5 factors for Multi-Asset investors to revisit in 2022

5 factors for Multi-Asset investors to revisit in 2022

While it has clearly been a disappointing start to the year, we believe that there are still grounds for optimism.

While it has clearly been a disappointing start to the year, I believe that there are still grounds for optimism. The’ bears’ will point to elevated inflation, stretched valuations, and central banks that are behind the curve. These are fair observations. I do, however, expect that robust growth and moderating (but still above target) inflation will alleviate some concerns and that, while interest rates will rise, they will remain historically low in both real and nominal terms. Despite this, markets do still appear to be too sanguine on longer-dated rates and this does represent a risk of further volatility, as a minimum.

1. US equities: a more balanced approach

Large cap stocks have provided outperformance for US equity investors in the past 18 months, but Multi-Asset portfolios may do well to consider a more balanced exposure for their US equity allocation. The direction of travel remains away from growth stocks as, despite the correction, valuation spread remains at very high levels and the environment remains less friendly (from a rates, inflation and regulatory perspective).

2. Global equities: US no longer the front-runner?

Second, it remains a big call, but the chances have certainly risen that US exceptionalism in terms of equity market performance is coming to an end. Secular changes, by definition, happen infrequently but the magnitude of outperformance, the valuation gap, and a turn in the economic environment, are all suggestive of opportunities beyond US equities. In 2021, we saw marked factor outperformance of ‘value’, which subsequently (only towards the end of the year and into 2022) led to index level outperformance of value over growth. This has now begun to permeate to country performance, with the notable outperformance of the UK so far this year.

3. Emerging markets: China policy inconsistent

Emerging markets (EM) remain a challenge. China is dominant within the EM equity complex and, following a 20% decline in 2021, valuations appear more attractive although regulatory risks remain a concern. As noted earlier, policy is being eased in China while other areas are tightening but the zero-Covid policy appears inconsistent with the realities of dealing with the virus and presents risks to domestic growth and to global supply chains.

4. Small caps: historically cheap but inflation a headwind

Fourth, small caps have continued to perform relatively poorly and appear historically cheap, but an environment of higher inflation may well present challenges (in terms of the pricing power of corporates). Recent years have seen large caps and private equity both outperform small caps – a barbell.

5. A secular change: outlook will need constant adjusting through 2022

Finally, to repeat an earlier point, there is currently tremendous uncertainty in terms of the true trend of much of the underlying dataflow. This makes a strong conviction and dogmatic conclusion on the future outlook even more challenging than usual. On balance, higher inflation, tighter policy but still robust growth represents a reasonable backdrop for markets, but I do think that the chances are higher than they have been for many years that a secular change is unfolding.

Paul Niven
Head of Asset Allocation (EMEA) at Columbia Threadneedle Investments
Share on linkedin
Share on email
Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions expressed by individual authors do not necessarily represent those of Columbia Threadneedle.

You might be interested in...

14 March 2022

Do we need a recession to control inflation?

One of the aftereffects of Covid is high inflation almost everywhere in developed markets. Some of this inflation is temporary bottle necks, but more sustained price pressures have emerged in the job market.
Read time - 4 min
3 March 2022

Our thoughts on the ongoing developments in Ukraine

Whilst the situation remains fast-moving and fluid, Simon Holmes gives his thoughts on the short and long term consequences.
Read time - 4 min
14 February 2022

What does 2022 hold for Multi-Asset portfolios?

Read time - 4 min

Why Columbia Threadneedle for low-cost multi-asset

Columbia Threadneedle Universal MAP redefines value through active multi-asset solutions and business support at a passive price point. Fund OCFs at 0.29%-0.39%.

Our Portfolio

The Columbia Threadneedle Universal MAP and Sustainable MAP ranges offer risk-controlled portfolio options designed to cover a host of client growth, income and sustainability needs.
Important information: Past performance is no guide to future returns. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at risk. Threadneedle Specialist Investments Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UCITS scheme. Certain sub-funds of TSIF are registered for public offer in Austria, Belgium, Chile, Denmark, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Singapore, Spain, Switzerland, Sweden and the UK. Shares in the Funds may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation. Please read the Prospectus before investing. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the `Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French, German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus), Swedish (for the Key Investor Information Document only) and can be obtained free of charge on request from: Columbia Threadneedle Investments PO Box 10033, Chelmsford, Essex CM99 2AL. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

Please confirm a few details about yourself to visit your preference centre

*Mandatory fields

Something went wrong, please try again

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Looking for help?

Adviser Edge

Access professional support focusing on financial planning, investment and practice management. Create an account to access structured CPD content and log your CPD hours.