Multi-Asset Solutions Team

Latest asset allocation views

February 2024

Asset allocation views: proceed with caution

There were a number of key economic and market themes in flux in 2023, most notably a global economic environment that held up stronger than most market participants predicted. As 2024 gets under way, we look at some of the themes driving our asset allocation outlook.

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Key global themes

The global growth picture remains uncertain despite displays of resilience in parts of the world. We’ve identified three key themes that could influence the way we think about asset allocation in the coming months.

  • Past peak, but timing on rate cuts will vary

    • Globally, the tightening cycle is over and global easing has begun. Major central banks have indicated rate cuts as their next likely move, provided inflation continues to moderate. 
    • Markets are currently pricing in the first U.S. rate cut for March, which we believe is unlikely. Our outlook suggests June. This would require a repricing of expectations, which we anticipate would be a painful trade for risk assets, such as credit and equity.
    • Within our portfolios, we’re moving away from credit risk and increasing duration to improve risk/return balance. 
  • A widening of investment opportunities

    • 2023 saw exceptional strength from a small basket of U.S. large-cap technology stocks as earnings soared amid optimism surrounding artificial intelligence among other factors. 
    • In 2024, the expanding breadth of U.S. corporate earnings strength could benefit undervalued areas of the market, including small-cap and high dividend stocks, as well as traditional value sectors such as financials.
    • Globally, desynchronization in economic growth could present an opportunity as economies tied to manufacturing (in Europe) may be exiting a recession as economies tied to services (the United States) may be entering a period of slower economic growth. Within emerging markets, nimbleness will be key in navigating an ever-changing investment landscape.
  • Economic growth expected to slow

    • Economic growth remained resilient in 2023, particularly in the United States, supported by consumer optimism and employment strength.
    • However, the lagged effects of aggressive central bank tightening are still working through the economy, which will likely lead to slower economic growth in 2024. 
    • As a result, uncertainty and volatility may increase, leading to the potential for attractive opportunities for investors.

Source: Manulife Investment Management, February 2024. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. No forecasts are guaranteed. 

Active asset allocation views

Asset class focus

Private credit: a favorable and growing alternative asset class

Private credit involves lenders offering customized debt solutions to borrowers who are often midsized, well-established borrowers. This debt covers a variety of purposes and sits at different levels of the capital structure, with loans typically held until maturity.

  • One of the key drivers of interest in private credit is the premium yields offered relative to comparable quality public debt. Private credit as an asset class has historically provided a sizable yield advantage over public market equivalents, compensating investors for taking on illiquidity risk.

  • The private market nature of the asset class limits price volatility as the loans aren’t marked to market daily. Additionally, these private market loans have historically seen lower default rates and higher recovery rates compared with public high-yield bonds.

  • There has been significant market growth for private credit since the global financial crisis with strong growth expected to continue. Tight credit conditions, which have been amplified by regional bank failures, have left a funding void for smaller and midsized companies that private debt will continue to fill moving forward.

Private debt global assets under management ($ billion)

December 2011–December 2023

There has been significant market growth for private credit since the global financial crisis with strong growth expected to continue. Tight credit conditions, which have been amplified by regional bank failures, have left a funding void for smaller and midsized companies that private debt will continue to fill moving forward.

Asset class returns

Asset class returns comprise the multi-asset solutions team’s expectations of how different asset classes may perform over a 5-year and 20-year-plus time horizon.

Expected returns

Source: Multi-Asset Solutions Team, Manulife Investment Management, as of January 31, 2024. Not all asset classes with forecasts are represented in every portfolio managed by the Multi-Asset Solutions Team. Data shown in the tables reflects the most recent data available. Asset class forecasts comprise inputs driven by proprietary Manulife Investment Management research and are not meant as predictions for any particular index, mutual fund, or investment vehicle. To initiate the investment process, the investment team formulates 5-year and 20-year-plus risk/return expectations, developed through a variety of quantitative modeling techniques and complemented with qualitative and fundamental insight. Assumptions are then adjusted for a number of factors. REITs refers to real estate investment trusts. USD, CAD, and CNY refer to the U.S. dollar, the Canadian dollar, and the Chinese yuan, respectively. This chart contains forecasts reflecting potential future events and is only as current as of the date indicated. There is no assurance that such events will occur, and the actual asset class return may be significantly different from that shown here. This material should not be viewed as a recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy. It is not possible to invest directly in an index. Past performance does not guarantee future results.

Multi-Asset Solutions Team

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