JPM_logo_Eng
  • Funds

    Fund Explorer

    • Search our funds

    Capabilities

    • Fixed Income
    • Equities
    • Multi-Asset
    • Alternatives
    • ETF Capabilities

    Fund Information

    • Fund News and Announcements
    • Capacity Management
  • Investment Themes
    • Sustainable investing
    • Future of Fixed Income
    • Emerging Markets
    • European Equities
    • Income
    • Managing Volatility
    • Strategic Beta
    • Fixed income investing
    • Investing in China
  • Insights

    Market Insights

    • Guide to the Markets
    • Guide to Alternatives
    • On the Minds of Investors
    • The Weekly Brief
    • Investment Principles
    • Investment Outlook
    • Market Watch
    • Monthly Market Review

    Portfolio Insights

    • Bond Bulletin
    • Monthly Strategy Report
    • Asset Allocation Views
    • Fixed Income Views
    • Equity Views
    • Factor Views
    • Emerging Market Debt Strategy
    • Long-Term Capital Market Assumptions
    • Global Alternatives Outlook
    • ETF Perspectives

    Webconferences

    • Webconferences
  • Library
  • About Us
  • Contact Us
Skip to main content
  • Language
    • Deutsch/ German
    • Français/ French
  • Role
  • Country
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Monthly Strategy Report

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Download
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Download Print

Global Asset Allocation Views Q2 2021

Insights and implications from the Multi-Asset Solutions Strategy Summit

29-03-2021

John Bilton

In brief

  • An extended period of above-trend global growth lies ahead in 2021, initially powered by the U.S. recovery but with other regions picking up by mid-year. Inflation looks to be volatile but ultimately contained, while monetary policy remains accommodative.
  • Despite economic optimism, expressing a risk-on view is likely to be more nuanced in 2021. We expect equity markets to do well, but with rates also rising, sector and style leadership is shifting. Above all, earnings growth rather than multiple expansion is set to drive stocks in 2021.
  • We favor cyclical equity regions and value as a style, preferring U.S. small caps, Europe and Japan to U.S. large caps and emerging markets. U.S. yields have scope to rise further — in turn supporting the dollar — and credit, especially high yield, is still our preferred fixed income asset.
  • Risks around policy, reopening and vaccines persist. But, above all, we wish to lean into the U.S.-led global economic recovery, though the precise way we position for this demands a more clinical allocation approach.

The tone of our quarterly Strategy Summit in mid-March 2021 stood in marked contrast to the mood of the March 2020 Summit. A year back, we stared into the abyss — economic and social — and wondered just how bad the damage would turn out to be. Today, while significant challenges of course remain, the combination of ongoing policy support and the quickening pace of vaccine distribution helps create an aura of high optimism.

Beneath the surface, while confidence in the economic outlook is strong, expectations for asset returns are rather more circumspect. Even those who are overwhelmingly positive on the economy accept that expressing such a view in portfolio positioning now requires a more clinical approach than merely buying stocks and selling bonds.

We expect a prolonged period of above-trend global growth that will last through 2021 and well into next year. Initially, the U.S. economy is likely to lead, given the scale of stimulus and relative success of the vaccine rollout. However, we expect other regions to catch up over the course of 2021. Regions such as Europe that are likely at peak pessimism now over vaccine delays seem poised to accelerate later in the year. By contrast, the leadership by Asian economies that was especially strong in 2020 may moderate a little as global services start to catch up to the surge already underway in global goods markets.

Inflation remains a persistent concern for investors. We expect headline inflation to be volatile in the second and third quarters, with the potential for some sticker shock as annualized base effects generate optically elevated year-on-year readings. However, we believe that many of the secular disinflationary forces — globalization, technology adoption, etc. — continue to anchor core inflation so that even allowing for huge policy stimulus, inflation rates should remain contained in 2021.

Policymakers have thus far telegraphed a very sanguine view of inflation. We believe that even if core inflation moves reasonably above target, the Federal Reserve (Fed) will be reluctant to signal policy tightening. At the end of 2021, the Fed may communicate a tapering of bond purchases that would gradually take place over 2022, but even should that occur, we do not see any change to fed funds rates until well into 2023 at the earliest. With other global central banks well behind the Fed, we see a prolonged period of easy financial conditions but steeper yield curves.

The economic and policy backdrop calls for a pro-risk tilt in our multi-asset portfolios. Nevertheless, we acknowledge that the early innings of this market cycle are over and the pace of returns will moderate from here. Picking the best spots to deploy risk is today a more nuanced process. For instance, we want to continue to position for U.S. economic strength, but we will need to rethink the way we express this view. Simply put, the sectors and style tilts that worked so well in the last cycle are unlikely to perform so well as rates rise and curves steepen.

In our multi-asset portfolios we are overweight equities and credit, and underweight duration and cash. The complexion of our equity overweight is shifting, and in 2021 we expect earnings growth to be the primary driver of returns while multiple expansion takes a back seat. As the economy gathers steam, we also expect operating leverage to be important. Sectors with positive gearing to higher rates — such as financials — have scope to rerate.

In equities, we lean into cyclical sectors and regions, and value styles, while reducing our exposure to long-duration equity sectors such as technology, and growth styles. Overall, this leaves us preferring U.S. small caps, Europe and Japan at the expense of emerging markets — which could be further constrained by strength in the dollar — and U.S. large caps. In some of our portfolios, we are further modifying our U.S. exposure to favor an equally weighted S&P 500 in place of the traditional market cap-weighted index.

In fixed income, we see credit returns being primarily driven by carry and favor high yield over investment grade. In sovereign bonds, we are now modestly underweight duration, in particular in U.S. Treasuries, since the Fed has shown little inclination to push back on rising yields.

Overall, our portfolios are geared to above-trend growth, higher yields and a cyclical earnings recovery. Key risks are unjustified withdrawal of policy stimulus stopping the recovery in its tracks, unwarranted consumer caution as economies reopen, or vaccine nationalism deteriorating into wider trade disputes. Nevertheless, our central case remains a strong recovery and an economy moving rapidly from early to mid-cycle, with asset markets continuing to offer decent upside, albeit demanding a more targeted approach than they did last year.

Multi-Asset Solutions Key Insights & “Big Ideas”

The Key Insights and “Big Ideas” are discussed in depth at our Strategy Summit and collectively reflect the core views of the portfolio managers and research teams within Multi-Asset Solutions. They represent the common perspectives we come back to and regularly retest in all our asset allocation discussions. We use these “Big Ideas” as a way of sense-checking our portfolio tilts and ensuring they are reflected in all of our portfolios.


Active allocation views

These asset class views apply to a 12- to 18-month horizon. Up/down arrows indicate a positive (▲) or negative (▼) change in view since the prior quarterly Strategy Summit. These views should not be construed as a recommended portfolio. This summary of our individual asset class views indicates strength of conviction and relative preferences across a broad-based range of assets but is independent of portfolio construction considerations.


Source: J.P. Morgan Asset Management Multi-Asset Solutions; assessments are made using data and information up to March 2021. For illustrative purposes only.

Diversification does not guarantee investment returns and does not eliminate the risk of loss. Diversification among investment options and asset classes may help to reduce overall volatility.

Download full report

Related Content

A risk worth taking

With the recovery from the pandemic well underway, we believe defaults have peaked in credit markets, while even some of the most Covid-impacted credits have been able to access capital markets. The path looks clear for further spread tightening.

Read more

Global Asset Allocation Views | Portfolio Insights

The main driver of asset returns likely transitions from liquidity to growth in 2021. We maintain a pro-risk tilt, prefer cyclical equities, are neutral on U.S. large caps and in credit favor EM debt. We move duration from underweight to neutral.

Read more

Global Fixed Income Views | Portfolio Insights

Above Trend Growth is our base case (90%) given stimulus, accelerating vaccinations and likely strong growth. Our top picks: high yield bonds and leveraged loans for returns; European bank capital notes, securitized credit and emerging sovereign debt.

Read more

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not a reliable indicator of current and future results.
 

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.

J.P. Morgan Asset Management

  • Terms of use
  • Privacy policy
  • Cookie policy
  • Accessibility statement
  • Investment stewardship
  • Remuneration disclosure
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Copyright © 2021 JPMorgan Chase & Co., all rights reserved.


We use cookies to provide necessary site functionality and improve your online experience. To learn more about the cookies we use, view our Cookies Policy.

Close
ACCEPT
Read our cookie policy