Wealth managers look at what sort of investment and asset allocation positions make the most sense in the present environment.

As the COVID-19 pandemic continues, wealth managers around the world examine the asset allocation and strategic investment implications. Here are thoughts from a variety of funds. This publication is running a selection of analyses - while not overcrowding these pages with excessive commentary to prevent fatigue (we hope readers are grateful for that). 

Evan Brown, head of multi-asset strategy, and Ryan Primmer, head of investment solutions, UBS Asset Management
Policymakers have significantly reduced the left tail risk, namely that this economic and health crisis would morph into a financial crisis.

In the near term, investors will have to weigh the severe economic contraction against this policy response, alongside evolving news on the virus and mobility restrictions. This will keep markets volatile over coming weeks. Going forward, we believe that the expected returns on risk assets have improved while those on sovereign bonds have worsened.

COVID-19 and the associated steps to contain its spread have caused what is likely to be the sharpest contraction in economic growth in history. In addition to causing tragic human and direct economic costs, the speed of the shock exposed underlying fragilities in financial markets.

Policymakers around the world are delivering robust policies to defend against the COVID-19 shock. (…) Overall, the net global fiscal stimulus as a percentage of GDP already surpasses that of 2008-2009. Indeed, while we are enduring an unprecedentedly sharp contraction, this may end up being the shortest recession in history assuming that economies can come back online over the coming months.

Given the wide range of possibilities in this environment, we are keeping overall risk asset exposure near benchmark. Our focus continues to be on relative value, overweighting equity markets in Asia, which appear to have seen the worst of the virus. “In fixed income, we are long real yields as protection against further deterioration in risk appetite and as central banks do whatever is needed to ease financial conditions. With the recent selloff, valuations for risk assets have broadly improved and may provide opportunities for long-term investors. At the same time, the prospective returns for sovereign bonds have worsened."

Norman Villamin, chief investment officer, wealth management, Union Bancaire Privée
With strategic weakness in the USD and long-term strength in gold expected to lie ahead for investors, in more traditional asset classes, a tactical approach will likely be required in the weeks ahead as the ‘whatever it takes’ mantra of global policymakers engages in a tug of war with ongoing demand shocks from COVID-19’s spread in the world’s largest economy.

While pockets of instability remain in markets around the world, we believe that the forceful actions of the US Federal Reserve have been sufficient to stabilise global liquidity in the near term and avert the risk of a broader credit contagion in markets. This leaves our scenario of a contained credit shock as seen in the 2015-2016 US high yield market as our base case.

In credit, we recognise that market liquidity remains poor and that we may still be at the early stage of a credit cycle. We are therefore seeking selective opportunities to add quality credit exposure as central bank purchases help to mitigate a further widening in historically wide credit spreads. In the risky credit markets – such as high yield and emerging market debt – further volatility may lie ahead. This leaves us to prefer a selective, bottom-up, hold-to-maturity approach to capture cyclically wide spreads while seeking to mitigate near-term risks as the credit cycle progresses.

In equities, investors can tactically seek opportunities to capitalise on markets overpricing the prospect of an outright credit contagion. Based on our analysis, assuming a credit contagion scenario can be avoided, a revisit of 2020 lows across markets presents an opportunity for investors to add to quality growth strategies across markets.

Admittedly, while a credit contagion scenario has been reduced by recent policy action, such concerns have not yet been fully eliminated. Indeed, the risk to portfolios should they in fact be realised remains significant, especially in light of the recent rally in global equity markets.

As a result, we have re-established tail-risk protection within portfolios via options on gold and equities. Undoubtedly, volatility will re-emerge as a normal part of even a recovery process, as seen through 2010. However, our focus for protection is increasingly on any policy error which spurs a wider credit contagion or alternatively, a failure to contain the virus which forces lockdowns to extend well into the summer.
 

Samuel Bentley, client portfolio manager at Eastspring Investments, the Asian investment management arm of Prudential
Our country and sector positionings are a result of the bottom up stock picks. The team is overweight large cap and liquid banks in China which have high provision levels and better balance sheet strength than during the 2008 financial crisis. They have been relatively defensive in the down market. In contrast, we remain underweight Australian banks; as a commodity-driven economy this market and its currency have sold off heavily on big daily moves related to the China slowdown. As a whole the team is overweight financials.

We have also been overweight selected technology names having found many attractively valued stocks in the sector across the region from Korea, Taiwan and China. Many of these stocks have held up relatively well. The team has been a little cautious on attractively valued energy and materials names over recent years given that many are heavily dependent on the commodity cycle. The existing exposure is biased towards companies that have opportunities which are less sensitive to commodity prices. Hence, we believe our positioning to be relatively resilient despite having seen these names suffer in the recent turmoil.

Healthcare stocks have performed well given the recent global focus on this area. However, these stocks were expensive before the collapse in equity markets and remain relatively expensive. Hence the team has very little exposure to these names. Similarly, the popular consumer discretionary names have been expensive and offered little opportunity. However, this has dented performance as a few large names that have benefitted from an increase in home shopping have performed relatively well.

From a country perspective, our views are again driven by stock specific opportunities, however these tend to be somewhat aligned with where top down valuations lie. The largest underweight has been Australia due to the underweight to the consumer, healthcare and banks names, the latter of which has been under substantial regulatory scrutiny in recent years. India is another underweight with few attractively valued names. Nonetheless, there are more stocks of interest coming onto our research agenda in recent months.

The largest pockets of attractively valued stocks are in South Korea and Singapore. Many of these names have been under appreciated due to the market’s focus on the near term and cyclical concerns. But on a medium to long-term perspective, these are attractive opportunities.