All Asset All Access, January 2020


  • Research Affiliates has updated its return forecasts for 2020 across asset classes, which inform asset allocation positioning for the All Asset strategies.
  • Within global equities, Research Affiliates continues to view emerging markets (EM) as the most attractive, while EAFE (Europe, Australasia, and Far East) equities look fairly valued and the U.S. market appears overvalued.
  • Looking at global bonds, Research Affiliates continues to favor local EM exposure for return potential and long-maturity U.S. government bonds as defensive counterweights.
  • Within real return assets, TIPS (Treasury Inflation-Protected Securities), commodities, and REITs (real estate investment trusts) each offer limited real return potential but may provide portfolio diversification benefits.
  • Research Affiliates views liquid alternative strategies as helpful in seeking absolute return potential with limited correlation to stock and bond betas.

Rob Arnott, chairman and head of Research Affiliates, discusses the 2020 outlook across a global opportunity set, while Research Affiliates’ asset allocation and research specialists offer insights into key asset classes. Jim Masturzo (equities), Omid Shakernia (bonds), Chris Brightman (real return assets), and Brandon Kunz (alternative strategies) discuss the opportunities they’re seeing as we start the year. As always, their insights are in the context of the PIMCO All Asset and All Asset All Authority funds.

Q: What are your return forecasts spanning the global opportunity set as we enter 2020, and where are you finding opportunities for attractive potential multi-year returns?

Arnott: We believe the majority of market and economic predictions offered by the investment community can be more aptly termed “nowcasts” rather than “forecasts.” By presenting a cogent thesis for what’s already happened, masquerading as a forecast, nowcasters have come out in droves.1 As U.S. capital markets enjoy the longest equity bull market in their history, nowcasting has become increasingly easy and popular, for three reasons. First, a cogent description of whatever has already happened, presented as a forecast of more of the same, sounds intelligent and informed. Second, our memories often trick us into thinking the forecast was made before the history that created the nowcast. And last, a nowcast is also less likely to damage one’s reputation if it turns out wrong, partly because it will have so much company. But such “predictions” tell us nothing.

Not only does nowcasting rarely offer insights, but it can also encourage short-termism and anchoring, both of which drive performance chasing, chasing fads, and avoiding bargains. How so? A focus on the recent past, and a quest for immediate rewards, seduces many investors into buying today’s darlings and resisting potential bargains. Of course, today’s darlings continue to perform well, and the laggards continue to lag … until they don’t! One consequence is that we look and feel foolish when we sell what’s beloved or buy what’s unloved and feared, until the markets inevitably turn.