Amundi Investment Talks - Three Themes For Multi-asset Investors In The Post Covid-19 Recovery

In the current post Covid-19 recovery phase, we see three main themes that multi-asset investors should focus on: one more tactical, in terms of risk allocation, and two more structural.

First, as the recovery advances, investors should embrace more of a total return mindset, with the ultimate idea being to reduce drawdown from rising interest rates.

One year ago, we were moving towards a pro-risk asset allocation to benefit from abundant central bank liquidity injections and fiscal accommodation. We have reinforced our stance this year, with a positive view on equities, especially value sectors, benefitting from positive sentiment linked to the US fiscal boost and economic reopening. Now, we are reaching a delicate juncture at which valuations are expensive and market confidence is too high, with little room for mistakes. 

Therefore, we believe it is time to move, in the near term, towards a more neutral risk approach, as most of the economic acceleration is already in prices and non transitory inflation risk is probably underestimated at this point. This is not a structural de-risking, but a way to remain agile to re-enter the market at more attractive valuations later to continue to ride the recovery phase.From a strategic point of view, equties remain key for multi-asset portfolios, as the return contribution of fixed income is expected to be low for the coming years.

Second, as higher debt will be the legacy of the pandemic and interest rates are expected to remain low to make the situation sustainable, investors should broaden their income sources to achieve decent income in their portfolios. Investors should explore the entire spectrum of fixed income assets to generate sustainable income streams as well as looking at opportunities in equity dividends that are restarting after the crisis, and also real assets. The last segment is particularly relevant in a phase of regime shift towards higher inflation (indicative of higher growth), when equities become the preferred asset class. Inflation is among the key risks that could affect markets at this point.

Base effects, supply chain bottlenecks, higher commodity prices, and a resurgence in consumer demand are causing inflation to increase. Investors should make provisions to safeguard portfolios against inflation through a wide set of instruments to try to protect portfolios from this risk and deliver some real income protection.

Third, sustainability will become, in our view, ‘the new normal’, with a focus on E (environmental) and S (social) aspects. ESG is the single most important trend that can shape the future of asset management, including multi-asset. It won’t be a temporary fad, but rather a multi-year trend, which will become the new norm in the next few years.

Sustainability risks will increasingly be integrated in valuation metrics, as many factors are pushing investors in this direction. The social factor looks to be even more in focus because of the pandemic and could unleash many investment opportunities. Multi-asset, with its broad investment scope, allows investors to play ESG themes in multiple ways, including social and green bonds, equities (both best-in-class and companies on an improving ESG path) and even sustainable real estate or private debt for investors with an appropriate long-term horizon.

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