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2022 Investment Outlook

The price of success

And now to paying it back

We are pleased to present our 2022 Investment Outlook.

Over the last 18 months we have witnessed important successes that have brought us to today but it comes at a price. In 2022, investors face a pay-back period in terms of lower growth, higher inflation, greater uncertainties, more volatility, and reduced expected returns. It’s important to have realistic expectations for the macro-economy and markets, however there are still a number of interesting opportunities for active investors.

For a detailed overview please read our full report

Videos

In the below four short videos our team of experts provide you with more insight into an economic
recovery that has been the fastest on record and the challenges that lie ahead.

Xavier Baraton

Xavier Baraton

Global Chief Investment Officer

Joanna Munro

Joanna Munro

CEO Alternatives

Stuart Kirk

Stuart Kirk

Head of Responsible Investments

Joe Little

Joe Little

Global Chief Strategist

Key takeaways

The mid-cycle “expansion economy”

The growth/inflation mix still seems favourable.

The biggest change for investors is going to be navigating the many economic and market uncertainties. While our central scenario is reasonably constructive, there are significant risks that something goes wrong on the demand or supply side.

Stalling Growth; Expansion Economy; Sticky Inflation

Asset returns have been borrowed from the future

Investors have enjoyed bumper returns over the last 18 months. But it’s important to recognise that these returns are, in a large part, borrowed from the future. Strong recent returns in markets means that yields, spreads and risk premia have all compressed. Our measures of asset class expected returns are lower than they were.

That means that the situation is doubly-difficult; a complex macro outlook is exacerbated by higher valuations and lower margins-of-safety in markets. We should expect cross-asset volatility to rise. Stock market volatility remains low today (anchored by tight credit spreads and recent good news on profits). But rate market volatility is already heading higher and, in emerging markets, we see the highest dispersion of stock returns over the last decade.

Making greater use of alternative asset classes as an additional source of return

Today, we measure the expected return on a traditional balanced portfolio at 3.6% before inflation in US dollar terms.

That’s way below historic levels, and below what most investors require and assume, particularly given the arrival of elevated inflation. Many, naturally, are making greater use of alternative asset classes as an additional source of return. Diversification properties may be even more compelling considering the challenge ahead for bonds as a reliable equity hedge.

Expanding what we can do through ESG integration with AI and technology

Quality research has always been about the filling of gaps, and responsible investing, in its infancy, naturally has more holes than most. But solutions are possible with creative thinking, new sources of information, and the power to makes sense of it all via developments in natural language processing and artificial intelligence. As with all active management, it’s about finding value in the noise.

So what to expect in 2022? There is innovation aplenty ahead and lots for investors to look forward to. Call it ESG 2.0. It means taking current developments further and deeper, making use of the latest data and research, blending qualitative and quantitative analysis, and calling out poor best-practice. Next year will also be big for responsible investment in alternatives, liquidity, passive, as well as earth’s oldest asset class – nature.

 

Investment expertise

Authors

Xavier Baraton

Xavier Baraton

Global Chief Investment Officer

Joanna Munro

Joanna Munro

CEO Alternatives

Joseph Little

Joseph Little

Global Chief Strategist

Stuart Kirk

Stuart Kirk

Head of Responsible Investments

Vis Nayar

Vis Nayar

CIO UK and Europe and Global Head of Equity

Jonathan Curry

Jonathan Curry

Global CIO Liquidity and CIO (Americas)

Jean-Charles Bertrand

Jean-Charles Bertrand

Global CIO Multi-Asset

William Benjamin

William Benjamin

CIO Alternatives

Michael Cross

Michael Cross

CIO Fixed Income

Risk Warning

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Any views and opinions expressed are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. We accept no liability for any failure to meet such forecast, projection or target.