This month, Natixis Investment Managers discussed the 2024 outlook of global asset managers to show their asset allocation predictions for 2024, based on key headwinds and tailwinds for the global economy in 2024.

Natixis Investment Managers pointed out that in 2023 many of the trends strategists had predicted failed to come about. 

“2023 was expected to be the year of fixed income but bonds plunged for months before reversing in November. Contrary to most forecasts, risk assets posted strong performances in 2023,” the firm said at a media event on Friday. “Two Black Swans – Covid and the war in Ukraine – created an unprecedented and difficult-to-navigate environment. The most announced global recession also did not materialise,” the firm continued.

The US economy proved resilient whilst China’s woes deepened, with “Cash is King” being the motto of most investors in 2023, Natixis said. Nevertheless, bonds staged a come back in investors' portfolios.

Last year ended on a strong note, the firm continued, especially for developed market equities. The US also continued to lead the world economy, with most developed economies narrowingly avoiding a recession.

In 2024, attention will focus on central banks’ battle against inflation, and global geopolitics will take centre stage, with 64 general elections in 2024 including the US and the UK, the firm said.

Many asset managers are “sitting on the fence” in their performance forecasts for 2024. Whilst very few would bet against US equities, many are undecided about European stocks which they still consider as relatively very cheap. Fixed income â€“ government bonds, investment grade credit – is expected to have a great year again, with cash positions recommended to be trimmed in 2024.

Asset managers are very cautious in their 2024 forecasts, often invoking an exceptional situation – an unprecedented rate-rising cycle, a tense geopolitical backdrop, and Covid debt backlog – calling for diversification. As a result, their economic and financial roadmap for 2024 is middle of the road. Many favour a longer-term view with a thematic investment approach – demographics and an ageing population, energy transition and green economy, AI and digitalisation, and production onshoring.

Equities
Stocks and bonds are mostly seen posting positive yet underwhelming gains, Natixis continued. History points to sub-5 per cent returns for the S&P 500 over the next five years. Focus on corporate earnings and the high level of dispersion among stocks favour security selection – a big theme for asset managers. The firm is quite upbeat about tech mega-cap performance in 2024; the dominance of the US looks set to continue, although US stocks are expensive compared with international stocks.

Investors should favour sectors negatively correlated to rates (utilities, consumer staples); these bond proxies are usually defensive stocks, the firm continued. Virtually all asset managers insist on quality in selecting stocks against the economic backdrop – which can be perceived as a bearish signal. Interestingly, share buybacks are almost never mentioned in their reports but could constitute an important force driving stocks in 2024.

Bonds
Fixed Income remains the most preferred asset class in 2024 for Natixis. Investors are expected to ripen price performance and harvest yield from government bonds as rates start to fall globally. Most asset managers suggest extending duration and cutting elevated cash positions sooner rather than later.

Quality investment grade credit and, in Europe, sustainable credit, is highly favoured by asset managers. The deliquency rate in high yield is expected to rise as economies gradually slow, the firm said.

The preference for quality bonds is shared: UK wealth manager Brown Shipley, Paris-based asset manager Carmignac, HSBC Global Private Banking, UBS Global Wealth Management see value in quality bonds in 2024. See more coverage here.

Portfolios
With global inflation expected to land above the last decade’s average, the correlation between bonds and equities is likely to stay elevated, Natixis said. Virtually all asset managers are calling for more diversification by sector, region and strategies in allocations, with gold being added as a geopolitical hedge and commodities being used as a hedge against inflation.

On private markets, asset managers are reasonably bullish on infrastructure and private debt as banks retreat, and a little less so on private equity and real estate, the firm concluded.