When factors continue to exert downward pressure on the long-term return potential of traditional asset classes, the higher volatility expected in the context of an aging business cycle also implies a strong value-added potential for those who, through flexible asset allocation, can take advantage of these ups and downs.
The rise and fall of geopolitical tensions undoubtedly introduce mispricing opportunities, potentially beneficial from a tactical perspective, but the resulting fog of uncertainty nevertheless renders the elaboration of a clear economic outlook more arduous. In addition, we feel, the growing involvement of central banks in financial markets arguably challenges certain forward-looking signals which have proven to be very successful in the past.
Our baseline scenario calls for global economic growth to stabilize in the coming months, with no recession in sight.
Our baseline scenario calls for global economic growth to stabilize in the coming months, with no recession in sight. The combination of a de-escalation of trade tensions and largely accommodative monetary policies increases the odds of a cyclical rebound in economic activity over the next year, but the exact timing of the bottom in growth and the actual content of a prospective trade deal remain uncertain.
Today’s investment backdrop lends itself especially well to tactical asset allocation. The importance of asset allocation in achieving long-term investment objectives is undeniable, but the relative rigidity of a strategic asset mix often implies missing out on opportunities presented by rapidly evolving economic and market conditions.
In other words, the benefit of a tactical fund is its ability to enhance overall portfolio returns when markets are doing well, and conversely, to mitigate downside risks in periods of financial stress.
In order to identify opportunities, we use our market sentiment indicator illustrated below. It allows us to see the dominant trend of market positions: buy or sell signals.
Under these circumstances, we believe equities should outperform bonds, although the current level of valuations and earnings prospects suggest that single-digit returns are to be expected. Our strategy, from a short-term perspective, is to overweight equities versus fixed income, yet our overall positioning generally remains rather cautious for now.
1 The NBI Tactical Asset Allocation Fund and the NBI Portfolios (the “Funds”) are offered by National Bank Investments Inc. (NBI), a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with investments in the Funds. Please read the prospectus of the Funds before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently and past performance may not be repeated.
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