Manulife IM 2022 Q4 Investment Outlook: Slowdown in Growth, High Inflation & Rising Interest Rates, Diversified Portfolio with Income Strategies Remains Attractive
29th September 2022 | Hong Kong
Manulife Investment Management with $807 billion AUM (Assets under Management) has released the 2022 Q4 Investment Outlook. Key outlook in Q4 2022 & beyond includes slowdown in growth, rapid rising interest rates, aggressive tightening (monetary policy, interest rate) by central banks (including United States Federal Reserve). Key investment opportunities via a diversified portfolio of income-strategies remains attractive (with spreads now wider, yields higher & equities lower. Manulife Investment Management: “For the remaining months of 2022 and early 2023, the search for income will continue, and it will remain an attractive segment for investors.” Luke Browne, Senior Portfolio Manager & Head of Asset Allocation, Multi-Asset Solutions Team Asia, Manulife Investment Management on selecting Investments in Credit & Equities: “Credits remain a preference with spread opportunities in Asia and attractive yields within US fixed income given a resilient US economy. With agreeable valuations, emerging markets debt could begin to look attractive over the medium term. In a world of increased macroeconomic uncertainty, Asia credits may offer pockets of opportunities with a generally more benign inflationary outlook than developed markets … … Overall, income-oriented dividend equities, such as cyclicals, value, energy and defensives, remain relatively more attractive in this environment of macro and policy uncertainty.” Read more insights from Luke Browne below.
“ Slowdown in Growth, High Inflation & Rising Interest Rates, Diversified Portfolio with Income Strategies Remains Attractive “
Luke Browne, Senior Portfolio Manager & Head of Asset Allocation, Multi-Asset Solutions Team Asia, Manulife Investment Management:
“The Fed has retained its hawkish bias and will continue to raise rates into year-end, even as inflationary pressures should unwind gradually over the coming months. That said, we expect inflation to remain sticky for the balance of 2022 and into next year. By mid-2023, inflation is likely to decelerate materially due to base effects, excess inventories in non-auto retail goods, and the alleviation of supply-chain disruptions, which are already showing evidence of fading. With higher odds that the Fed front-loads rate hikes into 2022, we think markets start to price in a Fed cut for 2023. In the near term, the Fed will likely continue with an aggressive rhetoric, rather than finesse its hike profile. However, we do believe growth concerns will become a more dominant factor in the Fed’s decision making in the last quarter of the year, which will see the Fed guide towards a slowdown in its already aggressive move towards neutral rates.”
1) Credits remain a preference given spread opportunities
Higher interest rates have historically increased a bond portfolio’s overall return over the long run as fresh issuance is brought to market at higher coupons, and the current environment should be no exception.
Luke Browne: “Credits remain a preference with spread opportunities in Asia and attractive yields within US fixed income given a resilient US economy. With agreeable valuations, emerging markets debt could begin to look attractive over the medium term. In a world of increased macroeconomic uncertainty, Asia credits may offer pockets of opportunities with a generally more benign inflationary outlook than developed markets. Furthermore, we believe the US high yield market has the potential to deliver relatively better performance versus risk assets like equities, as it is better compensated under rising inflation. Also, US high yields have a lower default potential, as these bonds have a greater exposure to oil and gas sectors, as well as a relatively stronger US economy.”
2) Selective sectors in equity markets to weather heightened volatility
The COVID-persistent environment makes it hard to find a quick resolve to economies affected by the pandemic, but selected names and sectors with strong fundamentals will likely play a defensive role amid the heightened volatility.
Luke Browne: “Given weaker economic growth momentum and ongoing geopolitical uncertainty, we expect equity markets to experience heightened volatility. However, markets with significant exposure to energy and materials (as inflation hedges), less volatile and defensive attributes of consumer staples and utilities, and broad dividend names, may find some insulation. Overall, income-oriented dividend equities, such as cyclicals, value, energy and defensives, remain relatively more attractive in this environment of macro and policy uncertainty.”
3) Tactical option writing for potential income enhancement
For the remaining months of 2022 and early 2023, the search for income will continue, and it will remain an attractive segment for investors. Amid elevated risk and market uncertainty, it is more important than ever to capture sustainable higher yields from a range of assets with lower correlations and expected relatively lower volatilities that can meet investors’ objectives without sacrificing the potential for capital growth.
Luke Browne: “Going into Q4, tactical positioning will need to be more prevalent in order to nimbly rebalance and de-risk portfolios, as well as add to yield opportunities as they arise. Capturing volatility through frequent implementation of call and put writing can help manage premium capture, whilst offsetting some of the drawdown from equities in this environment. Each market is exposed to distinct economic and interest-rate cycles, which creates specific income opportunities. We believe in flexible allocations across global geographies, sector, factor and capital structure exposures, rather than focusing on a single or selection of markets which could bring unwanted outcomes. We believe a multi-asset income approach can help investors navigate through global uncertainties whilst presenting a sustainable and high-income outcome for them.”
Luke Browne, Manulife Investment Management Senior Portfolio Manager and Head of Asset Allocation, Multi-Asset Solutions Team Asia
Luke Browne, a senior managing director and Head of Asset Allocation, Asia, within the Multi-Asset Solutions Team (MAST) at Manulife Investment Management (MIM). MAST is tasked with the delivery of cross-asset class investment solutions that include pension and retirement solutions, risk management- and outcome-oriented solutions, and multi-manager portfolios including both public and private assets. Solutions may be absolute return, peer- or benchmark-relative and are delivered in many formats including mutual fund (including fund-of-fund), pooled, segregated and customized. MAST designs bespoke solutions on behalf of retail and institutional clients around the world and includes Asset Allocation, Liability-Driven Investing, Liquid Alternative, Beta Management and OCIO / Fiduciary Solutions for pension plans. Asset solutions include target risk, target date and a wide array of strategic, tactical and absolute return multi-asset class portfolios that are highly customizable depending on client objectives.
Luke has more than two decades of investment experience. Before joining Manulife Investment Management, he spent eight years with UBS Asset Management in London where he served as Managing Director and Global Head of Investment Solutions Specialists, Head of Investment Solutions Portfolio Management and Deputy Global Head of Structured Solutions. Prior to that, he was at Schroder Investment Management as Head of Structured Solutions, and has also worked at Banca Popolare di Milano and Midland Bank Plc. Luke holds a Bachelor of Arts (Hons) in Financial Economics from the University of Liverpool, United Kingdom.
About Manulife Investment Management
Manulife Investment Management is the global brand for the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship and the full resources of our parent company to serve individuals, institutions, and retirement plan members worldwide. Headquartered in Toronto, our leading capabilities in public and private markets are strengthened by an investment footprint that spans 19 geographies. We complement these capabilities by providing access to a network of unaffiliated asset managers from around the world. We’re committed to investing responsibly across our businesses. We develop innovative global frameworks for sustainable investing, collaboratively engage with companies in our securities portfolios, and maintain a high standard of stewardship where we own and operate assets, and we believe in supporting financial well-being through our workplace retirement plans. Today, plan sponsors around the world rely on our retirement plan administration and investment expertise to help their employees plan for, save for, and live a better retirement. Not all offerings are available in all jurisdictions.