Manning the defences: Investment themes for the rest of 2022

WITH rates rising in most places amid fears of persistent inflation, and with a dangerous geopolitical situation feeding into an energy shock, the events of the past few months bear the hallmarks of a paradigm shift that calls for intense vigilance and a resolutely active investment approach.

Complicating asset allocation is the increasingly positive correlation between fixed income and equities (meaning both have delivered negative total returns year to date), as the market oscillates between concerns about inflation and growth.

So, for the moment, it is a matter of choosing the lesser of two evils. In our case, alongside an underweight in equities, this has involved raising our tactical stance on fixed income from underweight to neutral. Higher yields are starting to make safe-haven bonds more enticing as both inflation and economic growth slow, while the risk premium offered by equities has been sliding. At the same time, we believe macro hedge funds will continue to have a field day.