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Less downside risk, but don’t chase markets

Investment strategy

Maximilian MOLDASCHL

Asset allocation monthly - February 2020


  • Less fragile goldilocks – with economic data bouncing back, central banks remaining accommodative and US-China trade tensions stabilising, goldilocks conditions are firming up. We see the coronavirus as transient for markets.
  • Risks remain, but tails are less fat – we still see the two main risks as a slowdown or a reflationary environment, but the probabilities are now lower.
  • Short term risk/reward is unattractive – we don’t want to chase markets. Our market dynamic toolbox signals vulnerabilities in the near term.


  • Equities: waiting to buy the dip – our base case remains supportive but short-term risk/reward is unattractive. The latest earnings reports will be key.
  • Goldilocks trades: long emerging market USD debt and EMU REITs – we continue to like carry assets, supported by the prevailing goldilocks conditions.
  • Rates: short core EUR and long US breakeven inflation – we still see fixed income markets as rich and reflation as the big risk.
  • FX: long USD and long JPY – we see an asymmetry in the USD outlook stemming from our risk scenarios. The JPY looks cheap and is a risk-off hedge.
  • Long gold – we see gold as supported in the current situation where central bank policy remains loose, but also see it performing in our main risk scenarios.
  • De-globalisation trades – we are long CAC/DAX and long USD/CNY as we position ourselves for our strategically bearish view on de-globalisation.


  • Risk utilisation – Having taken profits on our equity overweight, the active risk in our portfolios is currently modest, in line with our ‘buy the equity dip’ strategy.
  • Factor exposures from core views – given the offsetting factor profiles of some trades and as we are neutral equities, our factor exposures are muted.
  • Specific/tactical trades – we have implemented four trades outside of our MFA portfolio optimiser; these help diversify our portfolios.



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