MARKETS & INVESTING
The world is likely to be characterised by higher inflation and interest rates and geopolitical risk in 2024 . Investment models relying on static asset allocation and passive investment management will no longer work like they did over the past decade or more . Therefore , multiasset investors could be better served using a tactical investment approach . Volatility remained elevated during 2023 . Conflict flared in the Middle East , in addition to the ongoing Russia / Ukraine war . In capital markets , bond yields moved higher before falling back on the expectation central banks would cut rates in 2024 . In October , yields on 10-year Treasuries broached 5 % – the highest level since 2007 – before falling back to around 3.9 % at the close of the year ¹. This sentiment on monetary policy also drove equity markets higher at the end of the year , led by a handful of mega-cap tech stocks . The S & P 500 index ended the year up about 24 % thanks in large part to the so-called magnificent seven , buoyed by positive sentiment around artificial intelligence ( AI ) and semiconductors .
PASSIVE INVESTMENT MANAGEMENT WILL NO LONGER WORK LIKE THEY DID OVER THE PAST DECADE .
More volatility in 2024 ? Macroeconomic uncertainty is likely to continue in the year ahead . Interest rates appear to have peaked . Inflation appears broadly on a downward trend but is at elevated levels relative to recent history . Geopolitical tension continues . The most pertinent question is whether the US can engineer a soft landing by bringing inflation down to target . Labour market figures will be a key indicator to monitor this . It is likely a nervous US Federal Reserve will want to see labour markets in balance , meaning restrictive monetary policy could remain for most of the year . Elsewhere , this year is set to be one of the biggest for elections in history as voters in at least 64 countries ( 49 % of the global population ) are expected to head to the polls ². The uncertainty of outcomes in these elections could also heighten market volatility .
Active is key During bouts of volatility , it is vital investments keep pace with inflation and remain resilient . This is especially pertinent to individuals at or approaching retirement . We believe the best way to address volatility in the current macroenvironment is with active management , supported by thematic research . Active management can fare well during volatile times . In 2022 , volatility dominated markets thanks to Russia ’ s invasion of Ukraine and central banks raising interest rates to cool rising inflation . But 2022 was the first year since 2009 that most active asset managers of equity mutual funds were able to outperform the S & P 500 index ³. Market conditions such as those in 2022 reduce liquidity and increase dispersion between stocks and sectors , creating a broader opportunity set for active managers . In the year ahead , market liquidity is likely to be tight because of quantitative tightening and rates remaining higher . We would argue in this environment passive strategies may struggle to deliver positive real returns .
MULTI-ASSET INVESTORS COULD BE BETTER SERVED USING A TACTICAL INVESTMENT APPROACH .
Tactical But we think it is necessary to take this further than just active management . The current macro backdrop will affect companies , countries and sectors in differing ways , requiring a nuanced and dynamic approach to asset allocation . The Newton FutureLegacy strategy uses a tactical derivative overlay to react in a time-appropriate manner to market and macro events . The positions are determined by Newton ’ s Tactical Asset Allocation Group ( TAAG ) which brings together asset allocators from across Newton to monitor a host of macro and market indicators . The group can use futures , forwards and physical securities to navigate the environment tactically . There are multiple sources of uncertainty awaiting us in 2024 and , with that , comes volatility . That is why we believe tactical asset allocation will be so important .
For further information visit the BNY Mellon Investment Management website : www . bnymellonim . com .
¹ Reuters . Shares dip to cap stellar year ; Treasuries end volatile 2023 flat . 29 December 2023
² Time . com . The Ultimate Election Year : All the Elections Around the World in 2024 . 28 December 2023
³ Bloomberg . How Stock Pickers Finally Beat the Index Funds . 2 February 2023
The value of investments can fall . Investors may not get back the amount invested . For Professional Clients only . This is a financial promotion . Any views and opinions are those of the investment manager , unless otherwise noted . This is not investment research or a research recommendation for regulatory purposes . Doc ID : 1697451
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