Seek balanced core portfolios - Given the current gains in defensive shares, including technology, many portfolios are not balanced. Therefore, rotating portfolios into cyclical shares, small and mid-cap stocks, under-performing markets and more “value-oriented” growth assets makes sense. At the most basic level, investors need to avoid market timing
Diversification into cyclical markets, particularly value stocks with still subdued valuations, remains preferred. Citi analysts consider four strategies to identify where "value" may be for certain companies.
The technology sector is seeing some pressure after a rally that has surpassed expectations. COVID-19 cyclicals were more resilient, consistent with Citi analysts’ preference of rotating from growth to value stocks amid a cyclical recovery. Looking ahead, Citi analysts believe this is more likely a correction rather than the start of a broader downturn, as the cyclical recovery remains intact. Nevertheless, further volatility is expected due to the upcoming US Presidential election and ongoing pandemic. With US equity valuations at a historic high relative to others, investors could also look to diversify into non-US markets.
Investors in Asia have flocked to COVID-19 defensive or growth sectors like technology this year, while COVID-19 cyclical or value sectors have lagged significantly. Citi analysts expect this relative performance to reverse, at least partially, as re-opening takes place.
Citi’s Global Investment Committee remains invested in “Unstoppable Trends” while gradually seeking room in portfolios to add regions and industries that have collapsed under COVID-19 and can potentially recover.
Investors are getting more focused on November 3rd and its outcome. To be fair, the US election is more than two months away and things could change depending on COVID-19 trends, pace of economic re-opening, debates around policy and geopolitical developments.
