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2019 Outlooks (Wellington)

1st Quarter 2019

Thought leaders from Wellington Management provide their outlook on issues that may influence markets and portfolios going forward.


Multi-Asset Outlook: Down but not out

DanielCook
nanette-thumb

by Daniel Cook, CFA, Multi-Asset Analyst, for Wellington Management and Nanette Abuhoff Jacobson, Managing Director and Multi-Asset Strategist for Wellington Management and Global Investment Strategist for Hartford Funds

Time to accept the market’s warning signs and position defensively, embrace risk amid cheaper valuations, or something in between? We consider global fundamentals, the policy outlook, and valuations, and offer our views across asset classes.

Based on fundamentals (slowing but solid), fiscal and monetary policy (a little tighter), and valuations (enticing but not extreme), we would consider the following:

  • Reduce but don’t abandon risk; favor equities over bonds but move to more defensive sectors 
  • Favor US equities relative to Europe, Japan, and EM
  • Favor bank loans, short duration, and higher-quality securitized products relative to other areas of credit

Our differentiated views:
  • US equities over other regions
  • Rotation into defensive equity, away from technology
  • Broad commodities exposure, including precious metals, as a potential hedge against higher inflation and lower growth

Risks: Trade war, aggressive Fed tightening, material global growth slowdown

 

View PDF »

 

Global Equities Outlook: Reinventing the core;
China: From emerging markets component to stand-alone allocation?

by Gregg Thomas, CFA, Portfolio Manager, Factor and Risk Research;
Tom Simon, CFA, FRM, Factor and Risk Research;
Matt Kyller, CFA, Research Manager;
Philip Brooks, CFA, Investment Manager;
Joshua Berger, CFA, CMT, Associate Director; and
Bo Z. Meunier, CFA, Equity Portfolio Manager, for Wellington Management

Excerpts from a pair of recently published white papers explore emerging areas of potential value-creation for equity investors. 

  • We believe variations in active management results across markets relate to differences in market efficiency. Our framework for evaluating these differences is based on five groups of metrics: diversity, consensus, idiosyncrasy, accuracy, and substitution.
  • Based on our analysis of these metrics, we believe active equity managers may have the greatest ability to add value in Japan, the small-cap market, emerging markets, and non-US stocks.
  • We see interesting opportunities in stocks with exposure to European growth, and Japanese companies benefiting from corporate and governance reforms.
  • We believe the size and scale of China’s equity market already make the country worthy of a stand-alone portfolio allocation, yet at the moment it remains underrepresented in the MSCI Emerging Markets Index. As a result, many near-term opportunities may be overlooked in broad emerging market equity portfolios.
  • In a wider portfolio context, we believe there are also attractive diversification and risk-adjusted return benefits from China equities’ lower correlations to stocks of developed and other emerging markets.

 

View PDF »

 

Fixed Income Outlook: Where are we in the credit cycle? 

nate-levy
MichaelGarrett

by Nate Levy, Fixed Income Portfolio Manager, and Michael Garrett, Fixed Income Portfolio Manager, for Wellington Management

Wellington explores their views on credit across geographies and sectors as the asset class moves into the later stages of the cycle.

  • We believe credit fundamentals are healthy and current spreads compensate investors for unresolved risks.
  • Though we are entering the later stages of the credit cycle and the economy is currently more vulnerable to shocks, we do not think a recession is imminent.
  • At this stage of the cycle, we believe agency mortgage-backed securities (MBS) are poised to benefit from their higher quality, while securitized credit assets tied to the US housing and consumer sectors are well positioned.

 

View PDF »

 

Global Commodities Outlook: Can positive fundamentals outweigh lingering headwinds?

DavidChang
JoyPerry

by David Chang, CFA, Commodities Portfolio Manager, and Joy Perry, Investment Director, for Wellington Management

Following several years of capital restraint, we think commodity fundamentals are as attractive as they have been in a decade. But trade disputes and fears of a global growth slowdown have clouded the picture. We provide our assessment, sector by sector.

  • In our view, the commodities supply situation continues to be positive, given tight inventories across most sectors, particularly energy and industrial metals.
  • That said, we recognize that headwinds remain, and that the economic cycle could shift from late-stage to a downturn sooner than expected.
  • Ongoing tension in the oil market could potentially prolong high price volatility.
  • We believe a positive driver for commodity prices in 2019 will be the recent Chinese economic stimulus.

 

View PDF »

 


Investing involves risk, including the possible loss of principal. ● Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. ● Small-cap securities can have greater risks and volatility than large-cap securities. ● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● Bank loans can be difficult to value and highly illiquid; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks. ● Mortgage related- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. Investments in commodities may be more volatile than investments in traditional securities. Diversification does not ensure a profit or protect against a loss in a declining market.

The views expressed here are those of Wellington portfolios managers. They should not be construed as investment advice. They are based on available information and are subject to change without notice. Portfolio positioning is at the discretion of the individual portfolio management teams; individual portfolio management teams and different fund sub-advisers may hold different views and may make different investment decisions for different clients or portfolios. This material and/or its contents are current as of the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.

 

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