Quick Thoughts: What Our Managers Think: Positioning Portfolios for 2022
Stephen Dover, Head of the Franklin Templeton Investment Institute, recently discussed growth, inflation, interest rates, and valuation during our monthly discussion, “What Our Managers Think,” with Ed Perks, Chief Investment Officer, Franklin Templeton Investment Solutions; Gene Podkaminer, Head of Research; and Josh Greco, Head of Institutional Portfolio Management. Below are some of their current views on positioning portfolios for 2022.
To gain insights on how to make asset allocation decisions in the midst of uncertainty, I took the opportunity to speak with Franklin Templeton Investment Solutions’ (FTIS) Ed Perks, Chief Investment Officer; Gene Podkaminer, Head of Research; and Josh Greco, Head of Institutional Portfolio Management. The FTIS team focuses on four pillars: growth, inflation, interest rates, and valuation, and conducts their own macro, fundamental, and quantitative research while actively incorporating the expertise of our independent specialist investment managers (SIMs). Some of their current views include:
- Current extraordinary inflationary pressures will likely abate by the second half of 2022 and not remain at recent high levels. However, inflation is likely to be higher than seen in the past 10 years and remains an important gauge when positioning portfolios.
- Global growth is slowing but expected to continue at above trend rates. Regional divergences will be accentuated by the pandemic’s effects and ongoing fiscal and monetary policy accommodations. Our expectations for the US economy point to positive momentum moving through 2022.
- Globally, monetary and fiscal policy are expected to remain supportive of growth, despite some level of incremental tightening in selected regions of the world. The improving growth in the United States will continue even with anticipated, modest Federal Reserve interest rate increases in 2022.
- FTIS believes assets that do well in a stronger economic environment offer better opportunity and thinks an overweight allocation to equities versus fixed income is warranted. They believe the United States and Japan offer investors the most attractive opportunities in equities, with Canada also presenting favorable characteristics.
- To better achieve income goals, the search in fixed income expands beyond US fixed income and US investment grade to other regions in both developed and emerging markets. Additionally, convertible bonds and equity-linked notes (ELN) provide opportunities as low interest rates depress traditional sources of yield.