Investors who took a simple portfolio split between bonds and equities in 2019 have enjoyed the best returns in more than a quarter of a century, according to Pictet Asset Management.
Market sentiment at the beginning of this year was shaky, with several analysts betting that rising U.S. interest rates and a withdrawal of central bank stimulus would negatively affect assets.
But the S&P 500 stock index has offered gains exceeding 25% this year, while at the same time bonds have offered solid returns as trade war fears saw investors seeking safety.
Luca Paolini, chief strategist at Pictet Asset Management, told CNBC’s “Squawk Box Europe” on Friday that a simple 50/50 equity-bond portfolio has done remarkably well in 2019.
“I think what is surprising though is that if you are a global investor and you put 50% in equities and 50% bonds this year, you made 16% — it’s the best year since ’93,” he said.
Paolini said a year ago all the talk was that a global recession, low business confidence and trade war negativity would press up against a Federal Reserve that needed to take the heat out of a peaking U.S. economy.
As late as January, Goldman Sachs was predicting that the Fed would raise interest rates four times this year. Instead, and to the delight of the White House, the central bank actually cut rates three times, offering a big boost to markets.
“Nobody expected the Fed to cut three times. Everybody expected the Fed to hike rates. It is a massive change in the monetary policy,” said Paolini, who warned that the Fed is going to be unable to repeat the trick in 2020.
“We are left with not much upside, apart from a potential recovery in growth,” he warned.
Paolini said that 2019’s 50-50 equity-bond strategy is a trick unlikely to be repeated soon, saying Pictet’s latest analysis shows a negative return for the split over a five-year outlook.
Also speaking on “Squawk Box Europe,” Quilter Cheviot investment director David Miller said he remained positive for 2020.
Miller said the global economy did not look like it would tip into recession, adding that the trick in a low-yield world for investors was to find companies that make a profit, or at least pay dividends.
“These things become even more valuable, so to my mind it’s not surprising we have had a good year.”