DENVER and LONDON, Dec. 07, 2017 (GLOBE NEWSWIRE) -- Janus Henderson Investors (NYSE:JHG) (ASX:JHG) today released the Janus Henderson Market GPS™ 2018 report, in which portfolio managers Ashwin Alankar, Alex Crooke, Bill Gross, George Maris and Darrell Watters, among others, provide insights into what they see as key investment themes that are likely to impact global capital markets over the coming year.
The 3rd edition of Market GPS aims to highlight likely headwinds and tailwinds that sectors, regions and asset classes might face in the months ahead, to help advisors and investors stay informed of major themes potentially impacting markets.
Topics discussed this year include:
- The potential for continued expansion in equity markets
- The path to normalization in central bank policies
- The likelihood of an end to record-low volatility
- Innovation and disruption across sectors caused by advances in technology
- Opportunities in emerging markets
The report is available on the Janus Henderson website: campaigns.janushenderson.com/marketgps
Market Outlook: Eight Years and Counting
While stocks have roughly tripled over the past eight years, proprietary signals from Janus Henderson’s Adaptive Multi-Asset team’s options-based tail risk model suggest that a correction in global equities is not imminent. Options prices signal limited upside for stocks and don’t forecast a looming downturn. Equities appear fairly priced and could be propelled higher by factors including U.S. tax reform, continued quantitative easing in Europe and Japan, and an upward trajectory in global growth.
“The options market does not believe that the equity market has to self-correct just because we’re a decade into the expansion, while the average business cycle lasts six years. We’re in the camp that this expansion can continue,” said Ashwin Alankar, Ph.D., Head of Global Asset Allocation & Risk Management.
Central Banks: The End of an Era
With the global economy on solid footing, monetary policy normalization is under way and divergent tightening strategies by the U.S. Federal Reserve and the European Central Bank augur well for an orderly and gradual tightening of credit conditions and reduction in global liquidity. The measured, sequential approach could help keep a lid on bond yields, says Bill Gross, Portfolio Manager on the Global Unconstrained Bond strategy.
“The Fed would be risking policy error if it surprised markets with more aggressive than expected hikes at the same time it’s trimming its balance sheet,” said Nick Maroutsos, Portfolio Manager of the Absolute Return Income strategy.
“The ECB recently decreased the level of monthly asset purchases, but it extended the program’s duration. The extension is partly due to weak inflation, but the smaller quantities may be due to a limited number of securities available for purchase rather than any underlying optimism,” said Chris Diaz, Head of Global Aggregate.
Market Volatility: Gone Today, Here Tomorrow?
The low rate environment has created a number of market distortions, among them record-low volatility. As U.S. monetary policy and rates begin to normalize, so too, should volatility, as more investors stop selling volatility as a way to earn yield.
“If volatility stays within a certain range, the seller simply collects the carry (a premium). Since realized volatility has been range-bound, this trade has appeared to be a low-risk way to generate income, enticing more investors and creating a situation in which lower volatility begets even lower volatility,” said John Fujiwara, Portfolio Manager of the Liquid Alternatives strategy.
George Maris, CFA, Portfolio Manager of the Global Alpha Equity strategy, believes the VIX is not the only measure of volatility or investor sentiment. In his view, many investors are more fearful than what the VIX, an average of investor sentiment, suggests. “This may be the most loathed and nerve-wracking bull market that's ever existed,” he says.
Technology: Innovation and Disruption
Four mega-digital themes are creating significant disruption and changing business models across every industry and region: artificial intelligence, the Internet of things, cloud computing and mobile connectivity.
While electric vehicles account for only 0.2% of passenger, light-duty vehicles, the number is forecast to surge in coming years, providing a significant boost for semiconductors.
“EVs are an example where the mega digital themes are converging and promise to be very disruptive,” said Denny Fish, Portfolio Manager, Janus Henderson Global Technology Fund.
Companies can be organized in five categories along a digital divide that separates those with the potential to thrive in the online world and those with more limited upside. On the Right Side are the drivers of digital disruption, such as large tech platforms; on the Wrong Side are those facing structural impediments to a transition to the digital economy, for example brick-and-mortar retailers; in the Middle are those seeking to transition to the digital economy, an example being Nike. The Support group helps businesses to make the digital transition and includes sectors such as cloud-based Software as a Service providers; while on the Outside lie companies that are less susceptible to digital disruption, such as home improvement goods.
“Firms that are driving today’s digital disruption are often large tech platforms that have built sustainable business models by gathering vast sums of consumer data and employing that data to roll out new digital tools and improve user experiences. This creates a virtuous circle that becomes increasingly difficult to compete against, especially when innovation is occurring rapidly,” said Fish.
Emerging Market Debt: Differentiated Opportunities
More than 58% of global GDP now comes from emerging markets, and emerging market companies tend to have less leverage than their developed market counterparts, creating a potential opportunity for growth in corporate debt issuance, while EM companies are also expected to continue to strengthen their balance sheets by extending debt maturities and refinancing bonds at lower rates.
“Often, when you buy corporate bonds from emerging markets, you are buying the debt of very solid companies — they are just based in the ‘wrong’ postal code,” said Steve Drew, Head of Emerging Market Credit.
About Janus Henderson Investors
Janus Henderson is a leading global active asset manager dedicated to helping investors achieve long-term financial goals through a broad range of investment solutions, including equities, quantitative equities, fixed income, multi-asset and alternative asset class strategies.
As at 30 September 2017, Janus Henderson had approximately US$361 billion in assets under management, more than 2,000 employees and offices in 27 cities worldwide. Headquartered in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).
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