Outlook 2023: Julia Rees (Goldman Sachs Asset Management)

Outlook 2023: Julia Rees (Goldman Sachs Asset Management)

20 januari 2023

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Julia Rees (photo archive Goldman Sachs Asset Management)

By Julia Rees, Head of Portfolio Strategy, Strategic Advisory Solutions at Goldman Sachs Asset Management

What are the biggest opportunities and threats for investors?

‘The main threats we see for 2023 are second-round inflationary shocks, policy mistakes, and geopolitical risks. Global central banks have prioritized price stability over economic growth as the cost of entrenched inflation far outweighs that of overtightening. Consequently, we expect major central banks to tighten financial conditions and economic growth to decelerate further. This may weigh on risk assets, but following the major valuation reset of 2022, we think there are now numerous opportunities for patient investors.’

What asset classes are most attractive?

‘In 2022, core bonds and core equities sold off in tandem, a pronounced deviation from the usual negative correlation between the asset classes that investors have come to rely upon. Investors with undiversified portfolios felt this especially poignantly, as they did not have exposure to the year’s bright spots like trend-following strategies, nor to the behavioural benefit of illiquidity in the private markets. Looking forward, we reiterate our conviction in liquid and private alternatives. Liquid alternatives, flexible absolute return strategies that go long and short, offer differentiated returns, tend to reduce total portfolio risk, and outperformed equity during drawdowns. We particularly like trend-following liquid alternatives as they tend to do well in inflationary times, irrespective of rising or falling inflation. Private market strategies do not mark to market, a feature that contributes to their famous illiquidity premium and helpfully smooths the experience a long-term investor perceives. Further, management of private companies is spared the short-termism that may come from having to report results frequently and some of the best vintages for private market funds were the ones taking advantage of depressed valuations around 2008, a dynamic we see today.’

 

We particularly like trendfollowing liquid alternatives.

 

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