2018 Outlook for Global Adaptive Multi-Asset: consider risk in two dimensions



Ashwin Alankar, Head of Global Asset Allocation and Risk Management at Janus Henderson, discusses lessons learned from 2017 and how these have shaped his outlook for the year ahead. He says that, underneath their calm exterior, markets have experienced some major changes in the trends that have defined them over the past couple of years.
Q. Lessons learned from 2017?
In 2017, the most important lesson that we’ve learned is one needs to think about risk: not just the risk of losing money, but also about risk as the failure to participate in the upside. In 2017 global capital markets, particularly equity markets, rallied quite sharply. Within equities, growth rallied very sharply. Technology rallied very sharply. If you failed to participate in that bull market, you failed to capture that right tail; you were really left behind. So the important lesson once again from 2017 is think about risk in two dimensions, not just the risk of loss but also the failure to participate in that gain. 
Q. Key themes for your markets in 2018 and portfolio positioning implications?
So, for 2018 we continue to see calmness in the system. We continue to see the overall equity markets, the overall fixed income markets, remaining quite calm, but underneath this calm surface we do see major changes in trends that have defined the markets over the past couple of years. Particularly the trend of growth versus value has defined the equity markets over the past few years, specifically the trend of large cap versus small cap, and large cap outperformances have defined the markets over the past few years. We are starting to see signs and signals that these trends might reverse: value over growth, small over large. So, whereas we don’t see any pending large dislocation in the markets, we do see some chaos, we do see some rotations that may happen underneath the surface when it comes to factors that have defined the markets over the past few years. 
Q. Key risks and opportunities for 2018?
We continue to see the most attractive opportunities in the equity markets. We believe rates will rise, and we believe term structures will steepen. Equities still look to be the most attractive asset class in our opinion. Within equities, one of the lessons we learned and most everyone learned post-2008: don’t fight the central banks. Don’t underestimate the power of a central bank to inflate financial assets. Japan will continue, in our opinion, with stimulative monetary policy for many years to come, particularly with Prime Minister Abe’s significant election win. So, within equities we really do like Japan. We also like China. A lot of reform is happening in China, just like a lot of reform is happening in Japan. We also like peripheral Europe. We do like Spain. We do like the UK. So in our opinion, equities are offering good risk/reward propositions. We would say be a bit selective with equities: we like Japan, we like China. In Europe we like Spain and we like the UK.
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