By the time of our next Quarterly Outlook in December 2020, the future president of the United States should be known, we may see a market-friendly line up with the Senate, a UK-EU trade deal, several Covid-19 vaccines successfully passing Phase Three trials and ready for H1 2021 rollout, containment of the virus in those countries where it is currently flaring once again, and an associated reopening of economies ready to celebrate Christmas. Alternatively, we could have bearish newsflow on every single one of the above five questions.
Evidently, future market paths for DM rates, credit spreads, EMFX and the dollar – affecting most of the USD 64 trillion of securities in our benchmark – are conditional on a cluster of upcoming events, each with their own intrinsic uncertainties. So much for the traditional role of fixed income as a bit of central bank watching, economic analysis, Debt Management Office meetings and assessment of valuations! We approach some of these questions, such as the vaccine, with full humility in assessing our own information advantage (or lack of it). Others are a matter of shifting probability distributions, with some error term around them. But helping us navigate the next few packed months is our philosophy, resting on an assessment of asymmetries, potential future distributions and scenarios, positioning analysis, patience, flexibility and a value-based contrarian approach.
The net result is to enter the autumn with a high-quality tilt to our portfolios, near-term caution in credit, a preference for investment grade spread products (sovereign and corporate) under the umbrella of ECB purchases, a small bearish bias in EMFX, and some cross-market and yield curve trades that we think have attractive optionality under various future scenarios. In other words, in parts of the rates markets, we think one can position for more than one outcome in more than one of the various upcoming events and topics, while introducing some positive convexity into portfolios. Yield curve steepening positions in 2s5s in Treasuries and Bunds are one example, with a low cost in risk-off scenarios, in our view, and a greater payoff profile versus benchmarks in risk on.
Either way, we think it will pay to be nimble and flexible over the next three months – just as we were in H1 2020. To us, this is a version of Keynes’ advice to assimilate new information into the existing body of knowledge quickly, and to respond to it (which, to adapt his words slightly, means keeping an open mind, rather than changing it necessarily). Our quality bias demonstrates an overall tone of conservatism – after all, some economies are beginning to show signs of economic relapse into Q4. With partial lockdowns extending across parts of western Europe, there are even concerns of a ‘Cromwellian winter’, where discretionary consumer spending and associated jobs wither. Yet if we are right that the upcoming environment could see higher volatility, that also suggests opportunity in due course, after some of the languid weeks of late summer. We are prepared for the autumn cluster.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.