BUILDING DEFENCE

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The risk of recession has increased significantly in the near-term with the coronavirus-related shock; and amid heightened market volatility, investors have been looking for ways to build defence in their portfolios. Below, we break down two scenarios for economic shock: growth slowdown and stagflation.

Expand the sections below to find out which asset classes may outperform and which may underperform in the growth slowdown and stagflation scenarios.

A growth slowdown

Equities
Fixed income
Commodities & alternatives
Derivatives
  • Outperform:

    Quality, Gold, Defensives (minimum volatility, utilities), FX hedged range, Safe-haven single countries (e.g. Switzerland, Japan), Property

  • Underperform:

    Cyclicals (e.g. financials and energy), Emerging market equities

  • Outperform:

    Ultrashort, Short duration, Short duration high yield, Inflation linkers, Floating rate notes

  • Underperform:

    Duration (also term structure plays), Spreads (investment grade, high yield)

  • Outperform:

    Gold

  • Underperform:

    Oil

  • Outperform:

    Volatility hedges (pockets of volatility that haven't been bid up)

Stagflation

Equities
Fixed income
Commodities & alternatives
Derivatives
  • Outperform:

    Defensives (Utilities, dividend growers, minimum volatility), Safe-haven single countries (e.g. Switzerland, Japan)

  • Underperform:

    Cyclicals (e.g. financials and energy), Value, momentum

  • Outperform:

    Duration (also term structure plays), Inflation linkers, Government bonds

  • Underperform:

    Spreads (investment grade, high yield), Short duration

  • Outperform:

    Gold

  • Underperform:

    Metals, Oil, Physical infrastructure

  • Outperform:

    Volatility hedges (pockets of volatility that haven't been bid up)


Source: RQA stress test conducted across full iShares product offering, Sep 2019

  • 2020 Outlook & Implementation Guide

    2020 Outlook & Implementation Guide

    Read our full views on 2020, including implementation ideas.

    Read more Read more
  • 2020 outlook: Pushing the limits

    2020 outlook: Pushing the limits

    In our latest iShares outlook webinar, we discuss investment opportunities for 2020.

    Watch Watch
  • The case for gold and silver

    The case for gold and silver

    We explore the case for why investors could consider gold and silver.

    Read full article Read full article

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.