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22 December 2024

Home / White Papers 2021

Inflation, rotation and opportunities

Introduction

Our outlook draws on our wide range of independent investment managers to deliver asset class insights. Each manager approaches the economic environment with a different lens and offers views to help inform your decision making.

As we look forward to the post-COVID-19 pandemic period, we see predictions of above-average economic growth globally, unprecedented fiscal and monetary economic stimulus, and increased likelihood of inflation. We are entering an economic environment never seen before. Broadly, the common themes from our managers are:

  • Given the return to growth in global economies, we are more “risk on” generally.
  • While the extended low interest-rate environment looks likely to continue, there are risks of inflation and rising interest rates.
  • Fixed income should remain vital, in our view, with high yield and bank loan instruments potentially offering lower sensitivity to rising interest rates.
  • While equity investments offer an opportunity to add to performance, equity valuations are stretched by historical valuation standards. Our managers think opportunities still exist, particularly in companies on the cutting-edge of change that stand to benefit from the economic expansion and from resilience in emerging markets, especially in Asia.
  • We believe there’s significant opportunity in emerging markets today, particularly in Asia, but geopolitical risks bear watching.
  • Alternative asset investments such as hedge funds and commercial real estate may provide diversification, some protection for volatile interest rates and inflation, and may offer a partial substitute for a portion of fixed income.
  • Environmental, social and governance (ESG) awareness is increasingly vital for risk-management and for potentially better expected returns.

Several of our investment professionals discuss the implications across asset classes. They share how they are thinking about their strategies considering continued market uncertainty, whether the extended low interest-rate environment will continue, and where they see potential opportunities.

- Stephen Dover, CFA, Chief Market Strategist, Franklin Templeton Investment Institute.

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