With numerous uncertainties present in the global economy, market participants may be looking for meaningful signals about what’s to come in 2019. In our semiannual assessment on the state of the markets, Janus Henderson’s investment teams weigh in on the themes that could dominate in the months ahead and the potential impact for investors.
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At Janus Henderson, we use our detailed fundamental research and deep understanding of companies and sectors to drive investment decisions. Although we avoid far-reaching macroeconomic calls, we think it is important to consider near-term signals. To that end, Market GPS 2019 explores what our investment teams are seeing from the ground up and where we are identifying the most compelling opportunities across asset classes. While many variants are likely to set the direction of markets in the new year, we highlight four key themes to watch:
Disruptive Forces
The pace of change is greater than ever before. Disruption is being felt across industries and geographies and is proving a differentiator in the long-term performance of investors’ portfolios. There are exciting opportunities, but also significant risks for the “disrupted.” We believe health care and technology are among the key sectors to focus on when considering disruption.
Market Divergence
We expect returns among asset classes, currencies, countries and sectors to continue to diverge, driven by myriad factors: the fading of central bank synchronization as few regions follow the U.S. pace of tightening; typical late-cycle behavior leading to more volatility and idiosyncratic risk; and fundamentals once again determining asset prices. We believe active management is the best way to confront these challenges.
Geopolitical Tensions
Trade disputes and the subsequent reactions, the outcome of Brexit and developments in Italy all have the capacity to significantly reroute markets. These known unknowns will no doubt be accompanied by challenges not yet on the radar. We believe these conditions require investors to be nimble and flexible as they seek to capitalize on potential opportunities and to navigate the potential fallouts.
Search for Income
Income is in ever-greater demand globally, and we believe it will remain a key focus for investors in 2019. Different routes to income generation exist, and the shifting backdrop makes some approaches more suitable than others. We believe fixed income and equity income investment processes that have been implemented through a variety of market conditions will be well-suited to react to volatile market conditions in the year ahead.
The Trouble with Tariffs
The transition to the digital economy continues to create growth opportunities for many corporations, says Portfolio Manager Jeremiah Buckley, but global trade disputes and rising interest rates could also loom large in 2019.
Navigating Market Volatility
Rising interest rates and global trade tensions could lead to increased market volatility in 2019, says Portfolio Manager Brian Demain, making a disciplined investment process focused on high-quality growth all the more important.
Staying Focused on Secular Growth
As interest rates and inflation pressures climb, Portfolio Manager Doug Rao says it is becoming all the more important to focus on companies with secular tailwinds, pricing power and competitive advantages.
Balance Sheets Key to Finding Value
With interest rates expected to continue rising in 2019 and corporate leverage at high levels, Portfolio Manager Justin Tugman says investors should stay focused on company balance sheets.
Innovation in Health Care
The health care sector is experiencing a rapid pace of innovation, a trend that Portfolio Manager Andy Acker says is likely to continue in 2019 to the potential benefit of investors.
The Dawn of a More-Connected, Data-Driven World
Global Technology Portfolio Manager Denny Fish believes the mega-themes positioned to drive sector earnings in the years to come will continue to gain market share as companies place digital transformation at the center of their business strategy.
Equity Income Opportunities in Global Markets
Ben Lofthouse, Head of Global Equity Income, believes that while disruptors threaten a number of established sectors, significant value opportunities exist, with many good-quality companies offering compelling dividend yields.
End of the Cycle … Are We There Yet?
With the markets finally coming around to the idea of the late-cycle stage in economies, Jenna Barnard and John Pattullo, Co-Heads of Strategic Fixed Income, expand on the risks and opportunities likely to arise from this theme in 2019.
Going Global for Income Generation
Co-Head of Global Bonds Nick Maroutsos explains why – despite the Fed’s history of dovishness – higher interest rates are likely here to stay and bond investors need to react accordingly by taking measures such as looking globally for the most attractive risk-adjusted income opportunities.
All Eyes on the Fed
As the Fed risks executing on an overly aggressive tightening path, and the economic and credit cycles continue to progress, Portfolio Manager Seth Meyer highlights the importance of a nimble approach, in which capital can be dynamically allocated to the strongest risk-adjusted opportunities, regardless of fixed income asset class.