As we reach the fourth quarter 2023, imagine if you had time to peel through the asset allocation recommendations from the most brilliant minds on the planet.
Imagine further, if you had the brain compute power to process all this data and make a summary of how to prepare for the salient macro events, and allocate your portfolio accordingly.
Spoiler alert: It would take hours or days, and probably result in a deeply mind boggling experiment between the jargon used and the contradictions from one advice to the next. You’ll be probably left with a net-zero-sum-game that would sound like “invest at your own peril, and stay diversified”.
Good news is that you need none of that. As we advanced towards generative AI, I’ve kindly prompted ChatGPT to browse carefully curated 4Q23 outlooks from selected asset managers and summarize it all for us. In earnest, it took 2 hours and 20mn, data gathering for the main part.
Among asset managers, there is a resolute cautious tone on US high yield, and US growth equity, while appetite for duration is building up in treasuries and quality credit, as well as US value equity. Sentiment remains largely negative on China, although the rest of EM catches a positive sentiment both in equity and fixed income.
As ChatGPT went through all the data, I also requested a summary of opportunities and threats identified by asset managers.
— Beginning of ChatGPT content —
- Emerging Markets:
- Description: Emerging markets are seen as a source of potential growth, with positive sentiment due to expected economic recovery and attractive valuations.
- Asset Managers Highlighting This Opportunity: MFS, HSBC, Amundi, Invesco, Barclays, Goldman Sachs.
- US Equities:
- Description: Despite concerns about valuation, there is still optimism around U.S. equities, particularly in sectors poised to benefit from economic recovery.
- Asset Managers Highlighting This Opportunity: MFS, HSBC, Invesco.
- Developed Markets ex-US:
- Description: There is a positive outlook on equities in developed markets outside the U.S., driven by expected economic recovery and supportive monetary policies.
- Asset Managers Highlighting This Opportunity: MFS, Amundi.
- Fixed Income:
- Description: High-quality bonds are favored for their stability and potential to offer balanced portfolio diversification.
- Asset Managers Highlighting This Opportunity: JPM, Invesco, Barclays.
- Technology and Innovation:
- Description: Sectors related to technology and innovation are seen as growth areas, benefiting from accelerated digital transformation and tech advancements.
- Asset Managers Highlighting This Opportunity: Goldman Sachs.
- Inflation and Interest Rates:
- Description: The rise in inflation and potential for increased interest rates are seen as threats that could impact asset valuations and economic growth.
- Asset Managers Highlighting This Threat: JPM, HSBC, Invesco.
- China’s Economic Uncertainty:
- Description: Concerns about China’s economic stability, particularly in the real estate sector, pose a threat to global markets.
- Asset Managers Highlighting This Threat: JPM, HSBC.
- Global Economic Slowdown:
- Description: There are worries about a global economic slowdown due to various factors, including high debt levels and geopolitical tensions.
- Asset Managers Highlighting This Threat: JPM, HSBC, MFS, Amundi.
- High Valuations:
- Description: Overpriced assets, especially in the U.S. equity market, are a concern, with the potential for corrections impacting portfolios.
- Asset Managers Highlighting This Threat: JPM, Goldman Sachs.
- Geopolitical Tensions:
- Description: Geopolitical issues, including trade tensions and conflicts, are seen as threats that could destabilize markets and impact global economic growth.
- Asset Managers Highlighting This Threat: MFS, Amundi.
— end of ChatGPT content —
Fun fact, as per ChatGPT, the words “artificial intelligence” occurred only once in all these outlooks. But, can you really trust an AI 😅
These views reflect rational projections with a tone turning to the risk-off scenario. However, the market decides when these are priced in.
This week, the market was busy reflecting on higher rates expectations. This has already taken the luster off equities, especially for real estate, and utilities dropping ~10% over a month. Comparatively, US Growth fared better at -6%. It looks like the call gets louder for further rebalancing out of growth tech into value from now.
Higher yields, with the 10y rallying 60bps in a month, also wreaked havoc in long duration fixed income. If you embraced this trade too soon, it might be hurting a little, including institutional investors. After the storm has passed though, investors should grab 2-5yr duration asset hand over fist. The risk-return on the 30-year is still not worth it in my humble opinion, but worth monitoring.
If the switch of the pendulum is correct this time again, non-USD assets, credit quality in developed markets, and 3-5yr duration fixed income will be the star ingredients of 4Q23. I’d refrain from bottom-fishing in the “value” pool, as a recession has not finished/started to unfold there.
That’s all for now ! Stay safe out there.
360 Advisory LLC is a Boston-based RIA managing investments