Continued central bank support should support equities in the year ahead. For investors looking to stay invested in equities, but who might be waiting for a catalyst before concentrating in a specific region or sector, a broad equity benchmark may be suitable. We do see value in emerging market equities relative to developed markets, and any abatement in US-China trade tensions could provide one such catalyst to drive investors into that region.
A continued low yield environment would favour risk assets such as high yield, investment grade credit and emerging market debt. As an alternative, convertible bonds could offer investors the potential to participate in equity market upside while still retaining the downside buffer of a bond – a compelling option heading into a year with a range of headline risks (Brexit, trade tensions, elections in the US).
While 2020 holds plenty of uncertainly, there are still some constants: investors will continue to seek yield, grapple with volatility and try to find value. Smart beta strategies can offer solutions to these specific challenges. Low volatility strategies, in particular, could see continued investor interest. Even as equity prices remain near their highest levels in a decade, in the US and Europe, intermittent volatility spikes have illustrated the importance of limiting drawdowns.