A new landscape

In 2022, markets were rocked by the first global interest-rate tightening cycle in over a decade which brought a sudden end to ten years of ultra-low interest rates and led to a sharp repricing of risk-free rates with global repercussions across assets.

As we move into the springtime of 2023, with inflation now falling and interest rate rising cycles close to peaking, the picture for asset owners is different.

There’s been a reset in market valuations – particularly in bonds, making them more attractive investments than they have been for many years.

On the flip side, the sharp end to the availability of cheap financing has caused problems for other markets and sectors from emerging markets to real estate and may continue to do so.

The balance of attractiveness between different strategies has also shifted slightly, with good rates of return on offer in fixed income setting a higher bar for alternative allocations.

Asset owners face a landscape where future returns are higher than they have been for much of the last decade, but with no shortage of risks and uncertainties on the horizon. Markets remain very sensitive to economic data points and central bank policy announcements. Fears of a recession are not far away. One consequence of this is that asset owners will want to re-evaluate where active management is likely to be most effective in this environment, and where they might choose to allocate passively or systematically.

Our advice to asset owners continues to revolve around setting a solid diversified strategy based on long-term expectations and preparing for volatility – expect a bumpier ride ahead.