2019 Outlook

Also Interesting

• A difficult balancing act
• Global equity markets sell-off, but fundamentals remain strong
• Braver for longer…

 First to Neutral

We are neutral risk as we enter 2019 with the global economy slowing, U.S. monetary policy tightening and trade tensions introducing further risks to a slowing China. We don’t expect a recession to unfold over the next year, but the current rise in volatility reflects the increasing risks to that outlook. In this lower return environment, we like the return prospects for U.S. high yield bonds, which should benefit from a relatively strong current yield and strong fundamentals. We expect this to reduce downside risk but also offer good upside market participation. We entered 2018 with a significant overweight to risk assets, but we steadily pared that back during the year as risks increased around growth and monetary policy. We moved to neutral risk before the Federal Reserve got to its “neutral” rate of interest, as our concerns built around the Fed over-tightening.