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Outlook Yield Commodities Interest rates Inflation Portfolio construction Risk management Article

2022 Fixed Income Outlook

Multiple authors
December 2021
2022-11-15
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Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
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The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

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      A credit strategy designed for all seasons

      Today’s fixed income allocators face a variety of challenges: still-low interest rates, tight credit spreads, increased market fragility, and ever-present liquidity concerns. Growing investor liabilities and spending needs demand reliable fixed income diversification and a more consistent portfolio return profile.

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      We believe an outcome-oriented, ”all-weather” credit (AWC) approach that encompasses public, private, and perhaps alternative credit investments may help allocators meet these challenges and navigate a wide range of economic and market environments, including unexpected cycles and bouts of volatility. In our view, such an approach to credit investing can enable investors to potentially earn attractive total returns during periods of tight spreads, while remaining positioned to take advantage of market dislocations, exogenous shocks, and shifts in the credit cycle — in short, a durable credit portfolio that is robust and resilient enough to “weather” the inevitable ups and downs of credit investing.

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      Foundational principles of an AWC strategy

      How to design and construct such a portfolio? By using the building blocks of diversified public credit, private credit, and (if appropriate) alternative credit, we believe asset owners can most effectively capture the greatest risk premia in the most predictable fashion throughout the different stages of the credit cycle. This is important because credit investing, by definition, seeks to achieve total returns by harnessing risk and (at times) liquidity premia — spreads and returns that are higher, ideally meaningfully higher, than realized losses. These premia1 are dynamic by nature, moving through various credit sectors and frequently changing in scope and scale over time (Figure 1).

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      At a high level, we suggest that allocators adhere to the following guiding principles when setting out to build an AWC portfolio:

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      1. Identify your credit allocation’s goals:
      First and foremost, we believe it’s critical at the outset to clearly and realistically define your credit allocation’s long-term goals and objectives, including total return expectations, investment risk parameters, ongoing liquidity needs, and target correlations with other asset classes.

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      2. Utilize all of the tools at your disposal:
      We believe in drawing on a broad investment opportunity set and looking closely at a portfolio’s combined credit exposures. That means striking a balance across private credit markets and diversified public credits, as well as allocating to credit strategies with differing betas and liquidity terms in pursuit of the hoped-for risk-adjusted return outcome.

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      3. Be holistic, not siloed, in your approach:
      Be prepared to view your credit allocation holistically, from a total risk and return perspective, versus a siloed approach that splits the allocation among multiple distinct credit “buckets.” Strategy diversification makes the whole greater than the sum of its parts and boosts the likelihood of achieving strong risk-adjusted returns across business cycles.2

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      Figure 1
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      credit-risk-premia-fig1

      Take the next steps

      Any discussion of building an AWC portfolio must consider the proper framework within which such a strategy should be constructed, with an eye toward maximizing the potential benefits of each of its component pieces. For a deeper dive, please download the full white paper from which this excerpt was taken, A credit strategy designed for all seasons.

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      1A risk premium is the investment return an asset is expected to generate in excess of the risk-free rate of return, as typically represented by US Treasury bills. | 2Diversification does not ensure a profit or guarantee against loss.

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      Sector insights

      Fixed income: Break with tradition in 2022

      As we enter the stretch run of 2021, there are two key takeaways from our latest bond market outlook. We believe fixed income investors should think about: 1) paring back some risk exposures as 2022 takes shape; and 2) turning to select nontraditional sectors for higher total return potential.

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      Neutral risk posture…for now

      As of this writing, we maintain a neutral risk posture overall, having grown wary of some fixed income exposures in recent weeks,  particularly certain higher-yielding credit sectors. On a more upbeat note, we still believe some spread sectors can benefit from continued above-trend global growth, underpinned by healing labor markets and an improving public health backdrop.

      We suspect global inflation may prove more enduring than the US Federal Reserve (Fed) and broad markets expect, even as some supply bottlenecks ease, thereby testing the Fed’s patient resolve in removing policy accommodation. Despite the planned tapering of Fed asset purchases in the months ahead, monetary policy should continue to provide an economic tailwind, likely to be augmented by additional fiscal stimulus measures (including the US infrastructure bill).

      On market valuations, recent rich levels in many credit sectors could leave investors vulnerable to negative returns if markets encounter unanticipated tail risks. However, as we look across the fixed income spectrum, we still see pockets of attractive value for investors to consider, notably in some nontraditional credit sectors. Accordingly, 2022 may be a year in which bond investors need to “break with tradition” in the search for higher return potential.

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      Reducing risk gradually

      With valuations generally being so elevated, what has kept our credit risk outlook neutral and not poor? The short answer is, ”everything else.” Our other quantitative indicators are mostly quite positive at this time: Corporate behavior generally remains conservative, global central banks supportive (despite steps toward monetary policy tightening), and market technicals strong, all of which keep us from advocating for more cautious portfolio positioning — yet anyway.

      Of the indicators cited above, monetary policy (including a rising-rate outlook) appears to be the one that is closest to begin flashing a “warning signal” and thus bears close scrutiny going forward (Figure 1). In particular, the prospect of higher-than-expected, longer-lasting structural inflation suggests that major central banks may feel the need to start tightening policy sooner rather than later. A potential policy mistake in the form of tightening too soon or too quickly could prompt us to adopt a more defensive risk stance in 2022.

      Another potentially potent tailwind for markets, which isn’t captured in our quantitative analysis: unprecedented amounts of fiscal stimulus. The combination of ample fiscal and monetary support has given us conviction that the global economic expansion should continue in 2022.

      So with regard to fixed income risk management, why do we think investors should consider reducing risk now? Again, it comes down to rich, arguably stretched valuations. Our credit research framework tells us that it may be an opportune time to lower risk exposure, but gradually, when spreads reach levels like today’s.

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      Figure 1
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      fed-hiking-fig1

      High yield: Priced for (unattainable) perfection

      One way of looking at credit valuations is relative to government bonds. For example, we like to examine the “breakeven” default rates for various high-yield bond indices. Figure 2 shows the cumulative expected default rates required over the next five years for each high-yield index to merely keep pace with US government bonds (blue bars), as compared with “worst-ever” (red) and average (yellow) historical default experiences. (The breakeven calculation is that spread earned equals default losses.)

      As shown in the far-left bars, a 21% default rate would wipe out the spread earned in US high yield, versus an average realized default rate of 22%. This means that if we see an average default rate over the next five years, a risk-averse investor would be better off holding US Treasuries. In order for investors to earn a risk premium in high yield, defaults would need to register well below average. Translation: High yield appears priced for a very rosy, likely unrealistic outcome. While near-term default forecasts are indeed benign, we have less confidence in the market’s ability to predict several years out. Bank loans, conversely, look better positioned to withstand default losses. As such, we generally prefer bank loans over high yield these days.

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      Figure 2
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      breakeven-cumulative-fig2

      Opportunities in EM sovereigns, convertibles, and RMBS

      A few credit sectors stand out to us as having a higher probability of generating excess returns in 2022 (Figure 3):

      • Emerging markets (EM) high-yield sovereign debt looks particularly attractive because it is one of the few sectors whose credit spreads are still trading wide to their historical median. Granted, many EM countries’ fundamentals have deteriorated somewhat as a result of increased debt burdens amid the COVID crisis. On the other hand, global institutional support has been forthcoming from the likes of the IMF and World Bank. While we do expect some idiosyncratic EM debt defaults (as always), we believe a carefully assembled basket of high-conviction issuers should serve investors well over the medium term.
      • Despite concerns around lofty equity valuations, convertible bonds exhibit a trait that many other fixed income sectors lack right now: positive convexity. Sectors like high-yield bank loans have limited upside due to tight credit spreads and issuer-owned call options, which have kept a lid on prices, but they still have all the usual credit downside. Equities, by contrast, can continue to appreciate in a middle- to late-cycle economic scenario, while the convertibles themselves retain a bond “floor,” helping to mitigate potential losses. We also favor converts because they offer the opportunity to allocate to issuers that often aren’t available in other markets, particularly in the technology and biotech sectors.
      • Non-agency residential mortgage-backed securities (RMBS) still appeal to us. This sector’s fundamentals should benefit from the ongoing strength of the US housing market, which continues to be buoyed by low mortgage rates and scant supply.
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      Figure 3
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      Sector-evaluation-fig3

      Risks that bear watching in 2022

      • Chinese deleveraging: We expect to see persistent market pressure on the Chinese real estate sector as the credit turmoil associated with China’s second-largest property developer (by sales) continues to unfold. However, we view the recent steps the Chinese government has taken to “clean up” the sector as a potentially encouraging sign for the future, including measures (such as the “three red lines” policy) aimed at deleveraging to ensure sustainable longer-term growth. Near term, China’s economy and asset prices have been hit by a convergence of external and domestic shocks, some of which have to do with the country’s political calendar and its regulatory actions in 2021. Fortunately, none of these shocks seems to have derailed the development or longer-term momentum trends of the economy. We will continue to assess whether fallout from recent events threatens normalization of economic conditions over the coming months.
      • Global inflation: There remains substantial uncertainty as to the likely pace and extent of global inflation, given the volatility of recent economic data releases. Our bias right now is that inflation caused by more transitory supply factors should subside somewhat in the coming months, but that some components of inflation may have more staying power than the Fed and other global central banks expect, thus testing their will and capacity to maintain accommodative monetary policies. Central bankers will continue to face the challenge of “looking through” the more transitory sources of inflation, while also trying not to lose sight of more enduring inflation drivers (e.g., wage growth and house prices).
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      Focus on quality but stay nimble

      Reductions in fixed income portfolio risk may be warranted in the months ahead, especially if valuations remain tight or compress further. However, we also think investors should remain nimble if, for example, bouts of increased volatility lead to greater idiosyncratic dispersions or inefficiencies across fixed income markets. In this still-uncertain environment, a “barbelled” approach, consisting of larger allocations to higher-quality, liquid assets like cash and developed market government bonds, may make sense. For greater return potential, where appropriate, leaning further into those select, non-traditional sectors highlighted above may be an effective strategy in 2022.

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      Rate insights

      Fixed income 2022: Ushering in a new rate paradigm

      As we enter the stretch run of 2021, we are witnessing a seismic and rather abrupt shift in the global monetary policy framework. Notably, the big developed market (DM) central banks are gradually moving away from traditional forward guidance toward emphasizing greater policy flexibility and better risk management in response to economic and market developments. Based on recent central bank decisions, we think market participants will be less inclined to see monetary policymakers as reliable forecasters or drivers of economies and business cycles.

      DM central banks, especially the US Federal Reserve (Fed), now find themselves in the unenviable position of grappling with stubborn supply-side inflation and fundamentally transformed job markets. Low unemployment rates, which are virtually back to pre-pandemic levels in major economies, may signal that the active labor pool has been structurally diminished by some combination of early retirements, reduced immigration, labor support schemes, and/or people leaving the workforce altogether during COVID-19. Global policymakers are still trying to determine how many jobs are just “missing” and likely to return eventually, versus how many are probably never coming back (Figure 1).

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      Figure 1
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      Employment-rates-fig1

      A shrinking arsenal of policy tools

      One medium-term implication of this shifting monetary policy backdrop is that global central banks seem to be losing tools and ammunition from their conventional policy tool kits.

      For example, forward guidance and rhetoric, along with yield curve control (YCC) measures, are increasingly perceived as less effective and less credible than in the past and will therefore likely play a smaller role in central banks’ approach to navigating future economic cycles. Similarly, most central banks now recognize that quantitative easing (QE) can help combat bouts of market turmoil, but is not a suitable means of generating sustainable inflation in line with policy targets. Consequently, the risk central banks now face is that if they prematurely tighten monetary policy, they will have even fewer tools at their disposal to adapt to fluid economic and market conditions.

      In general, we still think the potential costs of policymakers being “early and wrong” in their actions are greater than being “late and wrong.” In addition, today’s market dynamics have resurfaced the age-old question of whether monetary policy tightening is even the best way to manage higher inflation driven by supply shortages. And could rising prices themselves lay the groundwork for a weaker cycle by blunting consumer demand for goods and services?

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      Major central banks roundup

      Global markets and policymakers alike are coalescing around the view that global inflation will likely remain elevated for the foreseeable future (“persistent,” not “transient” as previously hoped). However, the major DM central banks’ policy responses thus far have varied somewhat:

      • The US Fed has pushed back against calls for a more rapid tapering process for its large-scale asset purchase program, as well as against the idea of beginning to hike interest rates sooner rather than later. However, Fed Chair Powell is keeping the Fed’s policy options open with regard to both the speed of tapering and the timing of rate hikes.
      • The Reserve Bank of Australia (RBA) has decided to abandon or at least alter its yield curve control (YCC) target.
      • In an attempt to allay markets, the European Central Bank (ECB) recently delivered a dovish “pushback” message to markets, albeit with only moderate success to date.
      • The Bank of England (BOE) plans to embark on a rate-hiking cycle only after assessing the impact of the British government’s pandemic jobs support plan.
      • The Bank of Japan and the Swiss National Bank have been laggards in market pricing of their rate-hiking intentions. Most other G10 banks are expected to start hiking by 2022.

      As of this writing, our baseline “taper path” for the US Fed is that it will likely complete the winding down of its asset purchase program by around June 2022. The Fed has retained the option of adopting a faster pace of tapering if warranted, any further indication of which in the months ahead would validate the market’s latest forward-pricing expectations. (Currently, markets expect Fed rate hikes to begin next summer, followed by the next rate increase in November). The Fed has indicated its preference for a time gap between the end of tapering and its first rate hike, but again, flexibility is the watchword here. Should the recent acceleration in wage pressures prove to be “sticky,” for example, the Fed might have to change course.

      At this juncture, we anticipate a modestly dovish outcome for the BOE’s policy trajectory. The BOE surprised markets recently by choosing not to raise interest rates, citing job market uncertainty and other factors. It also acknowledged that its ability to loosen policy in response to any future negative demand shocks will be hemmed in by the lower bound on rates, implying a “go gradual” approach to normalization.

      Despite the fate of the RBA’s YCC target (see above), we think the market’s hawkish policy expectations, now priced into the front end of Australia’s yield curve, are slightly overdone. We maintain a favorable bias toward select Asia-Pacific duration markets, including Australia’s.

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      Fiscal to the fore

      Front-end yield curve markets have been testing global central banks’ patience and resolve. Longer-dated sovereigns have reacted via curve flattening, suggesting a greater chance of a policy error (e.g., tightening policy too early). This has been particularly evident in the UK and US fixed income markets. Much of the recent change in front-end pricing appears to have brought the timing of rate hikes forward as opposed to extending hiking cycles. Hence, we think fiscal policy will begin to replace monetary policy as the main influence on market direction.

      If the US human and physical infrastructure bills pass, markets can then put a higher probability on increased government investment in the coming years. This would be a potent catalyst to (at least in the short term) break the substantial US yield curve flattening trend of recent months. Meanwhile, the European and UK fiscal pictures both point to the likelihood of high (and potentially rising) spending outlays in the period ahead — in contrast to the US, which could be in stalemate over additional government spending post the 2022 midterm elections.

      Globally, growing appetites for climate-related investment needs and increased sociopolitical preferences for higher budget deficits suggest a more activist fiscal stance relative to monetary policy over the next few years.

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      Emerging markets and the China factor

      Emerging markets (EM) central banks have taken a markedly different policy approach from that of their DM counterparts, “front-loading” rate hikes in an effort to counter inflationary pressures. This hiking cycle has been driven by a need to anchor inflation expectations and to avoid currency depreciation and related instability, which have been a headwind for many local rates but have also created pockets of value in select EM assets. We continue to believe Chinese local rates are attractive, given their potential diversification benefit from historically low correlations to other sovereign debt markets. Moreover, China’s economic and policy cycle is in a different phase than other EMs, with output now slowing and the People’ Bank of China (PBOC) likely to pursue easier monetary policy, with an eye toward loosening financial conditions, going forward.

      On China’s economy, we think further growth downside is limited, provided the PBOC’s overall policy tone remains accommodative. The two obvious wildcards that could jeopardize this usual two-step of “policy looser, growth stronger” would be a structural deterioration of home-buyer sentiment and a further acceleration in inflation. However, the apparent lack of transmission from sluggish real activity in China to softer commodity pricing is a distinguishing feature of this current cycle, as is the absence of feedthrough to growth in the rest of the Asia-Pacific region.

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      Global inflation: The new bogeyman?

      Global inflation dynamics are undeniably changing, and most likely not for the better. At last check, inflation was already registering above its pre-pandemic peak (Figure 2), despite lower levels of economic growth, in both EMs and DMs. This is partly due to temporary phenomena — chiefly the so-called “bottlenecks” associated with COVID-induced supply-chain disruptions — but it also seems to reflect a structural shift to persistently higher rates of global inflation henceforth. What’s driving it? A number of the key factors that dampened inflation over the past 30 years are now in reverse and have largely given way to other global forces with more long-term inflationary effects: deglobalization, localization of supply chains, labor shortages triggered by COVID, and evolving consumer preferences and habits, among others.

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      Figure 2
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      pre-pandemic-peak-fig2

      The next six months could be characterized by rocky, uneven growth patches. Nevertheless, at a high level, we still think the most likely endgame for the global cycle that is now underway should be one of reflation rather than the much-feared “stagflation” scenario, as many consumers spend down the savings they accumulated during the pandemic, corporations increase capital expenditures (capex), and government policy — particularly fiscal — remains supportive. We believe the greater risk is that of recession rather than stagflation if, for example, inflation squeezed real wages and turned the cycle over, global COVID cases resurged, central bankers prematurely tightened policy, and/or China’s slowdown worsened.

      In any event, what is clear is that rising global inflation is leading central bankers worldwide to reassess the risk/reward trade-off of letting their economies “run hot” or for too long. Accordingly, investors should no longer assume that flagging economic growth will always result in ever-more policy-driven liquidity courtesy of central banks. With that in mind, a pivotal (and as-yet unanswered) macro question is whether labor market dynamics have changed sufficiently to allow workers to be compensated for higher inflation through higher wages. If so, then inflation is likely to have legs and monetary policy to tighten sooner and by more than markets expect. If not, then the cycle would likely sour, as consumers’ purchasing power gets increasingly pinched.

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      US inflation, productivity, and wages

      In the US, our current bias is toward higher unit labor costs and more enduring inflation relative to the Fed’s and market’s expectations. Pipeline cost pressures, supply bottlenecks, and retail price intentions would suggest that goods inflation stays elevated, before waning over the next 12 months. At the same time, we think core services inflation, which is more sensitive to the domestic output gap and labor markets, will start to pick up. If our leads are right, all of which imply upside risks to the Fed’s 2022 inflation forecasts, we suspect the Fed would start to more seriously question the dubious “transitory narrative,” especially given some improvement in the labor market. We will be closely monitoring the details of capex and of prospective fiscal policy for anything that might challenge our thinking.

      The Fed seems pretty upbeat about US productivity growth rising in the context of potentially higher labor market participation rates. This attitude underpins the Fed’s belief that: 1) longer-term inflation will likely settle back around 2.0% over time; and 2) there remains excess capacity in the domestic labor market. While recent productivity, wage, and inflation data don’t necessarily support that, we think the Fed’s optimism is still justified given today’s labor shortages, US demographics, and other factors. It would likely take time for the Fed to meaningfully revise its view on structural productivity trends.

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      Commodity prices and decarbonization

      Commodity prices will be critical to both the global and US inflation outlooks. A potential change in OPEC+’s reaction function (including a marginally greater tolerance for higher oil prices) and/or US shale discipline preventing a proportional increase in US oil production could continue to push oil prices upward in 2022.

      Broadly speaking, ongoing decarbonization will likely restrain global growth to some degree, at least until countries can map out viable longer-term energy transition plans, including a “bridge” of sorts (i.e., natural gas) between fossil fuels and renewable energy. In the interim, commodity price pressures are showing signs of impacting the “economic reopening-linked” demand and growth recovery. But the US consumer has rarely been healthier, with the low-wage cohort in particular stepping up its spending in an environment of significant labor shortages and widely understated wage gains. The US economy seems better placed to weather the latest energy “storm” than DM energy importers like Japan, the UK, and the eurozone. In addition, US trade exposure to China looks negligible when compared to that of Australia, New Zealand, and Japan.

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      Key takeaways

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      • Global markets are less likely to perceive monetary policymakers as reliable forecasters or drivers of economies and business cycles. DM central banks may struggle to achieve dovish, market-friendly outcomes relative to the market’s more hawkish expectations these days. 
      • Rather than extending rate-hiking cycles, markets are “pulling forward” the timing of rate hikes amid worries over rising inflation and slowing economic growth, which have eroded markets’ confidence in the longer-term macro outlook.
      • Global trade wars and the COVID pandemic have reshaped the nature of inflation risk, with secular themes of deglobalization and localization of supply chains incenting firms to hold higher amounts of inventory going forward.
      • Central bankers face a delicate balancing act: Is monetary policy tightening supposed to help rein in higher consumer prices, OR will accelerating inflation itself set the stage for a weaker cycle? DM and EM policy responses to this dilemma have differed.
      • The inexorable trend toward decarbonization will likely temper global growth to some degree, at least until more countries can map out viable longer-term energy transition plans.
      • We currently favor underweight duration biases in the US, the UK, and Europe, versus moderate overweight biases in Asia-Pacific, including South Korea, Australia, and China.
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      ESG Risk insights

      Assessing ESG risks in sovereign bonds: The time is now

      The challenges of the past 18 months or so have highlighted the potential for environmental, social, and governance (ESG) factors to become even more relevant to asset management and have underscored the ever-increasing importance of stewardship by fiduciaries and active investors alike. ESG has quickly become one of the defining investment criteria of this decade — a trend we have little doubt will endure in 2022 and beyond.

      We have long believed that mounting sovereign debt burdens pose a risk to investors, even in developed markets. At the very least, investors are not being adequately compensated for investing in the most heavily indebted countries. Given the sharp rise in government debt levels in response to the global COVID-19 crisis, it’s an opportune time for sovereign bond investors to refresh their investment frameworks, the particular metrics to be applied, and their country-selection methodologies, including the ESG factors underlying investment decision making.

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      Sovereign risk framework at a glance

      Our sovereign risk framework (SRF) incorporates ESG factors, which we see as indicators of a country’s structural stability or long-term ability to generate economic growth and meet its debt obligations. (Notably, as discussed below, we recently elevated the already important role of ESG factors in our SRF framework.)

      ESG/structural stability remains one of four pillars of the overall framework (Figure 1), with the other three being the country’s: 1) fiscal and monetary flexibility; 2) economic imbalances; and 3) total public debt outstanding. The primary output of the framework is a ranking system, which allows to us exclude from consideration those countries deemed to have the weakest sovereign fundamentals.

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      Why we elevated ESG factors

      While ESG encompasses a wide range of concepts, we worked through a long list of components to identify those metrics that have historically exhibited the strongest correlations with a country’s long-term economic performance.

      • ESG is now equally weighted along with the other three pillars of our framework (see above) to create what we think is a more robust, comprehensive view of sovereign risk. The main goal is to identify countries with stable to improving credit characteristics for potential investment. In this context, we believe increased emphasis on ESG makes sense given its power to influence a country’s longer-term growth potential and future liabilities.
      • We believe climate change risk will put significant pressure on sovereign balance sheets over the medium term if it is not dealt with effectively in the coming years. With that in mind, we are able to leverage our unique partnership with Woodwell Climate Research Center to help optimize our climate risk metrics. This adds analytical depth and rigor to our SRF and also greatly informs more productive interactions with ESG standard setters and regulators.
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      Inside our ESG variables

      • Environmental (“E”): Environmental factors have gained prominence in our investment process as we acknowledge climate change to be a material risk and a contingent liability. Environmental factors include both physical climate risks (e.g., population displacement, pollution-induced health problems) and climate transition risks (e.g., noncompliance with the Paris Agreement).
      • Social (“S”): Social metrics relate most appropriately to the downward pressures supply-side dynamics can exert on a country’s ability to generate economic growth over the long term. These factors take into account the stability of the country’s future income tax base and revenues, as determined chiefly by demographics (e.g., female/male and dependency ratios).
      • Governance (“G”): We believe governance metrics correlate with a country’s GDP over time, especially for emerging markets. It stands to reason that a weaker governance backdrop will likely make the growth environment more challenging. Our indicators here include a country’s rule of law and its degree of political stability.
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      Final thoughts on sovereign bond ESG risks

      Overall, we firmly believe that a more complete integration of ESG factors into our sovereign debt investment approach can deliver meaningful benefits to clients in the coming years. With respect to climate risks specifically, given their critical importance to investors and regulators, we will continue to seek new ways to proactively implement the findings of our ongoing research efforts.

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      sovereign-risk-framework
      Authored by
      reganti-amar-316x316
      Amar Reganti
      Fixed Income Strategist
      Boston
      lafond cara
      Cara Lafond, CFA
      Multi-Asset Strategist
      Boston
      perret-christopher-648x648
      Christopher Perret, CFA, CAIA
      Investment Director
      Boston
      bayerl-andrew-new
      Andrew Bayerl, CFA
      Investment Director
      Boston
      burn-robert-316x316
      Rob Burn, CFA
      Fixed Income Portfolio Manager
      Boston
      Campe Goodman
      Campe Goodman, CFA
      Fixed Income Portfolio Manager
      Boston
      naidu-jitu
      Jitu Naidu
      Investment Communications Manager
      Boston
      pelata-marion
      Marion Pelata
      Fixed Income Portfolio Manager
      London
      harvey-martin
      Martin Harvey, CFA
      Fixed Income Portfolio Manager
      London

      This is an excerpt from our 2022 Investment Outlook, in which specialists from across our investment platform share insights on the economic and market forces that we expect to influence portfolios in the year to come.

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      By entering this Website, you acknowledge and agree to be bound by each of the following Terms, together with any additional terms and conditions that apply to individual webpages, documents or other attachments contained within this Website (together, the “Conditions of Use“). If there are any Conditions of Use that you do not understand or agree with, you must leave this Website or the webpage in question (as applicable) immediately and delete immediately from the memory of your computer all documents from this Website.In these Terms, references to “you” and “your” are references to any person using or accessing (or attempting to use or access) this Website or, as the context requires, the legal entity on whose behalf a user uses or accesses (or attempts to use or access) this Website. References to “Wellington Management”, “we” and “us” are references to Wellington Management Singapore Pte. Ltd.

      1. About this Website: The information on this Website is issued and communicated by Wellington Management, which is regulated by the Monetary Authority of Singapore (“MAS”) as a capital markets services licence holder for fund management under the SFA and an exempt financial adviser for advising on certain investment products under the Financial Advisers Act 2001 of Singapore

      2. About the Funds: This Website contains information about various umbrella funds (each an “Umbrella Fund” and together the “Umbrella Funds”) and those of their sub-funds (the “Funds”) which are being offered to investors in Singapore pursuant to one or more exemptions from the prospectus registration requirements under the SFA, in particular, under Sections 304 and 305 of the SFA. The Funds have been listed on the MAS’ list of restricted schemes. The Funds are not authorized or recognized by the Monetary Authority of Singapore and shares or units in the Funds are not allowed to be offered to the retail public in Singapore. The materials relating to each of the Funds that can be accessed through this website are not a prospectus as defined under the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. The Funds may only be promoted exclusively to persons who are sufficiently experienced and sophisticated to understand the risks involved in investing in such Funds, and who satisfy certain other criteria provided under Section 304 and Section 305 of the SFA and the subsidiary legislation enacted thereunder.

      NOTE: The Funds are generally only available for subscription by persons who qualify as an “accredited investor” and/or “institutional investor” (each and defined under the SFA). To the extent you are an “accredited investor”, you acknowledge and agree that an opt-in confirmation will be required from you prior to you being given the opportunity to subscribe for any Funds.

      The Funds referred to on this Website may not be suitable investments for you and you should therefore seek professional investment advice before making a decision to invest in any of the Funds. Before making any investment decision read carefully the offering documents of each Fund.

      Access to this Website: In order to access this Website, you have been asked to select the jurisdiction which is applicable for the intended investment activities. Your selection will be used to determine the information that you will be able to access on this Website. You hereby represent and warrant to Wellington Management that the information that you have provided is true, accurate and complete and you undertake to notify us of any change to such information. Failure to provide us with accurate information will be treated as a material breach of these Terms. Certain Funds may not be available in all geographical locations and so information about certain Funds may not be available to all users of this Website. You must not attempt to gain access to areas of this Website other than those made available to users in the jurisdiction you selected. If the jurisdiction you should select changes, you must access this Website selecting your new jurisdiction. You should be aware that this may result in you not being able to access (i) information in relation to the same Funds as previously, or (ii) any information at all. Please note that the fact of selecting a jurisdiction does not mean that all or any of the Funds in relation to which information is made available, have been deemed suitable for you.

      When using this Website you must comply with all applicable local, national and international laws and regulations including those related to data privacy, international communications and exportation of technical or personal data. It may be unlawful to access or download the information contained on this Website in certain countries and the Umbrella Funds, Funds, Wellington Management and its affiliates disclaim all responsibility if you access or download any information from this Website in breach of any law or regulation of Singapore, the jurisdiction in which you are residing or domiciled or the jurisdiction from which you access the Website.

      If you are acting as a licensed intermediary, you agree to access this Website only for the purposes for which you are permitted to do so under applicable law. You agree that you will not share with or provide any information available on this Website to persons in Singapore other than in accordance with and pursuant to the applicable requirements and restrictions under the SFA.

      Wellington Management reserves the right to suspend or withdraw access to any page(s) included on this Website without notice at any time and accepts no liability if, for any reason, these pages are unavailable at any time or for any period.

      3. No Market Timing: You agree not to engage in any “market timing” practices with respect to your investment in any Fund and shall take all reasonable steps to ensure that no user authorised to access this Website on your behalf engages in any such market timing practices. For these purposes, “market timing” shall include engaging in any trading strategy with the intention of taking advantage of short-term changes in market prices including (without limitation) by engaging in: (i) excessive trading, (ii) late trading or (iii) market abuse.

      4. U.S. Persons: Interests in the Funds are not being offered, and will not be sold, within the United States or to, or for the account or benefit of, any U.S. Person. The term U.S. Person shall have the meaning given to it in Regulation S under the United States Securities Act of 1933, as amended, and includes, among other things, U.S. residents and U.S. corporations and partnerships.  

      5. Selling Restrictions: The distribution of the information and documentation on this Website may be restricted by law in certain countries. This Website, and the information and documentation on it, are not addressed to any person resident in the territory of any jurisdiction where such distribution would be contrary to local law or regulation. Not all the Funds in relation to which information is available on this Website are available in all geographical locations and so not all areas of this Website will be accessible to all users. The Funds are not available, and offering materials relating to them will not be distributed, to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation. 

      6. No Investment Advice: The information on this Website is provided for information only and on the basis that you will make your own investment decisions.

      Nothing contained on this Website constitutes, and nothing on this Website should be construed as, investment advice or a recommendation to buy, sell, hold or otherwise transact in any investment including interests in the Funds. It is strongly recommended that you seek professional investment advice before making any investment decision.

      Unless agreed separately in writing with a client, Wellington Management and its affiliates neither provide investment advice to, nor receive and transmit orders from, investors in the Funds nor do they carry on any other activities with or for such investors that constitute “investment services” or “ancillary services” for the purposes of MiFID.The information on this Website does not take account of any investor’s investment objectives, particular needs or financial situation. Investment in the Funds may not be suitable for you. In addition, nothing on this Website shall, or is intended to, constitute financial, legal, accounting or tax advice.

      You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision. You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to the subscription, holding, transfer or disposal of interests in the Funds.

      Any opinion, comment, article, financial analysis, market forecast, market commentary or other such information which is published on the Website is not binding on Wellington Management or its affiliates nor are they deemed responsible for the information, opinion or ideas offered.

      7. Past Performance; Forecast; Simulation: To the extent that this Website contains any information regarding the past performance and/or forecast of a Fund, such information is not a reliable indicator of future performance of such Fund and should not be relied upon as a basis for an investment decision. To the extent that this Website contains any information regarding simulated past performance, such information is not a reliable indicator of future performance and should not be relied on as the basis for an investment decision. Investment results for each Fund may vary.

      The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested and may lose all of their investment. The value of investments in the Fund may be affected by the price of underlying investments. Exchange rate changes may cause the value of overseas investments to rise or fall.

      8. Price Information: All prices or values may not reflect actual prices or values that would be available in the market at the time provided or at the time you may decide to purchase or sell an interest in a particular Fund.

      9. Risk Warnings: There are significant risks associated with an investment in any of the Funds. Investment in the Funds is intended only for those investors who can accept the risks associated with such an investment (including the risk of a complete loss of investment) and you should ensure that you have fully understood such risks before taking any decision to invest.

      Investments in the Funds are neither insured nor guaranteed by any investor compensation scheme and are not deposits or obligations of, or guaranteed by, any entity within the Wellington Management group.

      These Terms do not represent a complete statement of the risk factors associated with an investment in the Funds. The offering documents for each Fund contain risk warnings which are specific to the relevant Fund. You should consider these risk warnings carefully and obtain appropriate investment advice before taking any decision to invest.

      10. Offering Documents: The terms of any investment in a Fund are governed by the documents establishing such terms. An application for interests in any of the Funds should only be made having fully and carefully read the offering documents, which are the relevant prospectus, key investor information document, the latest financial reports and any other offering documents for the relevant Fund which are available on this Website and upon request from the fund representative in your jurisdiction and specified in the prospectus for the relevant Fund.

      It is your responsibility to use the offering documents and by making an application to invest in a Fund you will represent that you have read the prospectus for the relevant Fund, the appropriate key investor information document for the Fund and any other applicable offering document and will agree to be bound by its contents.

      11. Information on this Website: This Website, and the information on it, are provided for information purposes only and do not constitute an invitation, offer or solicitation to engage in any investment activity including to buy, hold or sell any investment including any interest in the Funds.

      The information on this Website is provided in good faith and reasonable care has been taken to ensure that such information is accurate, current and fit for its intended purpose. To the extent that any information on this Website relates to a third party, this information has been provided by that third party and is the sole responsibility of such third party and, as such, Wellington Management and its affiliates accept no liability for such information. No representation or warranty of any kind regarding the accuracy, adequacy, validity, completeness or timeliness of the information on this Website or the error-free use of this Website is given and, to the extent permitted by applicable laws, no liability is accepted for the accuracy or completeness of such information. No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services on the Website. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the Website will meet your needs. You agree to assume the entire risk as to your use of the Website. Any person who acts upon, or changes his investment position in reliance on information contained on this Website, does so entirely at his own risk. In the event of any inconsistency between the information on this Website and the terms of the relevant offering documents, the terms of the offering document shall prevail.

      Information posted on this Website is current only as at the date it is first posted and may no longer be true or complete when viewed by you. All content on the Website is subject to modification from time to time without notice. Please contact Wellington Management (using the details in the “Contact Us” section below) for further information regarding the validity of any information contained on this Website.

      This Website and most of the documentation contained within it is provided in the English language and you represent and warrant that you understand the English language.

      12. Conflicts of Interest: Wellington Management, its affiliates and their directors, officers, employees or clients may have or have had interests or long or short positions in any investment product or other financial instruments underlying any investment product referred to on this Website and may at any time make purchases and/or sales in them as principal or agent. In addition, Wellington Management and/or its affiliates may act or have acted as market maker in any investment product, or financial instruments underlying such investment product or entered into an arrangement to hedge the market risk associated with the investment products. The Wellington Management group has conflicts of interest policies in place which specify the procedures that they follow and the measures that they have adopted in order to avoid such conflicts or to manage such conflicts in a way that ensures fair treatment for clients.

      13. Monetary Benefits: You agree that we may, to the extent permitted by applicable laws and regulations, share charges or commission with affiliates of Wellington Management or other third parties, or receive remuneration from them, in respect of transactions you carry out in relation to the Funds described in this Website. Where relevant, we may disclose such arrangements to you. Details of any such arrangements are available on request.

      14. Liability: No warranty is given that the contents of this Website are compatible with all computer systems or browsers or that this Website shall be available on an uninterrupted basis.

      The internet is not a completely reliable transmission medium and none of the Umbrella Funds, Funds, Wellington Management or any of its affiliates accept any liability for any data transmission errors such as data loss or damage or alteration of any kind or for the security or confidentiality of information transmitted across the internet to or from the Umbrella Funds, Funds, Wellington Management or any of its affiliates. Any such transmission of information is entirely at your own risk and any material downloaded from this Website is downloaded at your own risk.

      The information on this Website is provided “as is” and “as available”. To the extent permitted by law, no guarantee or representation, express or implied, is made as to the accuracy, validity, timeliness, completeness or continued availability of any information made available on the Website. The Umbrella Funds, Funds, Wellington Management, its affiliates and each of their directors, officers, employees and/or agents expressly exclude all conditions, warranties, representations, and other terms which might otherwise be implied by statute, common law or the law of equity to the fullest extent permitted by applicable law or regulation.

      In no event will the Umbrella Funds, Funds, Wellington Management or any of its affiliates be liable to any person for any direct, indirect, special or consequential damages, losses or liabilities arising out of any use of, or inability to use, this Website or the information contained on it including, without limitation, lost profits, business interruption, any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, line or system failure, loss of programs or data on your equipment or otherwise, even if the Umbrella Funds, Funds, Wellington Management or its affiliates are expressly advised of the possibility or likelihood of such damages, losses or liabilities, unless such damages, losses or liabilities are due to the Umbrella Funds, Funds, Wellington Management’s or its affiliates’ negligence, wilful default, fraud or material breach of the Umbrella Funds, Funds, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

      This does not affect the liability of the Umbrella Funds, Funds, Wellington Management or its affiliates for any loss or damage which cannot be excluded or limited under applicable law.

      15. Indemnification: As a condition of your use of the Website, you agree to indemnify and hold the Umbrella Funds, Funds, Wellington Management, its affiliates, and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to legal fees) arising from your use of the Website or from your violation of these Terms, unless such claims, losses, liability, costs or expenses are due to the Umbrella Funds, Funds, Wellington Management’s or its affiliates’ negligence, wilful default, fraud or material breach of the Umbrella Funds, Funds, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

      16. Intellectual Property: The entire content of this Website is subject to copyright with all rights reserved. All materials on this Website are owned or licensed by the Umbrella Funds, Funds, Wellington Management, its affiliates and/or its third-party providers and are protected by Singapore and international intellectual property laws. Unless otherwise indicated, all service marks, trademarks, and logos appearing on this Website are the exclusive property of Wellington Management. You may not copy, display, distribute, download, license, modify, publish, repost, reproduce, sell, transmit, use to create a derivative work, or otherwise use for public or commercial purposes the content of this Website without the prior written permission of Wellington Management.

      17. Privacy Policy: Please see our privacy policy which is contained on this Website for information about how the Wellington Management group protects your personal data, including personal data collected through this Website. You will be asked to agree to the terms of our privacy policy when selecting your relevant jurisdiction.] The Wellington Management group respects the privacy of its clients and the confidentiality of information pertaining to its clients.

      Information we collect

      We and our affiliates may collect non-public personal information about you on RFPs, questionnaires, and other forms received from you, as well as from personal contacts such as correspondence, e-mail, telephone calls, or meetings. We and our affiliates may also receive information about you from third parties, such as your accountants, lawyers, financial consultants, and/or other service providers.

      It also is possible to receive information from web browsers and apps regarding certain of your online activities using cookies, or other common tracking technologies. Some web browsers and other applications may provide a Do Not Track (DNT) preference setting. When a user turns on a tracking preference, the browser or application may send a message to web sites requesting that they do or do not track the user. At this time, we and our affiliates take no action in response to any DNT settings or messages.

      Information sharing

      Wellington Management seeks to provide seamless service to all clients. To facilitate that process, information regarding client accounts is shared broadly between affiliates within the Wellington Management group of companies. For example, an affiliate may share information with other affiliates in order to facilitate portfolio management or provide client liaison services to a particular client. Client information may be used by Wellington Management or its affiliates in order to identify potential client needs for additional investment products.

      The Wellington Management group does not disclose your information except as required or permitted by law.

      The Wellington Management group generally does not share non-public client information with unaffiliated third parties, except as necessary to perform the services it has been hired to provide. As a general rule, the Wellington Management group does not engage in joint marketing arrangements with unaffiliated third parties that involve the sharing of non-public information regarding its clients. The Wellington Management group does not provide client information to unaffiliated third parties for their own marketing purposes.

      In the event that Wellington Management or one of its affiliates is involved in a merger, acquisition, reorganization or sale of assets, or bankruptcy, your information may be transferred or sold as part of that transaction.

      Security policies

      The Wellington Management group uses technical, administrative, and procedural measures in an attempt to safeguard your personal and other information from unauthorized access or use. No such measure is ever 100% effective though, so we do not guarantee that your personal and other information will be secure from theft, loss, or unauthorized access or use, and we make no representation as to the reasonableness, efficacy, or appropriateness of the measures the Wellington Management group uses to safeguard such information. Users are responsible for maintaining the secrecy of their own passwords. If you have reason to believe that your interaction with us is no longer secure (for example, if you feel that the security of any account you might have with us has been compromised), please immediately notify us by contacting your relationship team member.

      Transfer of data to other countries

      Any information you provide to Wellington Management through use of this website may be stored and processed, transferred between, and accessed from countries outside of Singapore. In the event that we transfer your personal data to a country outside Singapore, we will take appropriate steps to ensure that the recipient of the personal data is required to provide the transferred personal data a standard of protection that is at least comparable to the protection under the Personal Data Protection Act 2012 of Singapore.

      18. Cookies: When you visit this Website, a Wellington Management group company server will record your IP address together with the date, time, page visited and duration of your visit. Please note that the Wellington Management group uses cookies on this section of the Website. A cookie is a small piece of information sent by a web server to store on a Web browser so it can later be read back from that browser. Cookies are small pieces of software that are issued to your computer or device and that store and sometimes track information about your use of the site. The Wellington Management group also uses cookies to collect general usage and volume statistical information that does not include personally identifiable information. Some cookies may remain on the user’s computer after they leave this Website (these are known as persistent cookies). For more information about cookies including how to set your internet browser to reject cookies, please go to www.allaboutcookies.org.

      By using this Website, you agree that the Wellington Management group can place cookies on your device which collect the data and for the purposes described above and as further detailed in the Cookie & Tracking Notice.

      If you delete cookies relating to this Website, we will not remember things about you, you will be treated as a first-time visitor the next time you visit this Website and we will not be able to tailor your experience of this Website.

      The Wellington Management group has engaged one or more third party service providers to track and analyze usage and volume statistical information from visitors to this Website. The service provider(s) set cookies on behalf of the Wellington Management group. The Wellington Management group may re-associate the information provided by the technologies directly above with other personal information we hold about you. By using this Website, you agree that third parties can place cookies on your device as described above.

      19. Your use of this Website: You must not use this Website (or permit or procure others to use it) as follows:

      • for any unlawful, improper or illegal purpose or activity;
      • to communicate or receive information that is obscene, indecent, pornographic, sadistic, cruel, or racist in content, of a sexually explicit or graphic nature, which promotes or incites discrimination, hatred or racism or which might be legally actionable for any reason;
      • in a manner intended to threaten, harass, or intimidate;
      • to violate Wellington Management’s or any third party’s copyright, trademark, proprietary or other intellectual property rights;
      • to damage Wellington Management’s name or reputation or that of Wellington Management’s affiliated companies or any third parties;
      • to impersonate any of Wellington Management’s employees or other person or use a false name while using this Website or implying an association with Wellington Management;
      • to penetrate Wellington Management’s security measures or other entities’ systems (“hacking”);
      • to transmit unsolicited voluminous emails (for example, spamming) or to intercept, interfere with or redirect email intended for others using this Website;
      • to generate excessive amounts of internet traffic, to interfere with Wellington Management’s network or other’s use of this Website or to engage in activities designed to, or having the effect of, degrading or denying service to other users of this Website or others;
      • to introduce viruses, worms, harmful code and/or Trojan horses onto the internet or into this Website or any other entity’s systems and it is your responsibility to ensure that whatever you download or select for your use from this Website is free from such items;
      • to post or transmit information that is defamatory, fraudulent or deceptive including, but not limited to, scams such as “make-money-fast” schemes or “pyramid/chain” letters; and/or
      • to transmit confidential or proprietary information, except solely at your own risk.

      20. Linked Websites: Links to websites operated by third parties are provided for information only and do not constitute any form of advice, endorsement or recommendation of such websites or the material on them. Wellington Management accepts no responsibility for information contained on any other sites which can be accessed by hypertext link from this Website or for these sites not being available at all times. Wellington Management has not reviewed, and will not review or update, such websites or information and any use that you make of such websites and information is at your own risk. Please note that when you click on any external site hypertext link you will leave this Website. You should review the privacy statements of such websites before you provide any personal or confidential information.

      21. Website Security and Restrictions on Use: As a condition to your use of this Website, you agree that you will not, and you will not take any action intended to: (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this Website; (iii) probe, scan, or test the vulnerability of this Website or Wellington Management’s network or breach security or authentication measures without proper authorisation; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorised use of the Website, including but not limited to unauthorised entry into Wellington Management’s systems or misuse of any information posted to a web site, is strictly prohibited.

      22. Amendment: Wellington Management may delete or make changes to these Terms and to the information contained on this Website at any time. Where such amendments are made, you will be required to accept any such changes in order and prior to continue to use the Website. If you do not accept such revised Terms, you may no longer be able to access this Website.

      If any provision of these Terms is found by any court or authority of competent jurisdiction to be illegal, void or invalid under the laws of any jurisdiction, the legality, validity or enforceability of the remainder of these Terms in that jurisdiction shall not be affected and the legality, validity and enforceability of the whole of these Terms in any other jurisdiction shall not be affected.

      23. Third Parties: The Umbrella Funds, Funds, Wellington Management and its affiliates shall have the benefit of the rights conferred on them by these Terms but otherwise no person who is not a party to these Terms may enforce its terms whether under the Contracts (Rights of Third Parties) Act, 2001 of Singapore or otherwise.

      24. Applicable Law: These Terms and any non-contractual obligations arising from or connected with them shall be governed by, and these Terms shall be construed in accordance with, the laws of Singapore.

      25. Jurisdiction: You agree that the Singapore courts shall have exclusive jurisdiction in relation to any legal action or proceedings arising out of or in connection with these Terms (whether arising out of or in connection with contractual or non-contractual obligations) (“Proceedings”) and waive any objection to Proceedings in such courts on the grounds of venue or on the grounds that Proceedings have been brought in an inappropriate forum. You further agree that this paragraph operates for the benefit of the Umbrella Funds, Funds, Wellington Management and accordingly the Umbrella Funds, Funds, Wellington Management shall be entitled to take Proceedings in any other court or courts having jurisdiction.

      26. About Wellington Management Singapore Pte Ltd: Wellington Management Singapore Pte Ltd is incorporated in Singapore and is regulated as a capital markets services licence holder for fund management by the MAS. Wellington Management’s principal place of business is at 8 Marina Boulevard, Tower 1, #03-01 Marina Bay Financial Centre, Singapore 018981.

      27. Contact Us: If you have any enquiries in relation to our data protection policies and procedures, this Website or the information on it, please contact Wellington Management at #GRG-SingaporeClientTeam@wellington.com.

      Effective as of 22nd November 2022

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