An Uneasy Truce

Global Growth


As investors grow accustomed to continued strong global growth, we observe conflicting forces in markets that highlight an uneasy truce. Corporate earnings have exceeded expectations, and we debate whether this good news is discounted already in equity valuations that remain elevated. Inflation risks are elevated, even as we anticipate policymakers to retain a dovish bias overall. In a period where geopolitics has moved back into the headlines, we believe nimble management will be required.


We explore the broader benefits of adding alternative assets to a balanced portfolio of stocks and bonds and continue to see this as the most likely path toward stable potential returns, in our view.





  • Continued strong global growth
    Peak growth already has been reached, led by fiscal stimulus from the United States. A period of synchronized global growth is anticipated for the remained of this year, although it may be largely built into investors’ expectations. Regional divergences will be accentuated by access to vaccines and the persistence of policy accommodation.


  • High inflation is largely temporary, but risks remain elevated
    Global inflation has moved up, pulled higher by demand. Growing supply bottlenecks are boosting headline inflation, but this is likely to be largely transitory. In the longer term, secular disinflationary forces, such as technology and globalization, remain strong.


  • Policy is likely to be adjusted, but its objective will not change
    Central banks remain accommodative and are focused on inclusive recovery. The transition away from crisis measures and tapering asset purchases will proceed, but liquidity keeps flowing. We see fiscal objectives contributing to a stimulative environment and a dovish bias to policy.





  • Nimble management still required
    Stocks have superior return potential, and we believe they should earn their equity risk premium over time. Our equity preference remains more modest than in the past, as markets largely reflect strong economic data. We continue to believe that navigating the challenges presented in the months ahead will require nimble management.


  • Real assets could be the alternative
    The anticipated return from alternative assets remains modest in comparison to stocks, and it is largely for their risk-reducing characteristics that they justify a place in a longer-term portfolio. We remain attracted to naturally diversifying assets such as Treasury Inflation-Protected Securities (TIPS) that can help to provide protection against rising inflation.


  • Continuing to look for alternatives
    We continue to find few compelling alternatives to equities when it comes to generating an appealing longer-term return. We believe maintaining a diversified portfolio of risk premia is the most likely path toward stable potential returns. This is especially important in the low-return environment that we continue to foresee.




What Are the Risks?


All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. The positioning of a specific portfolio may differ from the information presented herein due to various factors, including, but not limited to, allocations from the core portfolio and specific investment objectives, guidelines, strategy and restrictions of a portfolio. There is no assurance any forecast, projection or estimate will be realized. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Derivatives, including currency management strategies, involve costs and can create economic leverage in a portfolio which may result in significant volatility and cause the portfolio to participate in losses (as well as enable gains) on an amount that exceeds the portfolio’s initial investment. A strategy may not achieve the anticipated benefits, and may realize losses, when a counterparty fails to perform as promised. Currency rates may fluctuate significantly over short periods of time and can reduce returns. Investing in the natural resources sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector—prices of such securities can be volatile, particularly over the short term. Investment in the commercial real estate sector, including in multifamily, involves special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector.

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