Insurance Multi-Asset Outlook | Early 2024 resolutions: Enjoy the yield
What should insurers expect from markets as we approach 2024? Tim Antonelli, Head of Insurance Multi-Asset Strategy and Portfolio Manager, identifies areas that may be worth a closer look.
Insurance Multi-Asset Outlook | Early 2024 resolutions: Enjoy the yield but be smart with your surplus
This article was produced by Wellington Asset Management as part of their valued industry partnership with Insurance Investor.
Author: Tim Antonelli, CAIA, CFA, FRM, SCR, Head of Insurance Multi-Asset Strategy and Portfolio Manager.
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
What should insurers expect from markets as we approach 2024? Tim Antonelli, Head of Insurance Multi-Asset Strategy and Portfolio Manager, offers his views and identifies areas that may be worth a closer look.
Key points
The global economy remains resilient, but after a longer lag than in previous cycles, higher interest rates are beginning to bite, with signs of cooling in the labour and housing markets. In my view, this environment continues to make reserve-backing fixed income more attractive for insurers than surplus (risk) assets.
I continue to favour higher-quality fixed income, as “higher for longer” rates slow growth. While credit spread valuations remain relatively tight, there is a growing chance that income could dominate returns in the short term. I believe capturing the high all-in yields should be the primary focus of insurers.
Japan remains my top developed equity market, as the economy is benefiting from higher inflation. I have reduced my China view to neutral. Some economic green shoots are emerging, and equity valuations are quite low, but the property market and geopolitics are headwinds.
Insurers should expect inflation to remain sticky and settle higher than in past decades. Against that backdrop, commodities continue to look attractive. In particular, copper demand for electrification is likely to far outstrip supply, and I expect gold to be an effective stagflation hedge. Insurers should take a fresh look at explicit inflation-hedging assets.
Within alternatives, a recent increase in infrastructure deal volume offers the potential to invest in an inflation hedge. While there is growing concern about the risks embedded in direct lending, I think opportunity can still be found in equity tranches of Collateralised Loan Obligations (CLOs).
Downside risks to my views include a hard landing, US political turmoil, a bank or property crisis in China, and an escalation in the war in Ukraine or US/China tensions. Upside risks include a “Goldilocks” scenario in the US in which the Fed tightens policy sufficiently to quell inflation while growth remains close to trend and the default environment remains benign.
Author: Tim Antonelli, CAIA, CFA, FRM, SCR, Head of Insurance Multi-Asset Strategy and Portfolio Manager.
