CHICAGO & LONDON – (COMMERCIAL THREAD) – Northern Trust, a leading global asset manager with $ 1.5 trillion in assets under management, expects strong earnings growth and persistently low interest rates to lead to slowdown but sustainable economic growth in 2022.
“Given our favorable economic growth outlook for 2022, we are overweight risky assets in our global policy model, although we expect the returns for these asset classes next year to be lower than this year. ” Angelo Manioudakis, Chief Investment Officer of Northern Trust noted. “Amid recent market volatility and growing concerns about inflation, it’s important for investors to realize that corporate earnings and interest rates are the primary foundations of stock and bond prices.” , said Manioudakis. “They support our overweight positions in three risky asset classes as signs point to sustained earnings growth and stable, albeit slightly higher, long-term interest rates.”
Northern Trust predicts 2022 as a year of transitions. The central bank’s fiscal policy could become less accommodative or stimulating thanks to a reduction in bond purchases. After years of virtually no inflation, investors are increasingly aware of the importance of hedging against it, given its recent abrupt emergence. While there are indications of declining inflationary pressures in key supply chain bottlenecks, this is being countered by strong housing and labor markets. As always, Northern Trust has hedged against inflation in its global policy model, but for the sixth year in a row it has “Stuckflation” as one of its investment themes that is driving the markets and believes that the current surge in inflation will be transient.
These views are part of Northern Trust’s Outlook 2022. It is based on the long term of the company Capital Market Assumptions Report, a five-year prospective and historical forecast that guides the recommendations for the strategic allocation of the company’s assets.
Northern Trust’s tactical asset allocation recommendations in its global policy model include three overweight positions, all in risky asset classes: developed market equities, high yield bonds and natural resources.
Consistency between actions
Northern Trust expects equity returns to be similar across major regions of the world, thanks to strong earnings growth. Japan leads with an expected return of 11%, followed by emerging markets and the United States at 9%, and Europe at 8%. Given this consistency, Northern Trust favors less risky developed markets, hence its overweighting, compared to emerging markets, which are weighted neutral in the Global Policy Model.
High expectations for high yield
Northern Trust’s most favorable view among bond asset classes is high yield bonds, another of its overweight positions. This is driven by the belief that high yield bonds could produce returns comparable to those of stocks. “Given this and the fact that they are less risky than equities, offer high liquidity and have a historically low default rate of almost 1%, we have made high yield the largest overweight in our model. world politics. ” Jim McDonald, Northern Trust Chief Investment Strategist noted. “We see their credit risk as much more compelling than the interest rate risk of investment grade bonds.” Northern Trust’s 2022 outlook calls for a high return of 9% versus 4% for quality bonds and 0% for cash.
Natural resources stand out from real assets
Northern Trust has long included real assets – natural resources, global real estate and listed global infrastructure – in its global policy model in recognition of their effectiveness in enhancing the diversification of investments. The respective yield forecasts for 2022 are: 5%, 7% and 3%. “Although all three asset classes have significant exposure to equities and are therefore supported by our favorable market outlook, we have chosen to overweight natural resources based on our view of their reasonable valuations and their hedging capacity. against inflation, as well as our expectation that earnings growth will continue, “mentioned Wouter Sturkenboom, Chief Investment Strategist for Europe, Middle East, Africa and Asia-Pacific.
The full outlook for Northern Trust 2022 is available at capitalmarketassumptions.com/1 year.
Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations regarding future events or future results based on proprietary research and should not be construed as an estimate or promise of results that a portfolio can achieve. The actual results could differ materially from the results indicated by this information.
The expected returns from the Capital Market Assumption Model (CMA) do not show actual performance and are provided for guidance only. They do not reflect actual transactions, liquidity constraints, fees, expenses, taxes and other factors that could affect future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, points of view, techniques and forecasts indicated are subject to change without notice. All forecasts are rounded to the nearest whole number.
This material is intended for professional customers only and is not intended for retail customers. For the European and Asia-Pacific markets, it is intended for expert, institutional, professional and wholesale investors only and should not be relied on by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit Northerntrust.com/disclosures. This material is provided for informational purposes only. The information is not intended to be and should not be construed as an offer, solicitation or recommendation regarding any transaction and should not be treated as legal advice, investment advice or tax advice.
About Northern Trust Asset Management
Northern Trust Asset Management is a global investment manager who helps investors navigate changing market environments, so they can confidently achieve their long-term goals. Entrusted with US $ 1.2 trillion in investor assets as of September 30, 2021, we understand that investing ultimately serves a more important purpose and believe that investors should be compensated for the risks they take – in all market environments and any investment strategy. That’s why we combine solid capital market research, expert portfolio construction and comprehensive risk management to design innovative and effective solutions that deliver targeted investment results. As committed contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect and transparency.
Northern Trust Asset Management is made up of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, KK, NT Global Advisors, Inc., 50 South Capital Advisors, LLC , Belvedere Advisors LLC and the investment staff of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset services, asset management and banking services to businesses, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 22 US states and Washington, DC, and 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2021, Northern Trust had assets under custody / administration of US $ 15.8 trillion and assets under management of US $ 1.5 trillion. For more than 130 years, Northern Trust has distinguished itself as an industry leader for its exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.
Northern Trust Corporation, head office: 50 South La Salle Street, Chicago, Illinois 60603 USA, incorporated with limited liability in the USA. Please read our global and regulatory information.