Asset allocation, diversification, and macro-driven strategies may benefit from normalizing correlations. We’re still favoring bonds and quality US stocks.
Our macro framework continues to suggest the global economy is likely to remain in a contraction regime, with growth below its long-term trend and decelerating. Despite a modest improvement over the past month, global risk appetite remains on a decelerating trend, pointing to lower growth expectations. Leading economic indicators improved marginally in the US and the UK, but these improvements were offset by weakness in Europe, Japan, and emerging markets, particularly China.
As we exit the high inflation regime of the past two years, the outlook is changing, and so are market correlations and perceived risks. Correlations between asset classes are normalizing, with equities and fixed income negatively correlated once again. This has favorable implications for asset allocation, portfolio diversification, and macro-driven investment strategies. Equity factor cyclical properties are resuming, with defensive factors like quality and low volatility outperforming in rallying bond markets1. China’s stimulus seems more like a short squeeze to us rather than a game changer for emerging markets. Our global risk appetite index will react in real time if their to-be-announced fiscal stimulus delivers.
A challenge for tactical investors is preparing for the expected and anticipating the unexpected. The tactical asset allocation (TAA) framework from the Invesco Solutions team is designed to enhance a long-term strategic asset allocation (SAA) by making portfolio tilts based on near-term market views.
In October, we’re favoring long-duration bonds and high-quality US stocks. We’ve also provided alternative positioning should market conditions change. The tactical, dynamic factor rotation shown below is also utilized in the Invesco Russell 1000® Dynamic Multifactor ETF (OMFL).
The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.
Allocations to alternatives like private credit, equity, real assets, listed real assets, commodities, digital assets, and hedge funds can help improve growth, potential income, and diversification.
If you're looking to incorporate alternatives into your portfolios, we suggest considering a 7% allocation, regardless of market or economic regime. Consider using 4% from your equity allocation and 3% from your fixed income allocation to allocate to alternatives. Learn about a unique opportunity in private markets from Invesco Real Estate.
Explore further research and analysis from our market and investment experts.
Global unrest can tempt investors to deviate from investment plans, but markets have continued their long-term growth throughout history despite wars.
Despite strong earnings reports, the markets are reflecting some uncertainty and concerns related to geopolitical risks and growing deficits.
Election campaigns, wars, and natural disasters contributed to a cacophony this month. I’m staying focused on the three main things that really drive markets in the long run.
The 2023 MMI/Barron’s Industry Awards chose Invesco as Asset Manager of the Year - AUM of more than $100 billion. This category
honors a larger asset manager that exemplifies innovation in delivering better outcomes for investors and financial professionals.
Source: Invesco, data as of Sept. 30, 2024. Defensive factors is represented by the Russell 1000 2xQ/2xLowVol Index, cyclical factors is represented by Russell 1000 2xSize/2xValue Index, and treasury returns are represented by Bloomberg US Treasury Index. The current 60 day beta of defensive factors is 0.37, roughly equal to the long-term beta since 2001. An investor cannot invest directly in an index. Past performance does not guarantee future results. The Bloomberg US Treasury Index is an unmanaged index of public obligations of the US Treasury with remaining maturities of one year or more. Beta is the risk of a broad market benchmark. The Russell 1000 2Qual/2Vol/5% Capped Factor Index reflects a static combination of 2x factor weighting tilts towards the quality and low volatility factors drawn from the constituent stocks of the Russell 1000 index. The Russell 1000 2Size/2Val/5% Capped Factor Index reflects a static combination of 2x factor weighting tilts towards the small size and value factors drawn from the constituent stocks of the Russell 1000 index. The Russell 1000® Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of large-cap stocks.
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This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Past performance does not guarantee future results. An investment cannot be made directly into an index.
All investing involves risk, including the risk of loss.
Some products are offered through affiliates of Invesco Distributors, Inc.
The opinions referenced above are those of the author as of August 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Tightening is a monetary policy used by central banks to normalize balance sheets.
There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Bloomberg US Aggregate Bond Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates to project future interest rate changes and economic activity.
Credit spread is the difference between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate. You can lose money.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Junk bonds involve a greater risk of default or price changes due to changes in the issuer’s credit quality. The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
An investment in emerging market countries carries greater risks compared to more developed economies.
