Skip navigation Scroll to top
Scroll to top

LGT Beacon: Annual investment outlook and strategic asset allocation

January 12, 2022

We live in bifurcated times: there are, for example, deep societal rifts, distrust, and misinformation on the one hand, but astounding scientific and technological progress on the other. And the world economy seems to have finally turned the page on anemic growth and deflation risks. But financial markets may be less than thrilled, as they seem to have embarked on a cycle of their own. We look at what the dichotomy implies for long-term investors and outline the strategic allocation changes we implemented as a principal investor of the Princely Strategy.

After more than a decade of stellar investment returns, market metrics tell the tale of a mature financial cycle. While the economic expansion generally supports risky assets, the transition from a liquidity- to a growth-driven regime is therefore likely to be bumpy and fraught with volatility. More frequent rotations and intermittent corrections could become hallmarks of the next phase.

We recommend staying the course with a growth-oriented portfolio geared toward risk premia that are still relatively attractive and that can be enhanced by skill-based alpha generation. Listed financial assets should be selected with a strong focus on sustainable quality, and private market commitments should be added based on their ability to create value. Assets with inherent inflation-protecting properties also de-serve their place, and we advocate holding overall portfolio duration short. We suggest substituting traditional fixed income with alternative lending strategies, as well as emerging market debt that includes frontier markets.

To further diversify, liquid alternative strategies should be included for their uncorrelated returns and to provide different exposures in changing market regimes; features that should ultimately help to cushion the potential downside for the portfolio. Anti-cyclical buying should best be institutionalized in the investment process to capitalize on temporary market dislocations in the future.

To read the full report, click on the link: LGT Beacon

To subscribe to a weekly newsletter, go to subscriptions.

Note: The next edition of the LGT Beacon is scheduled for February 2022.