Investments – How to defend against the lockdown

The direction is now towards a new lockdown and the second wave hits the economies when they have not yet had time to recover from the first phase.

The scenario in the United States appears uneven and the spotlight is on the elections and on the forecast of fiscal stimuli and a vaccine in early 2021. The United States recorded an outperformance in earnings in the third quarter. But you have to be careful with the bond market, in fact the long-term yields have fallen again. The global economy will require new efforts. The low yields should allow governments to spend more next year. Therefore “if the United States acts faster and on a larger scale, dollar instruments and the dollar itself could continue to outperform next year as well.”

How to protect  investiments?

Starting from the premise that in September, while rising bonds in Europe hedged the falls in the equity market, things went differently in the United States. Treasury bonds have remained within a narrow range for months. There is still some value in the long-term segment of the Treasury curve, but if the cyclical reflation forecast is correct, yields are unlikely to fall unless there is a cyclical setback. In a balanced portfolio, the challenge today is to find instruments capable of offering a certain diversification without hindering returns much ”.

Investments in long-term growth instruments where returns will be driven by the technological and structural assets related to the carbon transition should be invested. “On the stock market it is more difficult to contain volatility and stabilize performance in the face of the inevitable fluctuations in long duration stocks. Private markets can offer an alternative, with fixed income such as cash flow but limited liquidity and mark-to-market valuations. Perhaps you should combine high-yielding equity instruments with a range of defensive baskets made up of more than just government bonds, such as utilities and basic necessities. For example, it could integrate well with a basket of growth stocks, providing a better risk and reward profile than a traditional balanced fund.

Valeria Barbagallo

Font Advisor