Monthly ETF Allocation Ideas - May 2020

Tuesday 12 May 2020

A defensive stance in response to the aftershocks of the Covid 19 earthquake

  • There is a battle between bull and bear forces taking place: On the bull side, extraordinary policy actions continue to propel market sentiment. On the bear side, deteriorating fundamentals will be key risks.
  • Current market uncertainty calls to remain cautious in the short term but be ready to play the sequence of rebound at asset class and regional level.
  • Liquidity has to be managed dynamically: Stay in cash, stay in some risk assets and stay vigilant.


Monthly convictions


Fixed Income: Constructive on US duration and positive on IG credit

  • We have seen a gradual improvement in market conditions after the massive price and liquidity dislocation in March, but we are not back to normal yet. There is significant discrimination between what is eligible for Central Banks’ programs and what is not.
  • In Global Fixed income, we have a neutral view on duration, with a constructive stance on the US.

US Treasuries

Demand for safe haven assets is still supportive for US govies. Unprecedented in scope, Fed’s monetary response to the current crisis is likely to keep US Treasuries yields range-bound despite an increase in future debt. 

 0.14% OGC*


  • We remain positive on credit, with a focus on high quality and liquid assets. We prefer IG to HY due to concerns over high default rates and slowing top-line growth.

Euro Investment Grade Corporate

We maintain our constructive view on EUR IG, as it will benefit from the ECB’s liquidity backstop and fiscal package, which will reduce migration and default risk. The sector remains relatively less leveraged than US peers.                                                                                                          

  0.16% OGC*

  0.05% OGC*

US Investment Grade Corporate

We are more positive on US IG credit than before. This market segment has been a beneficiary of the Fed’s exceptional stimulus. Importantly, the Covid 19-induced market dislocation has presented long term opportunities across all rating categories, in particular in long maturity IG corporate bonds.

  0.16% OGC*

  0.05% OGC*

 Gold: an efficient hedge to protect portfolios

  • We are still positive on gold and continue to view this asset as an appropriate hedge to limit the impact of market uncertainty and to protect portfolios.

Precious Metals: Gold

Gold remains the great winner in the current market turmoil. It benefits simultaneously from economic uncertainty, increasing government deficits and central banks QE purchase programs that provide abundant liquidity in the financial system.

  0.15% OGC*

  Equity: Balance sheet strength matters now more than ever

  • Equities have recovered partially over the past weeks amid an environment where some countries are thinking of an exit strategy and ways to support a demand recovery.
  • However, the crisis is producing higher than usual uncertainty leading to significant dislocations in some part of the market. This context calls for a defensive stance and a focus on high quality stocks.

European Equities

In European equities, dislocations may offer long-term opportunities to enter the market gradually. With still low visibility on corporate earnings and forward guidance, we think it is all about exploring resilient business models, with strong balance sheets.

  0.23% OGC*

  0.23% OGC*

  0.18% OGC*

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