Janus Henderson Investors’ newly released Q3 Multi Asset Review urges investors to stay invested and diversified against the backdrop of current market dynamics. The global asset manager points out that economic uncertainty remains as investors await clarity on whether U.S. economic resilience and the potential stimulative benefits of U.S. President Trump’s ‘Big Beautiful Bill’ can overcome the headwinds of renewed tariff threats.
Squaring an uncertain backdrop with elevated equity valuations is a challenging proposition but with few signs of material economic weakening, Janus Henderson portfolio managers advise staying invested and maintaining vigilance. Diversification should be prioritized in this environment with healthy core fixed income yields, alternative assets, and global equities presenting opportunities for uncorrelated returns
“Judging by soaring asset valuations in the wake of President Trump backing away from the worst-case tariff scenario, one could believe that the threat posed by upending the global trade framework has been removed. We are more circumspect,” say Adam Hetts, Global Head of Multi-Asset and fellow portfolio manager Oliver Blackbourn. “Although softening inflation and jobs data may provide the Federal Reserve cover to resume growth-supporting rate cuts, we believe policy could remain on hold until better economic and policy clarity emerges. With the range of outcomes widening, investors should fortify portfolios through sufficient diversification.”
Portfolio trends
Equities
According to the review, top-quartile valuations across global equities should give investors pause but the deceleration in aggregate earnings growth has been less than feared and tech-heavy growth earnings continue to deliver upgrades. While high valuations mean broader equities merit a balanced view, U.S. small-caps’ prospects have improved on stimulative legislation but lingering high interest rates represent a headwind. European valuations have taken the luster off the region’s rally, leaving China as perhaps a unique source of value in the current environment.
Fixed Income
In terms of fixed income, the review’s authors say that while tariff policy uncertainty impeded the Fed in following the European Central Bank, among others, by cutting rates into a slowing economy, an eventual resumption of cuts could buoy Treasuries. While a resilient economy makes tight corporate spreads easier to stomach, securitized products, due to their shorter-duration profile, are better placed to weather current uncertainty. Diversification within bonds is possible by adopting a global mindset.
Alternatives and currencies
With most economies potentially late cycle in nature, the possible emergence of stagflation complicates investors’ ability to diversify portfolios. Rather than hedging risk assets with sovereign exposure, the left-tail risk posed by trade barriers means traditional risk management with duration should be diversified with alternative assets that offer low correlations to both equities and bonds. Within currencies, while monetary policy will influence U.S. dollar returns, current low levels renew the greenback’s appeal as a safe haven.
Janus Henderson’s Multi Asset team continues to monitor global economic signals and policy developments closely, maintaining a diversified approach across asset classes as conditions evolve.
