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Thursday 03 November 2022
November 2022 | Derived in the 1950s from Nobel Prize winner Harry Markowitz’s Modern Portfolio Theory, a portfolio with a 60 percent allocation to stocks and 40 percent allocation to traditional bonds has represented a model allocation used in various global markets, including the US, to diversify and balance risk. However, recent market conditions are creating a myriad of less familiar challenges, and has made the approach less effective. We believe a flexible multi-asset strategy can potentially capture opportunities across a much broader array of asset classes, including other non-traditional fixed income instruments less sensitive to rate changes, and can help investors adjust exposures toward assets with the most desirable characteristics.
01 | An environment of relatively high inflation and higher interest rates looks set to continue, establishing conditions equity and fixed income markets have not experienced in the past 40 years.
02 | We believe that in this market environment, a flexible, multi-asset approach can be more effective than a traditional static 60/40 allocation in the pursuit of real yields and capital appreciation above the rate of inflation in the long term.
03 | Flexible managers who utilize a multi-asset approach may be able to target diverse opportunities across asset classes and sectors to help meet investor objectives in this emerging new environment.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of November 3, 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
We predict that 2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are getting more attractive, and a Fed pivot in the first part of the year could trigger interesting entry points. We expect global growth to slow significantly, with several countries across both developed markets and EM suffering stagnation, while others may face a slowdown at best.
Quality factors may signal the potential for outperformance.
We argue that part of reason for the fairly muted response by markets is due to the expectation that a Republican takeover of the House would lead to a divided government. Our analysis has shown that under this scenario, the S&P 500 has rallied approximately 13.5% on an annual basis compared with an all-Democratic government, which has seen the S&P 500 rally by about 10%. We have also seen an outperformance in ten-year Treasury returns, with a divided government seeing it rise about 8%, while a one-party Democratic rule has seen ten-year Treasury returns rising only about 1%.
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Securities offered through Amundi Distributor US, Inc.
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Underwriter of Pioneer mutual funds, Member SIPC.