20210726-未知机构-Multi-Asset_ESG_Multi-Asset_Bullentin_29页_2mb

Multi-Asset & ESG Summary

Core Content

This document provides an analysis of the performance and positioning of various asset classes, with a focus on ESG (Environmental, Social, and Governance) integration in multi-asset portfolios. It outlines the current market conditions, including the recovery of risk assets, the role of ESG in enhancing portfolio returns and risk management, and the evolving sentiment and positioning across asset classes.

Main Points

• Risk Asset Recovery: Risk assets, including equities, high-yield (HY) and commodities, have quickly recovered from recent losses. However, FX (foreign exchange) markets, particularly risk-on FX, have lagged behind due to the USD's continued benefit from higher short-term rate expectations.

• Delta Variant Impact: While concerns around the Delta variant caused a short-lived dip in risk assets, the slowdown in global growth momentum predates this development. The assumption that a less severe Delta variant would restart cyclicals, value stocks, and higher-yield assets is unlikely.

• ESG Performance in Multi-Asset Portfolios: ESG-based equity and bond indices have shown a positive impact on portfolio return/risk ratios, even when compared to traditional benchmarks. The analysis includes 100,000 portfolio simulations for USD and EUR-based investors, showing that ESG indices tend to dominate the efficient frontier in terms of risk-adjusted returns.

• EUR-based ESG Indices: While EUR-based ESG indices show a less clear picture than their USD counterparts, they still demonstrate a preference for ESG in the risk/reward context, especially when using year-to-date data. However, ESG equities do not significantly contribute to the top-ranked simulated portfolios when an equity weighting constraint is imposed.

• Asset Class Performance: In the past week, inflation-linked bonds outperformed, and oil prices rebounded after the OPEC+ deadlock. Developed market (DM) equities gained, while emerging market (EM) equities underperformed. Investment-grade (IG) credit outperformed HY credit in both USD and EUR markets.

• Correlations: Cross-asset correlations have weakened, and the risk-on/risk-off (RoRo) indicator has collapsed. The correlation between US equities and US Treasuries has turned positive, which is attributed to the US market's growth and tech bias. This suggests a shift in market dynamics, with ESG indices playing a crucial role in portfolio diversification and risk management.

• Volatility: Implied volatilities remain subdued, but there is more differentiation among asset classes. USD HY credit has the lowest 3-month implied volatility, making it a potential hedge against market corrections. The cross-asset put call ratio has declined, indicating less stretched sentiment.

• Sentiment and Positioning: Global bond funds have experienced 19 consecutive weeks of inflows, while equity funds have seen mixed flows. US equity funds had the highest withdrawals, and commodity equity funds saw significant outflows. Technology funds attracted the most inflows, while USD credit funds faced redemptions. European credit funds saw inflows in both IG and HY categories.

Key Information

• ESG Contribution: ESG indices have consistently enhanced portfolio return/risk ratios in simulations, suggesting their importance in multi-asset allocation.
• USD vs EUR ESG: USD-based ESG indices show a more pronounced benefit in multi-asset portfolios, while EUR-based ESG indices are less clear but still show some positive trends.
• Equity Preferences: The analysis suggests a preference for growth/quality equities in the US and small/mid-cap equities in Europe, alongside ESG-focused credit.
• Market Dynamics: The weakening of correlations among risk assets and the USD's rate-driven movement indicate a shift in market behavior.
• Fund Flows: Global bond funds continue to attract inflows, while equity fund flows are mixed, influenced by factors like the Delta variant and US-China tensions.

Charts and Data

• Portfolio Simulations: Charts 1-4 and 8-9 illustrate the performance of USD and EUR-based portfolios with varying ESG weightings.
• Correlation Matrix: Chart 1 shows the correlation between various asset classes, highlighting the positive correlation between US equities and US Treasuries.
• Volatility Analysis: Charts 1-3 and 5 provide insights into the volatility trends of different asset classes.
• Sentiment and Positioning: Charts 1-12 and 13 depict sentiment indices, fund flows, and positioning data across different markets.

Conclusion

The document concludes that ESG indices continue to play a significant role in enhancing risk-adjusted returns in multi-asset portfolios. While the impact of ESG varies between USD and EUR markets, the overall evidence supports the inclusion of ESG in portfolio construction for better risk management and return potential.