Challenging Environment Calls for Defensive Approach in Equities

 In Market and Investment Insights

Portfolio Manager Justin Tugman says slowing growth and rising multiples are making for a difficult investment environment. In his opinion, equities remain attractive, but investors should consider a defensive approach.

Key Takeaways

  • The current market environment is one of the more challenging of the past decade, as stock valuations have continued to rise while economic growth and interest rates decline.
  • Compounding the issue is uncertainty around whether a recession is imminent or economic growth is simply slowing.
  • Still, we think equities remain attractive, but that a defensive approach is warranted.

Justin Tugman: From our perspective, this has been one of the more challenging environments we’ve seen in the past decade. It’s one where we’ve seen interest rates continue to go down around the world. The economic outlook has been slowing, not just in the U.S., but globally. Yet, the market has continued to increase, and we’ve seen multiples expand.

The earnings growth has also slowed. All of the gains this year have been driven by multiple expansion. I think when you add all those things together, it certainly leads to a little bit more of a dangerous environment. From our perspective, we really don’t know how this is going to end. Do we go into recession? Do we see slower economic growth, but one that continues to chug along?

I think when we try to build our portfolios, we try to think about every scenario possible and build the ones that we think are going to provide the most defensive qualities yet be able to participate in the up market should everything work out fine. So again, I think it makes sense to be a little bit more defensively positioned here. But at the end of the day, we believe that equities are the best place to be going forward.

Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.
The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

C-0919-26050 12-30-20

Receive updates from our experts.