Asset Allocation Outlook: Opportunities in a Post-COVID World

12.15.2020 - Viraj B. Patel, Head of Asset Allocation

The Increasing Appeal of International Markets

With 2020 nearing an end and optimism growing around a vaccine, financial markets may focus on the transition to a post-COVID world. If successful, the continuing economic recovery could help spur “animal spirits” and inspire consumer confidence. The incoming Biden administration’s policies, especially those related to trade, may also contribute to the favorable global backdrop for markets and international economies in 2021.

Equities: Time to Look Abroad? 

With stronger economic growth poised to drive a reflationary environment, alongside positive vaccine news, we could finally see a more sustainable cyclical rotation within equities. Such a trend could benefit small- to medium-size companies. However, given the recent uptick in COVID-19 cases, US large-cap equities, with their higher-quality and more defensive characteristics, could act as a safe haven.

International markets have some appeal, but with many countries experiencing surges in virus infections and employing shutdowns, we remain cautious in the short term. While we expect the latest overseas lockdown measures to eventually be removed, these policies could potentially impact these countries’ equity markets. Emerging markets are likely to benefit from a better growth environment due to their success in handling the virus as well as potentially better trade relations.    

Fixed Income: Could Rates Move Higher?

The Fed has indicated it will maintain the current level of short-term interest rates. While we believe that long-end rates could move higher, the likelihood of an aggressive sell-off in the US bond market seems low as the move would likely be met by strong demand from overseas investors.

Alternatives: More Than Just a Hedge?

In the past, we have used liquid alternatives as a risk mitigation tool in a portfolio. In a low interest rate world, fixed income may not necessarily provide the same protection it once did, although it still serves a role in a balanced portfolio. While we have viewed the use of alternatives as a hedge against uncertainty, they may also provide another potential source for returns. Private equity may pose an interesting possibility for sophisticated investors.

Cash: Looking for New Opportunities

As we move towards a post-pandemic world, we think that a number of opportunities may arise in financial markets. With the potential for market themes to change in 2021, our cash position allows us to remain nimble in a likely shifting landscape. 

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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