14 MARKET VIEW
Prepared to sail against the wind: NAM’s experts anticipate a more complex market environment with potentially strong bouts of volatility in the coming years.
may not yet be fully reflected in bond prices. “Equi- ties typically do well in an inflationary environment. Nominal earnings growth tends to rise with higher inflation, as companies pass on at least some of the rising costs. Looking specifically at the S&P 500, companies are showing stable-to-strong gross margins,” he says. According to the expert, inflation is not necessarily bad for the earnings growth of both growth and value stocks, but value stocks tend to perform better first. “We believe this is particularly true for our Stable Equities, which do exhibit an exposure to multiple factors such as value, low volatility and quality. These stocks are therefore particularly well positioned because of their good pricing power which allows better management of margin pres- sure while seeing inflation feeding top-line growth,” states Trolle Hansen. While there are never any certainties in life, as the world has been harshly reminded over the past two years, Trolle Hansen is convinced that this current decade will not share the same characteristics as its predecessor. “The expected returns for traditional asset classes over the remainder of the 2020s are significantly lower than what most investors have become accustomed to. With macro data deteriorat- ing and uncertainties increasing, we do not expect a repeat of the strong growth-driven benign envi- ronment of recent years,” Trolle Hansen concludes. “Investors would do well to prepare in case the market were to become more complex, with more volatility peaks compared to what they might have been used to in recent years. As diversification des- tinations continue to diminish, liquid alternatives are best placed to meet the challenges of today and tomorrow.”
a number of bouts of severe market turbulence, such as during the global financial crisis and the European sovereign debt crisis, as well as the periods of heightened volatility stemming from unexpected political events,” Trolle Hansen explains. “And on each occasion, our proprietary defensive return drivers passed the test.” Inflation on the rise The next test may already have arrived, as inflation continues to move higher in a number of key global markets. Price pressures are particularly evident in the US, where year-on-year the Consumer Price Index (CPI) is running at about 5%. Trolle Hansen believes it is essential to take inflation risk into account in asset allocation. Here, he finds more comfort in equities, as the risks of rising inflation
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