New year, new decade: 12 messages for you

As we approach the start of a new year, and a new decade, I'd like to share with you our list of 12 things for investors and clients to look at.

Our conversations with clients leading up to the year-end revealed anxiety over geopolitics, trade and indeed the 2020 US elections. Though the Phase 1 US-China truce may soothe some concerns, a number of key market questions will only be addressed next year.

But while navigating market uncertainty and risks is bumpy at times, we see a number of choices investors can consider to smooth the investment path ahead:

1. Go "middle of the road" in bonds

Yields on the safest bonds are low, while risks are rising among some high yield issuers. Our favorite part of the bond market at present is emerging market US dollar-denominated sovereign debt, which offer a yield of 5% (EMBIGD index). Read more here.

2. Prefer consumer to business

Looking past a Phase 1 deal, we cannot rule out that US-China tensions do not flare up again. In this environment, companies that depend more on consumer spending will be more stable than those dependent on business spending, in our view. Find out more here.

3. Boost your yield amid low rates for longer

Central banks across the world cut rates in 2019, and rates look set to stay lower for longer. Against that backdrop you should consider strategies that boost the yield in your portfolio, including dividend and quality stocks, option selling strategies, and bonds in the crossover zone between investment grade and high yield in Europe. Read more here.

4. Borrowing amid low rates for longer

Economic policy is likely to remain broadly friendly to debtors in our view, while risk premiums on stocks are near long-term averages. Borrowing may be beneficial to some investors in the context of a broader financial plan, potentially boosting portfolio returns, averting the need to sell assets that offer upside, and to increasing diversification. Read more here.

5. Building defensive equity exposure

Investors afraid to deploy capital with stocks at an all-time high could think about defensive equity entry strategies as one option to earn income. A put-writing strategy might be the right choice for you if you expect range-bound markets and higher volatility or for those looking to buy into market dips in a disciplined way. Read more here.

6. Investing with downside protection

If you are worried about market downside, investors can take advantage of relatively low volatility at present to consider strategies to reduce portfolio volatility or add explicit protection. They might increase their diversification via dynamic or systematic allocation strategies, or through structured solutions such as notes that offer a degree of capital protection. Read more here.

7. EM and APAC equities to outperform

The US and China have announced a Phase 1 trade deal, alleviating some of the uncertainty arising from the ongoing trade conflict. Emerging market fundamentals, which have already started to stabilize in Asia, are now providing slight tailwinds for stocks in the region. We like emerging market stocks, as well as Chinese stocks within Asia. Find out more here.

8. GBP is undervalued

Even though the British pound has jumped above 1.30 against the US dollar, it still has long-term appreciation potential. It has been undervalued against the dollar since 2014, and since the Brexit referendum the extent of its undervaluation has increased. If you have UK assets in your portfolio, we think you should not currency hedge that exposure. More on the pound here.

9. Gold as a hedge against political uncertainty

We see gold appreciating in 2020, albeit at a slower pace than in 2019. Muted economic growth and now lower interest rates reduce the opportunity cost of holding gold, which does not offer a yield. Political uncertainty could send safe-haven flows into gold. And since gold is priced in US dollars, a weaker dollar would in turn push gold prices higher. If you want to learn more about gold, click here.

10. Go alternative and long-term amid uncertainty

If you are not likely to need to access a portion of your funds in the medium term and want to lock up funds to avoid being unsettled by uncertainty in markets, you could shift assets you would otherwise allocate to liquid public equities into private markets, and earn additional potential return. Over the course of a decade an estimated 1–3 percentage point illiquidity premium per year translates into an additional 10%–35% gain. If you'd like to go alternative and long term, click here.

11. Go sustainable

Consumers, governments, and regulators are all going to be big drivers of a shift toward sustainable investments and products over the next decade, and we think investors who get ahead of that trend will be rewarded. Strategies include funding disruption, investing in the companies that lead the way in addressing environmental, social, and governance (ESG) challenges, and supporting firms with room to improve. Meanwhile, green bonds, multilateral development bank bonds, and ESG engagement high yield bond funds could improve the quality of your fixed income portfolio. Read more about sustainability here.

12. Winning in a Decade of Transformation

In a Decade of Transformation we see particular opportunity in three key areas: a) digital transformation, and the confluence between 5G, AI, and Big Data, which will remake numerous business models, b) genetic therapies, which represent a potential paradigm shift in medicine, c) water, as the world tackles the mismatch between global demand and supply for water. Read more here.

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