Events confound outlooks at the best of times. These, needless to say, are not the best of times.
But the immense challenges we have all faced this year also mean we have an even greater responsibility to help our clients navigate the shifting macroeconomic and market landscape.
In our new CIO Outlook, teams from across LGIM offer answers to some of the biggest questions for investors raised by COVID-19 and its consequences, including:
• What shape will the economic recovery take?
• Which asset classes are likely to benefit?
• Is the bull market in bonds finally over?
• Which equity factors held up during the market turmoil?
• Will defaults wipe out returns for credit investors?
We also drill down into emerging markets, look at the potential prospects for UK real estate and discuss the importance of establishing – and keeping to – investment beliefs.
The unprecedented breadth, depth and speed of global policy responses to COVID-19 have helped to remove the tail risk of a liquidity crisis; they have not, however, solved longer-term solvency issues for companies.
Put simply: not all business models will be viable in the future. As a result, we see potential opportunities for investors to pick companies that are likely to emerge from the pandemic as winners, while avoiding those without the financial and operational flexibility to weather this storm.
We believe this divergence will also highlight the need for responsible investing over the months and years ahead.
The crisis has underscored some of the social issues that we must consider – not least income inequality and access to healthcare – as part of the broader analysis that underpins our investment decisions.
Yet we must not lose sight of other environmental, social and governance (ESG) concerns, such as climate change, which could in time wreak havoc on a similar scale or worse to that unleashed by the virus.
Resilient societies, resilient portfolios
One of the common themes in this outlook is that we believe the pandemic has intensified a number of long-term trends that were already underway, from global digitisation to the resurgence of populism.
So when we are all able to venture out of our homes again, we will find a different world – but one in which many of the topics that we have been discussing for some time will still be central.
For those themes with ESG implications, responsible investing can capture the opportunities, mitigate the risks and strengthen long-term returns, in our view. Indeed, we believe that by using our investments to help make our society and environment more resilient against future crises, we are ultimately building more resilient portfolios for our clients.