with increased allocations to fixed income throughout the year. However, we have moderated this position somewhat given we now believe that yields have bottomed. In our view, bond markets are now reasonably fully valued in regards to what their potential return may look like through the back end of this year and into the early part of next year.
Where we continue to add to in terms of asset allocation is our alternatives exposure. We continue to see some good options in this part of the market and they have generally provided an uncorrelated source of return relative to both equity and bond markets. Nevertheless, we’ve also been maintaining a good part of the portfolios in equities. Despite a weak August for equity markets, performance has been very sound through the course of 2019. And while we expect returns are likely to moderate through the latter stages of 2019 into 1Q20, they continue to be an important building bloc of our multi asset portfolios.
As always, if you have any queries about how this affects your investments, please speak to your financial advisor.
Piers Bolger is Chief Investment Officer at Viridian Advisory
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