As the impact of previous rate hikes diminishes, an anticipated increase in performance divergence among regions, asset classes, and sectors is on the horizon. Faced with this, Allianz Global Investors opines that the opportunity set for multi-asset investing is expanding. 

The divergence in economic outlook and policy responses is evident across major economies, particularly between the United States, Europe, and China. “Looking ahead, we are conscious that regional divergence lends itself to greater performance dispersion in asset markets, which for multi-asset investors is an opportunity to target pockets of outperformance,” writes Gregor Hirt, Global Chief Investment Officer, Multi Asset at Allianz GI. 

Hirt then talks about historical return correlations as a key consideration for multi-asset investing. While recent years witnessed positive correlations between stocks and bonds, driven by inflation concerns, the focus is anticipated to shift back to economic growth, contends the asset manager. This shift should align more with the pre-2020 risk-on and risk-off patterns, potentially favouring diversified portfolios, suggests Allianz GI. 

“This new economic environment – with concerns around growth overtaking concerns around inflation and the path of interest rates – may lead to increasing divergence within asset classes as well as between them,” says Nicolas Hengstebeck, Global Head of Multi Asset Product Specialists at Allianz Gi. 

According to Hengstebeck, sector-specific opportunities arise in equities, with a tactical preference for Japanese equities and optimism in the energy, banking, and basic materials sectors. However, a defensive stance is recommended on certain tech stocks due to rich valuations and concentration risks within indices, he adds. 

Hengstebeck states that a dynamic approach to asset selection is crucial. “That may mean scanning for equity and fixed income opportunities as valuations adjust, or building in protection by adding option strategies, allowing for short positions and liquid alternatives in case of sudden market movements – as offered by multi-asset strategies,” he asserts. 

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