Multi assets: building resilient portfolios through market cycles

We believe investors’ interests can be well served by focusing on macro themes and combining that insight with capital market asset allocation views within a risk management framework.

Image of stormy seas battering a harbour wall

2020 review: asset classes show a stronger rebound than the underlying macro economy

2020 was a year nobody expected, but most quickly adapted to. The pandemic drove an indiscriminate market sell-off in March. In our view, this was less about systemic risk and more a coping mechanism when faced with a crisis of uncertain depth and duration.

Governments and central banks reacted quickly: The U.S. Federal Reserve (Fed) cut rates by 150 basis points, bringing the target range down to 0% to 0.25% and enacted extensive liquidity provisioning measures.¹ Trillions of dollars in stimulus, including wage subsidies and furloughs, were also approved by governments across the globe. These measures supported global economies at the onset of the COVID-19 pandemic. Capital markets, however, reacted much more positively: strong momentum in risk assets drove equity performance, as well as gold, which broke the US$2,000 per ounce mark² for the first time. Meanwhile, GDP figures unveiled the full depth of the recession, with G20 countries seeing a 6.9% fall in growth for the second quarter.³ The United States experienced a 31.4% decline,⁴ while the United Kingdom,⁵ Japan,⁶ and India saw drops of 19.8%, 27.8%, and 23.9%,⁷ respectively. China was the exception, returning to modest growth in the same period.⁸

However, in September and October, we saw sentiment dim as uncertainty surrounding the U.S. presidential election came to the fore. In the period following the election, risk assets rallied strongly, particularly with the addition of positive vaccine-related news. Risk assets extended gains in the postelection rally; for equities, the MSCI U.S. and Asia ex-Japan indexes outperformed.⁹ Sector wise, information technology (IT) and consumer discretionary led throughout the year, as COVID-19-related lockdowns drove increased demand for higher-growth equities and corporates with online ecosystems that could sustain their business models better during the pandemic. Toward year end, the breadth of the rally expanded to cyclicals and value stocks. Within fixed income, global corporate bonds took the lead, gaining 9.0%, while the broader Bloomberg Barclays Global Aggregate Index gained 7.8%.

Global high-yield and emerging-market (EM) bonds delivered 5.0% returns.¹⁰ The latter part of the year also saw U.S. dollar weakness which, on top of some rotation out of U.S. growth assets into global cyclicals and value, also added to the investment thesis arguing for an increased exposure to non-U.S. dollar assets.

Tactical equities—a cyclical rotation with preference for the United States and Asia

On the equity front (and geographically speaking), we believe that market liquidity will continue to support U.S. share prices in 2021 especially as short-term risk factors, such as U.S. political uncertainty, dissipate. Global politics, however, will continue to grab the headlines, particularly relations between the United States and China—even under a new Biden administration. EM stocks, bolstered by supportive monetary policy and being heavily levered toward global trade and manufacturing, should also continue to outperform in the recovery. Two regionsthe United States and Asia (largely China)are preferred when considering tactical positioning. 

On a sector basis, we could see the IT sector continue its leadership trend; however, the sector may come under further tax and regulatory scrutiny under the Biden administration. Consumer discretionary is another sector in focus, despite elevated valuations. From a style perspective, we’re aware that further stimulus and the reopening of economies could spur a second wave of rotation away from growth into value and cyclicals. Value sectors may seem relatively cheap, but our concern is that they could remain just that. As such, having some exposure at this stage is, we believe, the right approach. Supported by low interest rates, a growth bias still holds favor, although in the near term, some cyclical and value-oriented markets, such as Europe and Japan, are worth considering.

Tactical fixed income—the hunt for yield

We expect the Fed to keep rates at the zero lower bound, without dipping into negative territory. However, such a low-yield environment is a recipe for anemic fixed-income returns in developed markets (DM). 

Therefore, EM debt and global high-yield issues are in scope. The former boasts improved valuations plus the potential of even greater yield for local currency issues (albeit at the expense of higher volatility). Similarly, continued near-term uncertainty should offer investors attractive entry points for global high-yield bonds. Meanwhile, corporates are seeing better access to capital, which should improve their credit risk metrics and ameliorate default rate expectations. As we shift beyond this near-term tactical view and explore longer-term strategic ideas, specific themes become more prominent.

Structural themes—weakening U.S. dollar, retreating globalization

Structurally, the Fed’s liquidity boosting measures and persistently low rates will likely see the U.S. dollar gradually weaken over time. This should present a moderate tailwind for EM assets, further supporting our strategic overweight stance toward such assets. 

That said, we bear in mind that U.S.-China tensions will remain a key talking point, even under the Biden administration. Assuming a smooth transition to a new U.S. administration on January 20, we don’t expect any material change in U.S. foreign policy toward China, nor do we anticipate an imminent unwinding of the tough measures imposed by the Trump administration (e.g., trade tariffs, revoking of visas, sanctions, and travel restrictions). Indeed, the Biden administration’s decision to prioritize climate change and human rights may present new challenges for U.S.-China relations. Meanwhile, the potential for financial decoupling has risenif the United States follows through with additional financial sanctions on Chinese corporates as well as threats of further action. 

Beyond the United States, the larger Western trading blocs’ perception of China will also have geopolitical implications. Deglobalization is likely to continue rearing its head as we move forward and may push economies toward smaller, more regional trading groups. These structural themes reflect long-term strategic views, some of which differ from more tactical considerations.

Strategic views—looking toward EM

For our five-year strategic outlook, investors can favor EM, both within equities and fixed income. Continued supportive monetary policies, a more synchronized global cyclical rebound, and a weaker U.S. dollar should allow EM equities to maintain a robust growth profile with attractive long-term valuations. A successful vaccine rollout will be a game changer for the economies of Latin America, Indonesia, and India; however, a medical solution is unlikely to drive a robust and rapid economic solution. Fiscal stimulus is unlikely to be enough to spark a rapid economic recovery as a return to pre-COVID-19 growth rates is likely to be pushed into 2022. Nevertheless, on a relative (strategic) basis, we see higher equity and fixed-income returns in EM versus DM.

Within EM, Asia is more attractive given its healthier economies versus Latin America and emerging Europe. A relatively stronger starting point in Asia versus the rest of the broad EM space lends to a higher probability of targeted stimulus measures and the relaxation of credit standards. In the United States, higher valuations and a weakening U.S. dollar mean that investors can take a more strategically neutral stance toward its equity sector over a longer time horizon.

From a multi-asset perspective, in a world where investors are feeling increasingly compelled to reach for yield, we believe that the most attractive opportunities lie outside of the sovereign debt space, making investment-grade global credit and high-yield issues a preference. While investors must keep an eye on specific sectors that have a much more binary outcome determined by the path of COVID-19, such as energy and healthcare, we believe there’s adequate room to run within this segment over the next five years.

Where uncertainty and opportunity collide

2020 saw investors embrace risk despite one of the most distressed macro environments in a century; 2021 should be about balancing what feels like market complacency with rising risks. The key market drivers for 2021 are likely to be the Fed and the U.S. dollar, government stimulus efforts, China, the pathway of COVID-19, and vaccine success. We expect the Fed to be more reactionary than it was back in the spring of 2020 in anticipation that the end to COVID-19 lockdowns will release pent-up economic demand, spurring a consumer-led recovery. The expansion of the Fed’s balance sheet has stalled and growth in balance sheet expansion has been sideways since June 2020. 

Geopolitics will remain a headline risk. We don’t expect the Biden administration to remove phase one tariffs on Chinese imports, with expectations of few changes to policy in the near term. The United States and Europe, however, could see improved relations under Biden.

That said, there’s opportunity within ambiguity. We believe that investors’ interests can be well served by focusing on macro themes and combining them with capital market asset allocation views within a risk management framework. This should point the way to capturing opportunities while managing potential downside and upside risks, providing investors with sustainable and resilient solutions that can withstand market cycles. 


1 “Federal Reserve announces extensive new measures to support the economy,” U.S. Federal Reserve, March 23, 2020. 2 Bloomberg, as of July 28, 2020. 3 “Unprecedented falls in GDP in most G20 economies in second quarter of 2020,” OECD, September 14, 2020. 4 Bureau of Economic Analysis, October 29, 2020. 5 Office for National Statistics, September 30, 2020. 6 Japan’s Cabinet Office, August 17, 2020. 7 National Statistical Office India, September 2, 2020. 8 National Bureau Statistics of China, July 17, 2020. 9 FactSet, as of November 30, 2020. MSCI U.S. and MSCI Asia-Pacific ex-Japan equities gained 16.6% and 15.0%, respectively, versus MSCI World, which gained 11.72% year to date. 10 FactSet, as of November 30, 2020.

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other preexisting political, social, and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material, intended for the exclusive use by the recipients who are allowable to receive this document under the applicable laws and regulations of the relevant jurisdictions, was produced by, and the opinions expressed are those of, Manulife Investment Management as of the date of this publication and are subject to change based on market and other conditions. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only as current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers, or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment, or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment, or legal advice. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer, or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against a loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.


Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams, along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.

These materials have not been reviewed by and are not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at

Australia: Hancock Natural Resource Group Australasia Pty Limited, Manulife Investment Management (Hong Kong) Limited. Brazil: Hancock Asset Management Brasil Ltda. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area and United Kingdom: Manulife Investment Management (Europe) Ltd.which is authorized and regulated by the Financial Conduct AuthorityManulife Investment Management (Ireland) Ltd., which is authorized and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad (formerly known as Manulife Asset Management Services Berhad) 200801033087 (834424-U). Philippines: Manulife Asset Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G). South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC, and Hancock Natural Resource Group, Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.

Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates, under license.



Luke Browne

Luke Browne, 

Senior Portfolio Manager and Head of Asset Allocation, Asia, Multi-Asset Solutions Team

Manulife Investment Management

Read bio