DENVER, Jan. 04, 2016 (GLOBE NEWSWIRE) -- Janus Capital, INTECH Investment Management and Perkins Investment Management released Janus Market GPSTM 2016, an investment outlook for 2016, addressing key themes such as Fed tightening, fixed income caution, the impact of disruptive business models, China in transition as India rises, and navigating market volatility.
The report features commentary on 2016’s most pressing issues from Janus Capital Group's foremost investing experts, including Enrique Chang, Carmel Wellso, Darrell Watters, Gibson Smith, Bill Gross, Marc Pinto, George Maris, and many more. Among uncertainties lurking for 2016, there is one predominant consensus in which all of Janus' investment experts agree – investors need to enter 2016 with caution.
The report is available on the Janus website at: www.marketgps.janus.com
The following are highlights from Janus Market GPSTM 2016:
Fed Tightening: Gradual Fed Tightening Should Favor Equities in the U.S. and Globally
Janus Equities and Asset Allocation Chief Investment Officer Enrique Chang points out equities have generally done well in the majority of previous tightening environments. Mr. Chang believes that rising U.S. interest rates appear to be embedded into today’s markets.
The biggest beneficiaries of rising U.S. rates could be Europe and Japan, suggests George Maris, CFA, Portfolio Manager of the Janus Global Alpha Equity strategy. Rising interest rates and an associated stronger dollar would help fuel export growth in these economies, thereby lifting manufacturing activity and ultimately GDP.
Marc Pinto, Portfolio Manager of the Janus Balanced strategy, explains that a slow advance in interest rates, coupled with steady economic growth and some inflation, could be favorable for equities, especially growth stocks.
Fixed Income: Yellow Lights Flashing
Fixed income markets merit an abundance of caution heading into 2016. Chief among these are the growth differentials among major economies, along with a discomforting increase in leverage.
Gibson Smith, Chief Investment Officer of Janus Fixed Income, expects the U.S. to continue to do what it’s done for the past few years: deliver steady — though not breakout — economic growth. Europe and Japan, he continues, are facing a period of low, if not zero growth. That leaves China.
As Seth Meyer, CFA, a Global Research Analyst and Portfolio Manager, views it, for well over a decade, the world economy was configured to rely upon near double-digit growth from China. Now, Chinese GDP may be tracking at 6.5%, if it’s lucky. Losing this source of incremental growth translates to tremendous slack in global supply chains. While this impacts revenues across many sectors, Mr. Meyer sees the pain most acutely felt by commodities producers that invested in capital expenditure to provide materials to China’s manufacturers and growing middle class.
Diverging growth trajectories — and thus monetary policy — are likely to be with us for the next few years. Mr. Smith warns that the global economy can function under such conditions, but from an investor’s perspective, when valuations across risk assets are stretched, as is presently the case, shifts in policy are amplified, resulting in large potential swings in investment returns.
Magnifying these risks is the leverage piled onto global balance sheets. The standard policy response to debt crises has been to add liquidity, which fuels risk taking, ultimately leading to higher debt loads. Darrell Watters, Fundamental Fixed Income Portfolio Manager, finds this debt overhang alarming. He sees emerging markets — especially those reliant upon commodities exports — as most vulnerable. Emerging market debt has more than doubled since 2008, yet much of the proceeds were spent on transfer payments to citizens, rather than on infrastructure and education aimed at boosting productivity.
The situation is equally disquieting with corporate credits. Artificially low interest rates have incentivized companies to favor debt financing, resulting in an explosion of new issuance and overly levered balance sheets. Heavy doses of debt, coupled with narrow credit spreads and extended durations, are signs of the later stages of a credit cycle and justify defensive positioning. According to Mayur Saigal, Global Head of Fixed Income Risk Management and Portfolio Manager, this situation can be improved by pro-growth policies and adjusting monetary policy so that real interest rates are positive. Such a move will give managers greater confidence to invest in their business, ultimately increasing productivity and profitability.
Disruption: Schumpeter Strikes Again: Is Creative Destruction the Path to Growth in a Slow-Growth Environment?
The U.S. and global economies continue to grow only modestly, but the pace of innovation is accelerating. New technologies disrupt old business models and transform entire industries. We believe companies at the heart of this disruption may present some of the best opportunities for growth in a persistently low-growth environment. But the current wave of disruption has further implications: understanding the disintermediation triggered by today’s disruptors is critical to gauging the underlying potential of the modern dynamic economy.
The health care sector offers perhaps some of the most impactful platforms for innovation. Biopharmaceutical companies are just scratching the surface of immuno-oncology, explains Andy Acker, Portfolio Manager of the Janus Global Life Sciences strategy. For example, new therapies unlocking the immune system’s ability to recognize and fight cancer cells could replace chemotherapy and offer long-term functional cures for many previously incurable cancers.
The consumer migration from brick-and-mortar stores to online shopping is still in its infancy. Companies that created the platforms to facilitate this shift have and will likely continue to experience rapid growth opportunities, but at the expense of many other consumer discretionary companies that have been slow to adapt, says Doug Rao, Portfolio Manager of the Janus Concentrated Growth strategy.
China and India: China in Transition, India Rising
China is transitioning from an export-led industrial economy to a consumption-driven model. India, meanwhile, is gradually introducing long-needed reforms that, if successful, will unleash and modernize its economy.
While China’s transition to a consumer-led economy will take time to complete, consumption is already making up a growing portion of GDP growth. According to Carmel Wellso, Janus’ Director of Research and Portfolio Manager, we expect that trend to continue and see consumer demand as ultimately helping China’s economy avoid a hard landing.
India may provide the brightest spot among emerging markets. Unlike many developing economies, India no longer faces the threat of high inflation and may actually lower rates to stimulate growth. George Maris, Portfolio Manager of the Janus Global Alpha Equity strategy, believes the economic technocracy across India’s ministry of finance and reserve bank is as strong as anywhere in the world, and he is encouraged by the Reserve Bank of India’s (RBI) efforts to encourage financial transmission of monetary policy to the real economy.
Navigating Volatility: Are We Headed for Mr. Market’s Wild Ride?
Many of the causes of last summer’s spike in equity market volatility are still present. Among these is the recent trend of stagnating corporate earnings. Much of the earnings growth during the post-crisis era has been propelled by streamlined operations. With companies running lean, revenue growth is needed to support further gains in the bottom line. This has been lacking and is a troublesome trend.
One factor exacerbating lean revenue growth has been the increase in highly levered balance sheets. Greg Kolb, Chief Investment Officer at Perkins, states that companies with healthier balance sheets can likely weather a disappointing earnings report as management maintains financial flexibility, including liquid assets and capacity for additional debt.
When attempting to identify sources of volatility, it is often helpful to determine where market consensus has led to a crowded trade. At present, Ashwin Alankar, Ph.D., Global Head of Asset Allocation and Risk Management for Janus, views longer-dated Treasuries as the most prevalent “crowded trade.” Driving this is the expectation that inflation will remain muted for the foreseeable future.
Adrian Banner, Ph.D., Chief Executive Officer and Chief Investment Officer of INTECH, sums up the situation nicely. He believes there’s every reason to expect these spikes in market volatility to continue to occur, so portfolios with the ability to dynamically adjust to the given volatility climate can be extremely important in managing total risk.
With mounting risks increasing, global debt levels need to be either repaid or rolled, which is dependent on yields, credit, currency and liquidity. Any roll would also rely on the ability of central banks to engineer it. Bill Gross, Portfolio Manager of the Janus Global Unconstrained Bond Fund, worries that central banks may be ineffective in stimulating growth and managing the inevitable roll or payment of such debt levels.
About Janus Capital Group, Inc.
Janus Capital Group Inc. ("JCG") is a global investment firm dedicated to delivering better outcomes for clients through a broad range of actively managed and smart beta investment solutions, including fixed income, equity, alternative and multi-asset class strategies. It does so through a number of distinct asset management platforms, including investment teams within Janus Capital Management LLC ("Janus"), as well as INTECH Investment Management LLC ("INTECH") and Perkins Investment Management LLC ("Perkins"), in addition to a suite of exchange-traded products under VelocityShares. Each team brings distinct asset class expertise, perspective, style-specific experience and a disciplined approach to risk. Investment strategies are offered through open-end funds domiciled in both the U.S. and offshore, as well as through separately managed accounts, collective investment trusts and exchange-traded products. At the end of September 2015, JCG's complex-wide assets totaled approximately $185.0 billion for shareholders, clients and institutions around the globe. Based in Denver, Colorado, JCG also has offices in London, Milan, Singapore, Hong Kong, Tokyo, Melbourne, Sydney, Paris, The Hague, Zurich, Frankfurt, Dubai and Taipei.
Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results.
A Portfolio’s performance may be affected by risks that include those associated with nondiversification, non-investment grade debt securities, high-yield/ high-risk securities, undervalued or overlooked companies, investments in specific industries or countries and potential conflicts of interest. Additional risks to a Portfolio may also include, but are not limited to, those associated with investing in foreign securities, emerging markets, initial public offerings, real estate investment trusts (REITs), derivatives, short sales, commodity-linked investments and companies with relatively small market capitalizations. Each Portfolio has different risks.
The views expressed are those of the portfolio manager(s) and do not necessarily reflect the views of others in Janus’ organization. They are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. There is no assurance that the investment process will consistently lead to successful investing. In preparing this document, Janus has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources.