Key Investment Perspectives: August 2019
August’s installment of Key Investment Perspectives takes an in-depth look at the shifting market environment and how to navigate it. With the US Federal Reserve’s first interest rate cut in more than a decade, the equity market reacted with a 1.0% slide, citing skepticism among investors around the decision. With volatility being a day-to-day reality and trade tensions rising, we pose the all-important question: Where do we go from here?
Read this month’s report to explore how a trade dispute may be escalating into a currency war before our eyes, perhaps triggering a manufactured global recession if cooler heads do not prevail. Learn about how central banks across the globe are cutting rates, why July was muted and how August has been a riot in fixed income, and how the devaluation of the Chinese yuan will exacerbate a global economic slowdown if unchecked.
Amidst this uncertainty, we also highlight our updated tactical asset allocation recommendations based on this latest news. Hear our latest strategies to address the current market environment and how to structure your portfolio to limit potential risks.
- Global Equities: The Russell 3000 was up 1.5% in July, even reaching several all-time highs along the way before retracting in the waning days of the month. Large cap stocks (1.6%) yet again outperformed small cap (0.6%). However, with storylines of slowing global growth, trade uncertainties, and geopolitical tensions, we are moving away from our long-maintained “cautious but not bearish” moniker.
- Fixed Income: In July, the yield on the 10-year US treasury ended July at 2.02%, mostly unchanged from June. Although yields rose to 2.13% mid-way into the month, it was mostly a muted month, considering what has happened since. Credit spreads on investment grade corporate bonds narrowed from 115bps at the end of June to 108bps at the end July but have since risen to 119bps in early August reflecting a risk-off environment.
- Tactical Allocation: Given the current climate, we are increasing our defensive posture—taking a neutral approach now to equities. Within equities, we are maintaining the overweight to the US, and underweights to Developed ex-US and Emerging Markets. We have a slight preference for larger cap US stocks, emphasizing higher quality and defensive attributes. We also recommend adding low volatility equity strategies to portfolios for some protection while still capturing most of the upside.
About Bola Olusanya
Bola Olusanya has more than 20 years experience in investment management as both an executive and thought leader. As Managing Director of Asset Allocation and Portfolio Strategy with Key Private Bank, Bola applies his expertise to direct Key Private Bank’s third-party manager research efforts, oversee the group’s portfolio construction efforts, and design an asset allocation methodology applicable to all stakeholders.
Bola received an MBA with a concentration in finance from Emory University and an MS in computer science from the University of Lagos. He is known for his quantitative expertise, his extensive knowledge of the full spectrum of asset classes, and his ability to mentor and manage high-performing investment teams.