Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Amundi ratchets up its global optimism for markets
Amundi Asset Management, Europe’s largest fund manager, has reassessed global developments over the past three months and produced a new outlook paper for markets in 2021. The latest view is more bullish than the last.
The €1.66 trillion (A$2.01 trillion) manager says in a client report, ‘Cross Asset Investment Strategy’, that it expects better corporate fundamentals at a global level going forward. The rebound of EPS growth will eventually validate current asset price levels in the context of low-interest rates, which explains the “cautious optimism” for the coming quarters, the report says.
As part of the latest assessment, Amundi has analysed the sustainability of the ongoing risk rotation from high yield credit to value/cyclical equities. The researchers confirmed their medium-term view with a continuation and maturing of the financial recovery.
According to Monica Defend, Paris-based global head of research, compared with the previous assessment, the outlook for economic growth in 2021 has seen a mild shift in favour of emerging economies.
“Growth has become firmer in the US and has slightly improved in Japan driven by more substantial fiscal support plans in the US, and by a stronger base effect than in 2020 in Japan. In Europe, 2021 growth expectations are curtailed due to the current developments in the pandemic and weaker base effects than in 2020,” she says.
The generally supportive policy mix from governments around the globe is the main driver of the new and improved level of optimism, coupled with confirmation and then commencement of the rollout of vaccines for COVID for both developed and emerging markets.
Like many other managers (see GSFM report this edition), Amundi thinks inflation is the “elephant in the room”. While it appears likely to remain subdued in most developed economies, the situation is more mixed for emerging economies. Inflation in emerging countries is already at or closer than most central bank targets than in developed countries.
In terms of asset class forecasts, Amundi favours Japan, emerging markets equities and emerging markets bonds in local currencies (rather than the US dollars or Euros, for example), which are all mildly positive. This is followed by hard currency emerging market bonds, Euro investment grade corporate debt, and European equities, each of which is neutral to mildly positive, and then Euro high yield corporate debt, US high yield, US investment grade, US government bonds and US equities, each of which is neutral.
Defend points out that the new wave of COVID outbreaks and the selective nature of lockdowns in some countries have made the global economic recovery increasingly uneven and heterogeneous.
“The speed and effectiveness of the vaccination campaign will be key drivers in releasing pent-up demand, and shaping the recovery growth trajectories, together with the fiscal and monetary policy mixes,” she says.
