In our most
recent blog, we described a global macro backdrop characterized by two
major forces; slowing global growth and an improving risk appetite driven by
global monetary policy easing. We entered the fourth quarter of 2019 with a
moderately defensive asset allocation position while waiting for evidence of a
more significant upturn in market sentiment, and a cyclical rebound in leading
economic indicators to start increasing risk in the Invesco Oppenheimer Global
Allocation Fund. Recent economic data releases suggest this moment may have
arrived sooner than we expected.
A new dynamic has formed in emerging markets
Our macro framework has registered an improvement
in several leading economic indicators across large emerging economies such as
China, India, Korea, Taiwan, and Brazil, among others. In the developed
markets, while the US has continued to decelerate, we have been seeing green
shoots in parts of Europe, namely Germany, for the first time in two years,
which may bode well for the rest of the region soon. As illustrated in Figure 1, the latest round of economic
data pushed our proprietary China and aggregate Emerging Markets (EM) leading
economic indicators (LEIs) well into a recovery phase, with Europe and Japan seemingly
getting closer to this cyclical turning point as well. In addition, risk
appetite has continued to improve, increasing the likelihood of a broader
cyclical rebound over the next few months.
Figure 1: Improvement in economic data across large emerging market economies
during October 2019
As a result of these developments, we
see a reason to add risk to the Invesco Oppenheimer Global Allocation Fund. We
have moved our global equity exposure from underweight to neutral and
meaningfully increased our overweight in emerging market equities and
currencies, with a tilt towards carry and value factors (i.e., high yielding
and cheap currencies). While we remain marginally underweight US equities, we
continue to hold a pro-cyclical factor tilt towards value and small size.
Finally, we maintain a duration overweight with a steepening bias in the US
Some factors have stayed the same
From our previous outlook, we remain
overweight alternative income assets because of their higher long-term expected
returns and diversification properties in the late stages of the credit cycle. As
a reminder, we believe opportunities and risks change over the course of the
market cycle, and asset allocation should too. By incorporating the
perspectives of the Invesco Investment Solutions team through proprietary
macro, risk, and market research, we seek to capture these opportunities in the
short to medium term. These views are expressed by dynamically allocating
across asset classes, geographies, currencies, and factors.
2: Global allocation portfolio positioning as of November 6, 2019
1. 60% MSCI ACWI Index & 40% The
Bloomberg Barclays Global Aggregate Bond Index (USD Hedged)
Blog Header Image: Taelynn Christopher / Unsplash
Alternative investments can be less liquid and more
volatile than traditional investments, such as stocks and bonds, and often lack
longer-term track records.
shoots describe signs of economic recovery or positive data during a period
carry factor describes using high-yielding assets to provide higher returns
than lower-yielding assets
The value factor describes when an asset that is inexpensive relative to some measure of fundamental value outperforms those that are pricier
curve is a curve showing several yields or interest rates across different
contract lengths, in our case US treasury 3 month to 10 year.
cycle describes the phases (early, mid, late) of access to credit by borrowers
measures interest rate sensitivity. The
longer the duration, the greater the expected volatility as rates change.
MSCI ACWI Index is an unmanaged index considered representative of large- and
mid-cap stocks across developed and emerging markets. The index is computed
using the net return, which withholds applicable taxes for non-resident
Bloomberg Barclays Global Aggregate Bond Index is an unmanaged index considered
representative of global investment-grade, fixed income markets.
The opinions expressed are those of Alessio de
Longis as of November 12, 2019, are based on current market conditions and are
subject to change without notice. These opinions may differ from those of other
Invesco investment professionals.
Diversification does not guarantee a profit or
eliminate the risk of loss.
MSCI Inc. Neither MSCI nor any other party
involved in or related to compiling, computing or creating the MSCI data makes
any express or implied warranties or representations with respect to such data
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of such
data. Without limiting any of the foregoing, in no event shall MSCI, any of its
affiliates or any third party involved in or related to compiling, computing or
creating the data have any liability for any direct, indirect, special,
punitive, consequential or any other damages (including lost profits) even if
notified of the possibility of such damages. No further distribution or
dissemination of the MSCI data is permitted without MSCI’s express written
general, stock values fluctuate, sometimes widely, in response to activities
specific to the company as well as general market, economic and political
risks of investing in securities of foreign issuers, including emerging market
issuers, can include fluctuations in foreign currencies, political and economic
instability, and foreign taxation issues.
may be more volatile and less liquid than traditional investments and are
subject to market, interest rate, credit, leverage, counterparty and management
risks. An investment in a derivative could lose more than the cash amount
rate risk refers to the risk that bond prices generally fall as interest rates
rise and vice versa.
issuer may be unable to meet interest and/or principal payments, thereby
causing its instruments to decrease in value and lowering the issuer’s credit
bonds involve a greater risk of default or price changes due to changes in the issuer’s
credit quality. The values of junk bonds fluctuate more than those of
high-quality bonds and can decline significantly over short time periods.
the Subsidiary is not registered under the Investment Company Act of 1940, as
amended (1940 Act), the fund, as the sole investor in the Subsidiary, will not
have the protections offered to investors in US registered investment
performance of an investment concentrated in issuers of a certain region or
country is expected to be closely tied to conditions within that region and to
be more volatile than more geographically diversified investments.
fund is subject to certain other risks. Please see the current prospectus for
more information regarding the risks associated with an investment in the fund.
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