Given rich asset valuations and heightened levels of uncertainty, it’s little wonder why many investors are cautious right now.
After such a stellar run, particularly for stocks and government bonds, investors are having to become far more selective as to where they park their money.
In an attempt to make it easier for investors, or for those looking for new ideas, Citibank’s multi-asset research team has produced this nifty radar chart that outlines its recommended asset allocation mix for the next 12 months.
It’s fairly self explanatory. The more negative the number, the more underweight Citi believes you should be. Conversely, the higher the number, the more overweight it believes you should be. Zero, smack bang in the centre, is deemed neutral.
According to Citi, there’s two prevailing themes that dominate: a preference for fixed income markets over stocks, and emerging markets over developed markets.
“We prefer fixed income markets to equities due partly to valuations and earnings trends, but also because the lower-for-longer yield environment still holds,” researches at the bank wrote.
“Year-to-date risk-adjusted returns in government and corporate bond markets have outstripped other asset classes, a trend that we think continues.”
It also has a preference for emerging markets over developed markets, as shown by the overweight tilts in emerging market equities, external credit and local debt. This view is further bolstered by bullish emerging markets FX inclinations, it says.
It also believes that “higher oil prices 6-12 months from now could be the key in underpinning a broader market recovery in sectors like base metals and grains”.