Asset Allocation Views: Opportunity Amid Transformation

As we look ahead to 2022, our base case is for positive global growth and elevated inflation in the near term. Though we see inflation moderating during the year, there are upside risks to our forecast.

We believe growth assets, such as equities and credit, will tend to deliver positive returns over the next year. However, we expect greater dispersion in performance across sectors and regions, a common feature of mid-cycle periods.

Indeed, in our Asset Allocation Outlook, “Opportunity Amid Transformation,” we discuss fundamental shifts occurring at the “ground level” of the economy that we believe will have implications for top-line growth and inflation, but also create distinct investment opportunities in a number of sectors and regions. Specifically, we discuss disruptive, and potentially transformative, trends in labor, technology, transportation, and energy.

Investment implications

With fuller valuations, risk assets are more vulnerable to exogenous shocks and policy missteps. In our view, the risk of a policy mistake has increased as monetary and fiscal stimulus recedes and authorities attempt to engineer a growth handoff to the private sector. This creates the potential for “fatter tails” (more divergent positive and negative outcomes) that highlight the importance of selection – within and across asset classes.