In a year in which a bond-versus-equities approach may not benefit investors, inflation-sensitive assets such as commodities and real estate could come to the rescue, according to Neuberger Berman.
Given the high valuations and interest-rate sensitivity in both equities and bonds, Erik Knutzen, multi-asset chief investment officer at Neuberger Berman noted a big challenge for investors in 2022 is that the traditional 60/40 equities versus bonds approach may no longer work.
Among alternative diversifiers, given their underling economic dynamics, he argued there could be a special place for commodities and real estate.
“Commodities could offer potential inflation exposure and diversification at a time when bonds are too expensive, too sensitive to rising rates and too highly correlated with equities to perform that role,” he said.
Generating returns
Other options that could help investors, he added, include uncorrelated liquid alternative strategies, as well as equity index put-writing, which Knutzen said has tended to benefit from historical periods of volatility and offer a slightly smoother exposure to equity risk.
“Private equity and debt offer ways to generate potential returns away from the volatility of the public markets,” he said.
Given the fundamentally strong global economy, Knutzen believes that risky assets such as equities do remain to be the best pace to be invested. However, he added that high valuations and the prospect of rising rates, less liquidity and more volatility make the team more cautious than a year ago.
“Risk management is high on the agenda,” he said. “We value genuine diversification, as well as flexibility and the capacity to stay nimble amid the potential volatility, and we recognise that inflation is likely to be the key risk to manage in 2022.”
