巴克莱银行｜2024年年中投资展望

Mid-Year
Outlook 2024
Distractions, distortions
and decisions, decisions
Contents
Foreword 3
A year of distractions, distortions and decisions 4
Global economy resilient in the face of headwinds 5
Stay defensive and focus on ‘alpha’ opportunities 8
Bond market road map: the path(s) ahead 12
A century of diversification – was it worth it? 16
Making use of climate-risk data 21
Is your portfolio at risk from the low-carbon transition? 25
Elections or economy – which matters most for investors? 30
Multi-asset portfolio allocation 33
Contributors:
Julien Lafargue, CFA, London UK, Chief Market Strategist Dorothée Deck, London UK, Head of Cross Asset Strategy
Nikola Vasiljevic, Ph.D, Zurich Switzerland, Head of Alexander Joshi, London UK, Head of Behavioural Finance
Quantitative Strategy
Damian Payiatakis, London UK, Head of Sustainable &
Henk Potts, London UK, Market Strategist EMEA Impact Investing
Lukas Gehrig, Zurich Switzerland, Quantitative Strategist Iain Martin, London UK, Investment Writer
Michel Vernier, CFA, London UK, Head of Fixed Income Strategy Luke Mayberry, London UK, Investment Analyst
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Executive Macro – Fixed Climate Investing Behavioural Multi-asset
Equities Quant
summary Global income risk sustainably finance portfolio allocation
Foreword
Welcome to our “Mid-Year Outlook”, the investment strategy update from Barclays Private
Bank.
In the following chapters, we look at the different paths being followed by leading central banks
on the timing for rate cuts in the US, Europe and UK, and assess the implications for bonds and
equities.
With around half the world heading to the polls this year, we also examine just how much of an
effect election results could have on prospects for financial markets.
And beyond our usual wide-ranging asset class and financial market analysis, we highlight what
investors might do to better position their portfolios for climate-change risk.
As always, we hope you enjoy the articles, and we thank you for entrusting us with your
investments.
Jean-Damien Marie
Head of Investments, Private Bank & Wealth Management
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Equities Quant
A year of distractions, distortions and decisions

With a US election in the offing, interest rates likely to be higher for longer and slower economic
growth, what lies ahead for investors this year?
The first half of 2024 was filled with uncertainty on many fronts: Security selection is likely to drive most of the portfolio gains in
economic, geopolitics and markets being three. Unfortunately, the coming months, rather than acting as a ‘tide that lifts all boats’.
the rest of the year is unlikely to be any clearer, amid key general Here, we still prefer higher-quality exposure on the equity and the
elections in the UK and US, mounting geopolitical tensions and fixed income side, while introducing short-term, or tactical, sector
central bank indecisiveness. and regional tilts.
Yet, to the surprise of many commentators, equity markets have Meanwhile, risk management is not a matter of being invested or
climbed the ‘wall of worry’, registering numerous all-time highs. not. It’s about finding opportunities that can produce attractive
Even Chinese stocks have experienced a revival. As such, it’s returns for a given level of risk. On that note, and with bulging fiscal
critical to differentiate between the macroeconomic outlook and deficits in many top-ten economies, investors should be mindful
market sentiment. Sometimes, as seen frequently this year, bad of allocations to what they consider to be ‘risk free’ investments.
economic news can be good news for investors. Even cash, as seen from the recent explosion in inflation rates,
isn’t riskless after taking into account the purchasing-power
MORE OF THE SAME? erosion that higher prices can inflict on your wealth.
So, what to expect for the rest of this year and beyond? While Similarly, the need for incorporating climate risk in the
uncertainty won’t fade completely (there is always something to assessment of portfolios’ long-term exposures is becoming
worry about), the macroeconomic mists should clear somewhat. ever more relevant but also more complicated. A disciplined, all-
First, and foremost, inflation will probably continue to grind lower. encompassing approach to sustainable investing appears to be
Similarly, growth is likely to normalise. essential to truly account for the challenges raised by the ongoing
energy transition away from fossil fuels.
This means weaker US growth, but a more supportive
momentum in the eurozone and UK. In turn, this should allow the KEEP FOCUSED AND AVOID NEEDLESS
leading central banks to finally initiate a normalisation of their own, DISTRACTIONS
by gradually lowering interest rates.
Staying invested remains, in our view, the key to meeting your
There are obviously risks around our central scenario. Inflation long-term goals. While this might be a big year for elections, not
could prove even more sticky than anticipated, or an economic least in the US, it’s important to remember that economic activity
shock could send prices higher. Similarly, after a couple of years has a much larger influence on markets than politicians. Indeed,
of tight monetary policy, evidence might emerge of businesses whoever next resides at the White House or at 10 Downing Street
and consumers finally starting to feel the pinch, driving growth will likely have their policies heavily guided by the shape of the
lower and possibly triggering a contraction. While either scenario global economy, in addition to financial markets. With sizable fiscal
appears to be a relatively low risk, investors shouldn’t ignore them. deficits, the scope for turning on the spending taps will be limited.
IS DIVERSIFICATION REALLY A ‘FREE LUNCH’? In summary, there is a long list of possible distractions this year
that may occasionally distort financial markets, possibly creating
The above risks are why we remain laser focused – and examined opportunities for investors. But beyond that, the most important
one hundred years of data for one of this year’s chapters – on the decision over the remainder of 2024 is: how to best position my
importance of appropriate diversification at both the portfolio portfolio to reach my long-term goals? This bumper publication
and the asset class level. Continued uncertainty and demanding should provide useful and timely insights in the search for an
valuations, especially on the equity side, will require investors to be answer.
equally driven by upside potential and risk management.
Author: Julien Lafargue, London UK,
Chief Market Strategist
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Equities Quant
Global economy resilient in the face of headwinds

With signs of a global slowdown becoming louder, can growth survive the mounting geopolitical risks
that lie ahead?
ECONOMIC FORECASTS, YEAR-ON-YEAR (%, F=FORECAST)
GDP CPI
2023 2024F 2025F 2023 2024F 2025F
Global 3.2 3.1 3.0 3.9 2.6 2.4
Advanced 1.6 1.4 1.5 4.7 2.8 2.2
Emerging 4.4 4.3 4.0 2.8 2.2 2.7
US 2.5 2.5 1.6 4.1 3.1 2.3
Eurozone 0.5 0.7 1.3 5.4 2.3 2.1
UK 0.1 0.8 1.0 7.3 2.6 2.0
China 5.2 5.0 4.0 0.2 0.3 2.0
Japan 1.9 0.0 1.2 3.3 2.7 2.1
Brazil 2.9 1.9 1.7 4.6 4.0 3.4
India 7.7 7.0 7.2 5.7 4.7 4.8
Russia 3.6 2.0 1.3 5.9 6.6 4.1
Sources: Barclays Investment Bank, Barclays Private Bank, June 2024
INFLATION OUTLOOK
Please note: All data referenced in this article are sourced
from Bloomberg unless otherwise stated, and is accurate at A mixture of base effects, easing energy prices, restrictive
the time of publishing. monetary policy and fewer supply-side restrictions has helped to
curb price pressures. However, recent falls in the consumer price
Six months into 2024 and much has changed in the world but index (CPI) have proved to be more ‘sticky’ than many economists
our assessment of the global economy has barely budged. Over had anticipated.
the rest of the year, weaker growth, softer inflation and so lower
interest rates all appears to be on the cards. We forecast that global consumer prices will rise by 2.6% this year,
and 2.4% in 2025. The slower decline in CPI is likely to influence
At the margin, there seem to be some mild positives for the the pace of policy shifts, with interest rates likely to stay higher for
outlook in China though more caution about the US growth longer in several key regions.
profile. While out of recession, the eurozone and UK economies
will likely remain subdued in the coming quarters.
"This year is a seminal political
However, geopolitical risk is to the fore, with electorates in the
US, eurozone, India and UK having just been to the polls or due period"
to go. The potential impact of the elections could have profound
consequences. So, where does that leave the global economy?
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Equities Quant
GEOPOLITICAL RISK Inevitably, the upcoming presidential election makes

forecasting even harder than usual. Our outlook is based on
Financial markets face a particularly precarious six months our perception of the US economy, and its momentum at this
in terms of geopolitical events. However, the extent to which point in time.
they might influence sentiment and growth remains to be
seen. Ukrainian and Middle Eastern conflicts continue to However, the next US president could introduce legislation
impact commodity markets and global supply chains. Growth- that changes the path for growth, inflation and interest rates.
sapping trade tariffs are also re-emerging. Rather than getting caught in largely irrelevant guesswork, our
focus is on identifying the areas of the US economy that are
This year is a seminal political period. Following elections in likely to be most immune from political gyrations.
India, and across the European Union, and with countries like
the US and UKto follow, nearly half the world’s population is EUROPE ON THE MEND?
set to vote. This could have profound implications for global
stability, international diplomacy and economic policy. The eurozone appears to be accelerating from a precarious
starting point: a technical recession – or at least a long
With the backdrop of so much uncertainty, policymakers face period of stagnation. The bloc’s composite purchasing
a difficult period. The conflicting forces of dovish monetary mangers’ index (PMI) hit 52.3 in May, helped by a recovery in
policy versus a more constrained fiscal backdrop, particularly manufacturing and expanding services sector. Meanwhile, the
in the United States, will muddy the policy trajectory. unemployment rate continues to hover around its historical
low level of 6.5%.
After years of economic support through the financial crisis,
the pandemic and the energy crisis, government coffers are European price pressures have significantly eased over the
now exhausted and future provisions are likely to limited. past year. Although, headline inflation in May ticked up to
Meanwhile, lower interest rates should be supportive of 2.6% year on year (y/y), compared to 2.4% April. Meanwhile,
economic activity, but will not be enough to boost the growth core CPI, which excludes volatile items like energy and food,
outlook quickly. rose to 2.9% y/y. Further disinflation seems likely in coming
months. The mixture of soft core goods inflation and lower
THE END OF THE US EXCEPTIONALISM? energy prices has prompted us to trim our headline inflation
projection. It now stands at an average of 2.3% in 2024 and
The world’s biggest economy appears to be slowing, after 2.1% in 2025.
a strong 2023. Several indicators suggest the speed bumps
seen in the first five months may be no accident. Indeed, the In turn, lower inflation should pave the way for interest rate
US consumer seems to have exhausted the excess savings cuts. After starting the rate-cutting cycle in June, we expect
accumulated during the COVID-19 pandemic, when the further quarter-point cuts in September and December
government doled out support, while the job market has assuming price rises ease. In addition, more cuts are
softened. anticipated next year, with the deposit rate potentially finishing
2025 at 2.5%.
In addition, the US consumer may be running on fumes. We
forecast that domestic private consumption growth will slow Despite the positive progress seen so far, gross domestic
over the next 18 months, from 2.5% in 2024 to 1.6% in 2025. product (GDP) growth is likely to remain tepid and the
Meanwhile, US unemployment is likely to climb, but could peak anticipated easing in European Central Bank policy shouldn’t
at 4%, which still remains low by historical standards. be seen as a sign of economic strength.
Despite more signs of US inflation moderating this year, price

THE UK AT A TURNING POINT?
pressures remain elevated, specifically in the services sector.
We expect CPI to remain above the 2% targeted level over the
Like the eurozone, the UK economy seems to be finding a
next 18 months, reaching 3.1% in December and 2.3% by the
second wind. The country returned to growth in the first three
end of 2025 (see table).
months of the year. Activity rebounded with the fastest spurt
in quarterly growth since 2021. This was driven by strong
Concerns that it will take longer for inflation to sustainably
demand for services and a recovering manufacturing sector.
return to the central bank’s 2% target has supported
After a downturn last year, consumers were back in spending
a postponement of the start of the rate-cutting cycle.
mood, as wages growth outpaced inflation.
Disappointing investors along the way. We now expect the US
Federal Reserve (Fed) to cut rates by just a quarter point this
As elsewhere, after a period of exceptional strength,
year, meaning the federal funds target range will be at 5-5.25%
the UK labour market has finally started to weaken. The
at year end. However, a larger, one point reduction in rates is
unemployment rate rose to 4.3% in the three months to the
expected in 2025.
end of March, compared to a 3.5% low recorded in August
2022.
For all the above concerns, anticipated US growth of 2.5%
this year and 1.6% next would still be better than most of its
We forecast that the jobless rate will peak at 4.6% by the turn
developed peers.
of the year. This may not bode well for domestic consumption
levels, but should result in lower levels of pay growth, which in
turn should help to ease the UK’s inflation profile.
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Equities Quant
Turning to UK inflation, the headline rate eased to 2.3% in

April, with core CPI hitting 3.9%, with the deceleration weaker
"The world’s biggest economy
than anticipated. While progress towards the 2% targeted
level may take longer than expected, the slowdown should
appears to be slowing...Speed
prove to be comforting enough for policymakers to start
cutting rates this year and into next. We forecast that inflation
bumps seen in the first five
will average 2.6% this year and be bang on target at 2% in
2025.
months may be no accident"
Lacklustre levels of growth, rising unemployment and inflation The Chinese authorities have embarked on a series of
that’s close to the 2% target should give the Bank of England supportive polices, particularly for the ailing housing market.
plenty of scope to consider cutting interest rates, despite More innovative solutions may still be needed to stop the
the political uncertainty over the result of July’s election. The sector being a brake on economic expansion and for social
Monetary Policy Committee is expected to cut in August, stability.
November and December this year, with three further cuts in
2025, so taking the Bank Rate to 3.75% by August 2025. Given the positive start to the year, China seems to be on
course to achieve its 5% growth target for 2024. However,
Economic activity levels are expected to remain below weaker domestic consumption, a softer labour market and
potential, with growth of 0.8% forecast for this year and tumbling property investment hints at a fragile recovery.
1% in 2025. Whatever the result of the election, the new
administration’s room for manoeuvre will be constrained by
A RESILIENT YEAR AHEAD
having limited fiscal headroom.
Considering the plethora of challenges that face the global
CAN CHINA DEFY THE GLOOM? economy, forecast expansion of 3.1% this year, and around
3.0% in 2025, would be encouraging. Our focus in the second
The economy has seen signs of revival this year, but the half of the year is on the resilience of the recovery, progress
recovery remains mixed and structural issues continue to with slowing price rises and the speed of rate cuts.
weigh on the outlook. The 5.3% growth witnessed in the first
quarter was better than expected. However, more recent data If inflation measures return to targeted levels and central
suggests that momentum has already slowed. banks reduce borrowing costs, this should be another
positive. However, the ongoing geopolitical tensions, reduced
On the positive side, stronger global demand has fuelled a consumer firepower and fiscal restraints are likely to constrain
revival in industrial production and exports. Exports returned the speed of the recovery for some time.
to growth in April with industrial production advancing 6.7%
y/y, from 4.5% in March. Author: Henk Potts, London UK, Market Strategist EMEA
In contrast, the key drivers of retail sales, the housing market

and infrastructure investment, continue to act as a drag.
Retail sales grew by 2.3% in April due to weaker discretionary .
goods sales and a contraction in car sales. Consumer demand
remains under pressure, with softer wealth dynamics and a
weaker labour market.
Meanwhile, the real estate sector continues to be a cause for

concern, with property investment slumping by 10.5% in April
and house prices still heading lower.
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Equities Quant
Stay defensive and focus on ‘alpha’ opportunities

With economic growth slowing and many equity markets at all-time highs, can the rally be
sustained, and how should investors be positioned?
Please note: This article is more technical in nature than WHAT THE MARKET IS PRICING IN
our typical articles, and may require some background
knowledge and experience in investing to understand the While the debate has shifted drastically from fears of a ‘hard
themes that we explore below. landing’ of the economy at the start of last year, to hopes
of a ‘soft landing’ or even a ‘no-landing’ at the beginning of
All data referenced in this article is sourced from LSEG this year, the market seems to be positioned for the most
Datastream unless otherwise stated, and is accurate at optimistic outcome. Global equity prices appear to be
the time of publishing. discounting a ‘no-landing’ scenario, where economic activity
reaccelerates significantly in the coming months.
Global equities have continued to march higher this year,
unphased by rising yields and heightened geopolitical Based on historical relationships with business surveys and
tensions. Apart from a 5% pullback in early April, which was corporate earnings, global equities are pricing in a strong
quickly reversed, stock markets have gone up almost in a recovery in the manufacturing cycle, consistent with above-
straight line. They are now back to all-time highs, 26% above trend gross domestic product (GDP) growth, as well as a 15%
their October lows. to 20% jump in global earnings this year.
CONTEXT BEHIND THE RECENT RALLY AND HOW LIKELY IS THIS SCENARIO?
PERFORMANCE DRIVERS
Equity markets appear overly complacent on the economic
The strong performance of equities in 2024 is remarkable, outlook. The US manufacturing sector has been in
considering the sharp repricing in rate expectations in recent contraction territory for the past 19 months. While there
months. At the start of the year, the market was pricing in were tentative signs of stabilisation during March, those were
six or seven US rate cuts in 2024. But following higher-than- not sustained in April and May. Similarly, the earnings growth
expected inflation prints, and more hawkish communication discounted by the market is approximately twice as high as the
by the US Federal Reserve (Fed), those expectations have 8% average growth reported globally over the past 50 years.
been slashed, with the market now expecting only one or two It is also significantly ahead of analysts’ forecasts of a 10%
cuts this year. Over this period, US 10-year yields have jumped increase in earnings this year.
from 3.8% in December to 4.4% at the time of writing.
In contrast, our base case scenario is more conservative. It
The rally has been driven primarily by re-rated valuations, assumes a modest slowdown in global growth over the next
in anticipation of improved earnings momentum. Although couple of years, and a normalisation of inflation towards
some regions appear to be more expensive than others, central banks’ targets.
global equity valuations are elevated by historical standards,
trading at 17.6 times their forward earnings, over 20% above We project global GDP growth to decelerate from 3.2% in
their 20-year average. 2023 to 3.1% in 2024 and 3.0% in 2025 (below trend growth of
3.4% since 1980). We also expect the global rate of inflation
Those valuation multiples look vulnerable if the growth/ to moderate from 3.9% in 2023, to 2.6% in 2024 and 2.4% in
inflation mix deteriorates, which is one of the key risks the 2025.
market is focusing on at present (see chart, page 9). This
means that a significant increase in corporate earnings is now Historically, our growth expectations have been consistent
required to justify the recent moves in equity prices, and for with flattish earnings growth globally. This is backed up by the
the rally to be sustained. historical relationships with business surveys and bank lending
standards.
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Equities Quant
EQUITY VALUATIONS TEND TO COMPRESS WITH NEGATIVE GROWTH/INFLATION SURPRISES
Six-month change in global equities’ trailing price-to-earnings ratio, compared with the spread between Citi’s global economic
surprise and inflation surprise indicators over the past 20 years
Sources: LSEG Datastream, Barclays Private Bank, May 2024
UNCERTAINTY AROUND THE ECONOMIC 1) At the stock level

OUTLOOK
There has been a significant increase in the dispersion
As mentioned previously, the most probable outcome is one of returns in recent months, with investors paying more
where global growth decelerates (but does not collapse), inflation attention to company fundamentals than macroeconomic
normalises (with bumps along the way) and yields decline. drivers. This seems likely to persist, with more differentiation
in share price performance expected, particularly during
However, the path for central banks to deliver a ‘soft landing’ earnings seasons.
is very narrow. If policy rates are kept restrictive for too long,
in order to rein in inflation, they could push the economy into a At a time of slowing growth, disinflation and elevated interest
recession. Alternatively, if rates are cut too soon, to protect the rates, we would continue to focus on quality companies. That
economy, inflation could re-accelerate. Both scenarios would be is, those with a high return on equity, solid balance sheets, low
negative for risk assets, and equities in particular. The situation is financial leverage and stable earnings through the business
further complicated by a swathe of elections this year, not least cycle. Investors need to be selective, as quality companies
in the US, as well as heightened geopolitical tensions. have outperformed strongly in recent months and now trade
at a significant premium to historical levels. The MSCI World
“We...favour the more defensive Quality index has returned 32% in the past year versus 25% for
the broader market.
parts of the economy” Another option is to maintain exposure to structural growth
trends, which tend to be less correlated with market moves.
WHAT MIGHT THIS MEAN FOR EQUITY Certain themes continue to attract a lot of interest, including
PORTFOLIO POSITIONING? the adoption of artificial intelligence within the wider
economy, as well as security in its various forms (whether
While the upside potential for equity markets appears limited related to cyber, food or defence).
at the index level, ‘alpha’ opportunities can still be found at the
stock, sector, style and regional levels.
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Equities Quant
2) At the sector level 3) At the regional level
At the sector level, we continue to favour the more defensive At the regional level, we continue to favour UK stocks for their
parts of the economy, which have lagged in the recent rally, defensive tilt, undemanding valuations and attractive dividend
and tend to outperform the broader market in periods of yield.
slowing growth and declining yields. Amongst those, utility and
consumer-staples stocks remain reasonably priced, despite a We also see a short-term window for eurozone equities to
strong rerating in the case of utilities in the past three months. outperform their US peers over the remainder of the year
They trade at a discount to history (especially in Europe), offer (see chart), although we would be more neutral over a longer
a superior dividend yield and analysts’ earnings expectations investment horizon. Two catalysts should help drive this short
look conservative. period of outperformance:
However, given the high level of economic and political • The divergence in central bank policies, with the European
uncertainty, it also makes sense to maintain some exposure to Central Bank likely to cut rates before the Fed this year;
select deep-value cyclicals, which should behave as a hedge if
global growth proves to be more resilient than anticipated. • A reversal in growth momentum, with economic
activity improving from a low base in the eurozone and
Global energy stocks are particularly well positioned in that decelerating from an elevated level in the US.
context, as they trade at a deep discount to history, and
offer the best dividend yield amongst the 11 Global Industry
Relative valuations are also supportive, with eurozone equities
Classification Standard sectors (4.0% forward dividend yields
trading at a 36% discount to their US peers, compared with a
versus 2.0% for the MSCI All Country World Index). They
21% discount on average in the past 20 years (based on forward
can also be an attractive hedge against any escalation of
price-to-earnings multiples). This is 2.3x standard deviations
geopolitical tensions, rising oil prices and inflation in general.
below the long-run average (see chart on page 11).
EUROZONE EQUITIES TEND TO OUTPERFORM THEIR US PEERS WHEN ECONOMIC ACTIVITY IN

THE BLOC SURPRISES MORE POSITIVELY THAN IN THE US
Six-month change in the relative performance of eurozone equities versus US peers in local currency, compared with the
difference between Citi’s economic surprise indicator in the eurozone and the US over the last 10 year
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Equities Quant
EUROZONE EQUITIES TRADE AT A SIGNIFICANT DISCOUNT RELATIVE TO THEIR US PEERS
Eurozone equities’ valuation discount to US equities, based on forward price-to-earnings ratio, over the past 20 years
IN SUMMARY
With global growth slowing and equity markets trading at all- A renewed focus on company fundamentals should help
time highs, the upside potential looks limited at the index level. unlock undervalued assets. At this stage of the cycle, and
Having said that, attractive opportunities still exist, under given the level of uncertainty, a defensive tilt in portfolios
the surface. As the economy slows and vulnerabilities are seems warranted, alongside selective exposure to deep-value
exposed, investors are likely to become more discriminating. cyclicals.
Author: Dorothée Deck, London UK, Head of Cross Asset

Strategy
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Equities Quant
Bond market road map: the path(s) ahead

Lower growth and lower inflation should provide a favourable path for bonds, but what happens if
the great moderation does not materialise?
Please note: This article is more technical in nature than As examined in our article earlier this year, ‘The right
our typical articles, and may require some background temperature for corporate credit?’, investment grade credit
knowledge and experience in investing to understand the seems to perform particularly well against government debt if
themes that we explore below. annual GDP growth is between one to two percent, as seen in
the US since 1948.
Please note: All data referenced in this article are sourced
from Bloomberg unless otherwise stated, and is accurate It could be argued that the above is all priced into the market
at the time of publishing. already. First, the rate market implies moderate cuts rather
than hikes, as shown by a mildly inverted yield curve (based on
After a solid but not exceptional year in 2023, returns across the US 10-year yield minus that on the two-year being -0.3%).
the major bond segments varied from -5.8% for ultra- Second, spreads (yield premium to government bonds)
long-dated US Treasuries, to almost 2.5% for US high yield among US investment grade (of below 90 basis points (bp))
and emerging market bonds this year. Dollar- and euro- and US high yield bonds (close to 300bp), for example, are
denominated investment grade debt returned -1.8% and close to their tightest levels recorded in the last 20 years.
-0.2% respectively.
DOES EXPENSIVE PRICING RESULT IN NO OR
More resilient growth, particularly in the US, and persistent NEGATIVE RETURNS CONSEQUENTLY?
core inflation, as seen lately in the UK, have once again pushed
out the timeline for policy rate cuts. This, in turn, led to a re-
No is the short answer. Rich pricing exposes mark-to-market
pricing in the rate market.
values to volatility, should “things” not materialise as implied.
But the main feature of bonds is that they deliver returns
RATE CUTS POSTPONED through coupon or yield and carry, rather than price gains.
Investment grade yields in the US, eurozone and the UK are
The US economy seems to be heading for a ‘soft-landing’ 100bp away from their recent highs, at 5.5%, 3.8% and 5.5%
while the eurozone and the UK should see a moderate pick up respectively. However, they are still at levels last seen fifteen
in gross domestic product (GDP) growth (what might be called years ago, showing plenty of yield still left (see chart, page 13).
the great convergence) and lower inflation, as analysed in our
Macro chapter, ‘Global economy readies for storms ahead’. In addition, a likely slowing of global growth in coming months
suggests that somewhat lower rates are on the cards
A rate cut by the US Federal Reserve (Fed) towards the end providing additional price gains. Admittedly, every cycle is
of this year seems likely, while three cuts may be on the cards different, and the current environment has enough potential
in the UK and eurozone in 2024. The forthcoming cutting to deliver alternative scenarios. However, some are hard to
cycle could see the Fed, Bank of England (BoE) and European quantify (like the US or UK elections), while others are difficult
Central Bank (ECB) bring down their policy rates to 4.25%, to judge what the impact will be (like fiscal policy or geopolitical
3.75% and 2.5% (deposit rate) respectively, though this would conflicts). Not least because historical relationships between
be higher than seen during previous cutting cycles. economic outcomes and asset returns appear to have been
shaken up over the last three years.
Moderate growth and lower trending inflation, that is a climate
that is not too cold and not too hot, seems to be favourable
for bonds.
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Equities Quant
SPREADS TIGHT BUT YIELDS ARE HIGH
US investment grade (IG) yields decomposed to rate and spread (to Treasuries) component
Sources: Bloomberg,Barclays Private Bank, May 2024
CONSIDERING ALTERNATIVE PATHS MARKETS ARE IGNORING CYCLES
Given the higher uncertainty over future rate paths, it’s Another alternative scenario, would be that of a recession,
worth examining alternative scenarios, and their possible which does not seem to be priced in by the market. Again, this
implications. One would be if the major economies avoid is not to be confused with a larger crisis, be it macroeconomic
a landing at all or see some growth acceleration. Such a or geopolitical in nature, but simply a deeper economic
possibility seems more likely to occur in the US, compared to downturn with a substantial rise in the unemployment rate, as
the EU or UK for example. Fed chair Powell would likely delay seen so often during cycles.
the easing cycle or would even have to add an additional hike
or even two in such a scenario. Traditionally, central banks respond to downturns with deep
rate cuts, regularly more so than implied by the rate market.
Higher rate volatility would be on the agenda in particular if the Real policy rates of -1% to less than -1.5%, as seen in 2001
new US government further stretches the fiscal boundaries or 2008, appear to be plausible, which could translate to
raising debt supply concerns. A test of the recent highs for nominal policy rates of lower than 2% in the case of the Fed.
the US 10-year Treasury yields, at 5%, and renewed spread Consequently, nominal long-term bonds would outperform
volatility could be possible outcomes. while spreads would materially widen; potentially for a
prolonged period. This is in anticipation of surging defaults
Given the positive fiscal impulse for the economy, higher among speculative grade credit given the historically strong
spreads would unlikely persist and would mainly be seen in the relationship between defaults and unemployment. Meanwhile,
loan market, as a result of higher funding costs. investment grade bonds should deliver more stable
performance, owing to their closer link to rates levels.
According to ratings agency Moody’s, companies at the lower
“A rate cut by the Fed towards

end of the rating scale in the US must refinance around $393
billion of debt over the next three years (55% of the total).
the end of this year seems

Overall, a no landing and persistent inflation scenario would
favour inflation-linked bonds. But also shorter-term BB-rated
likely”
bonds should do relatively well (despite expected volatility).
> 13 >
Equities Quant
EVERY BOND SEGMENT HAS ITS PLACE
Change in performance of US Treasuries (UST), Treasury inflation-protected securities (TIPS), investment grade (IG), high yield
(HY) debt and US-denominated emerging market (EM) debt, over the last decade
SHORT-TERM BONDS HAVE UNDERPERFORMED SIGNIFICANTLY
The performance of various sectors of the US bond market, and US dollar-denominated emerging market debt, shows that
shorter-term maturities have lagged

> 14 >
Equities Quant
“FANATICALLY” DIVERSIFIED
The fact that the bond market is already priced for a soft A mix of medium-term investment grade bonds in
landing does not suggest it is inappropriate to position for combination with other segments, like high yield (BB-rated),
such a path. It just reduces the likelihood of exceptional short- emerging markets and some inflation-linked bonds, seems
term outperformance. As mentioned above, reasonable carry to be a reasonable approach to meet the potential paths to
returns could still be achieved. come, as history has shown (see chart at the bottom of page
14). Sticking to short-term ‘safe-haven’ debt over a long period
Admittedly, the level of uncertainty seems high at this stage. to face all possible scenarios, meanwhile, seems to be a more
Even Nobel laureate in economics Paul Krugman attested: questionable strategy.
“On interest rates I am fanatically confused.”1 Alternative or
adverse scenarios, as laid out above, can best be addressed Author: Michel Vernier, CFA, London UK, Head of Fixed
via diversified and active strategies engaging in various Income Strategy
parts of the bond market and by avoiding outright extreme
positioning (such as being invested in just long-term bonds,
or maintaining a focus on high yield bonds only).
1
Krugman says he’s ‘fanatically confused’ on where rates are going, Bloomberg, 21 May 2024
> 15 >
Equities Quant
A century of diversification – was it worth it?

After an inflation shock and soaring financial market uncertainty, this article offers fresh insights into
the impact of price rises on portfolio returns across core asset classes, underscoring the significance
of diversification for long-term investors
Please note: This article is more technical in nature than So, what has the effect of the above turmoil had on the
our typical articles, and may require some background performance and risk of financial markets? Our analysis, which
knowledge and experience in investing to understand the covers the last century1 in nominal terms, shows that the
themes that we explore below. annualised cumulative total returns over the full sample were 3.3%
for Treasury bills, 4.6% for Treasury bonds, 6.8% for US corporate
Since 2020’s COVID-19 pandemic, an initial period of economic bonds and 10.4% for American stocks. This hierarchy
slowdown, as well as soaring inflation and aggressive interest rate of average returns is consistent across shorter investment
hikes, have all been replaced by a retreat in inflation and strong horizons and aligns with the market risk of each asset class,
earnings growth, fuelled by artificial intelligence fever that has measured by annual-return volatility (approximately 3%, 8%, 8%
powered US equities higher. and 19%, respectively).
Amid elevated uncertainty and diverging global signals, many Staying invested over this hundred-year period, which is
investors now focus primarily on short-term macroeconomic admittedly a challenging concept for many investors, would
data, geopolitical events and monetary policy. How wise is this have seen an excess annualised return over cash of about 7%.
approach? This is unsurprising, as stocks are the key driver in long-term
wealth creation. The flipside is that in doing so, investors are
ZOOMING OUT ONE HUNDRED YEARS exposed to both volatility and potential intermittent losses.
Making sound long-term investment decisions is not simple. It THE SPECTRE OF WEALTH EROSION
requires understanding trends and the relationships between
different asset classes, and their sensitivity to macroeconomic When investing over shorter periods of time, many people view
factors, over the desired investment horizon. money in nominal rather than real terms, ignoring the corrosive
effects of inflation on portfolio returns. Given that price rises
While history might not repeat itself, this article looks at what can reduce the buying power of their wealth, investors should
a century of returns in US equity and bond markets can teach consider how much cash is not being deployed, especially over the
investors. long term (see chart, at the top of page 17).
A CENTURY OF FEARS AND HOPES The dangers of focusing on nominal performance are clear when
discovering that the inflation rate has averaged about 2.9% since
Since the Roaring Twenties, investors have been hit by the impact 1923. The average real return on Treasury bills was barely positive,
of numerous wars, market crashes, seismic geopolitical shifts, offering minimal real wealth growth. In contrast, Treasury bonds’
economic upheaval and pandemics. However, through the gloom, real growth was 3.5 times faster and corporate bonds’ growth was
the world has seen groundbreaking technological advancements almost 30 times quicker. Stocks, however, outpaced Treasury bills
and explosive growth. by an astronomical 788 times, roughly equivalent to the number
of planet Earths that could fit inside Saturn.
1
Our dataset comprises one hundred annual fixed income, equity and inflation observations. For fixed income, we collected yields on 3-month
US Treasury bills, 10-year US Treasury bonds and 10-year US corporate bonds (investment grade with an average Moody’s credit rating of
Baa). For equities, we gathered prices, dividends, and earnings for the S&P Composite Index. The dataset also includes annual inflation rates,
calculated using the US consumer price index for all urban consumers. The data is sourced from the St Louis Fed’s Federal Reserve Economic
Data, US Bureau of Economic Analysis and the websites of Professor Robert Shiller (Yale University) and Professor Aswath Damodaran (New York
University).
> 16 >
Equities Quant
A CENTURY OF REAL GROWTH
The inflation-adjusted performance for US Treasury bills, Treasury bonds, corporate bonds stocks and a hypothetical 50/50
asset mix between equities and fixed income (30% of the entire portfolio invested in Treasuries, 15% in corporate bonds and 5%
in Treasury bills). The full sample comprises total return from 1924 to 2023. All time series are rebased at 100 at the end of 1923
Sources: Federal Reserve Economic Data at St Louis Fed, US Bureau of Economic Analysis, the websites of Prof. Robert Shiller (Yale University)
and Prof. Aswath Damodaran (New York University), Barclays Private Bank, May 2024.
A CENTURY OF VARIATION IN TOTAL REAL RETURNS
The dispersion of annualised total real returns for US Treasury bills, Treasury bonds, corporate bonds, stocks and a hypothetical
50/50 asset mix between equities and fixed income (30% of the entire portfolio is allocated to Treasury bonds, 15% to corporate
bonds, and 5% to Treasury bills) for holding periods from one to twenty years. The bottom (top) of each bar shows the minimum
(maximum) annualised total real return for a given asset class and investment horizon, observed over a period from 1924 to 2023
Sources: Federal Reserve Economic Data at St. Louis Fed, US Bureau of Economic Analysis, the websites of
Prof. Robert Shiller (Yale University) and Prof. Aswath Damodaran (New York University), Barclays Private Bank, May 2024 > 17 >
Equities Quant
COMPOSURE IS REWARDED BY A RISK TWIST remains steady for Treasury bills and bonds, it increases to
85% for both stocks and corporate bonds.
When taking a comprehensive view of temporal and cross-
asset investment aspects, two crucial elements emerge: Finally, stocks delivered positive real returns in all twenty-
year periods from 1924 to 2023. Corporate bonds closely
First, investors typically do not consider investments over a followed, with the success ratio of 93%, while only two-thirds
century, so let’s focus on more plausible horizons, ranging of inflation-adjusted outcomes were favourable for Treasury
from one to twenty years. Second, asset classes behave bills and bonds.
differently over short-term (one-year) versus long-term (ten-
or twenty-year) periods ( see chart at the bottom of page 17). The ordering of the extreme positive outcomes among asset
classes aligns with the established full-sample hierarchy.
We now explore the range of annualised cumulative total real However, the rankings of the largest negative real returns are
returns for the four mentioned asset classes over one, five, reversed. Strangely, if risk is defined as the worst inflation-
ten and twenty years. Additionally, a simple 50/50 portfolio adjusted outcome over a certain period, Treasury bills were
comprising 50% stocks and 50% fixed income is included in the riskiest asset class over a twenty-year investment horizon.
the analysis.
Last but not least, a hypothetical 50/50 portfolio showed similar
To mimic real-world portfolios, 30% of the entire portfolio is real return dispersion to US Treasury bonds and corporate
allocated to Treasury bonds, 15% to corporate bonds and 5% bonds over one- and five-year horizons, while aligning more
to Treasury bills. closely with stocks over longer investment horizons.
Over a one-year investment horizon, stocks displayed the DIVERSIFICATION OR “DIWORSIFICATION”?

largest dispersion in real returns. The maximum upside
and downside swings for corporate bonds were reduced by The above analysis indicates that diversification significantly
approximately one quarter compared to stocks. Both stocks reduces portfolio risk by drawing on the strengths of both
and corporate bonds posted positive real returns about 75% fixed income and equity worlds. Furthermore, it does so
of the time. Surprisingly, the real returns for Treasury bills and efficiently across various holding periods.
bonds, despite their lower volatility, were positive only 55%
and 61% of the time, respectively. While managing overall portfolio risk is important, the risk of
heavy losses from exceptional events (often known as tail
Moving to five- and ten-year horizons, the extremes are risk) is arguably the most critical. For many investors, it can be
compressed. While the percentage of positive real returns difficult to remain calm in times of market crashes, whether in
equity or bond markets.
A CENTENARY CASE FOR DIVERSIFICATION
The trade-off between diversification benefits and costs of adding fixed income to equities in a portfolio over investment
horizons ranging from one to twenty years
Sources: Federal Reserve Economic Data at St. Louis Fed, US Bureau of Economic Analysis, the websites of Prof. Robert Shiller (Yale University)
and Prof. Aswath Damodaran (New York University), Barclays Private Bank, May 2024
> 18 >
Equities Quant
Two key questions arise. Does cross-asset diversification IS DIVERSIFICATION A FREE LUNCH?
remain effective during market meltdowns, or do the assumed
benefits vanish when they are needed the most, leading to the To address the free-lunch question, let’s look at the trade-off
phenomenon known as “diworsification”? And if diversification between diversification benefits and costs of adding fixed
offers protection, is it truly a ‘free lunch’? income to equities in a portfolio over investment horizons
ranging from one to twenty years. The tail-risk hedging potential
In the chart at the bottom of page 18, each solid line and modelled diversification benefits are calculated based on
represents a different holding period, and shows the trade-off the average percentage of wealth preserved in the ten worst
between tail-risk hedging benefits and performance costs for equity market outcomes. Diversification costs are measured as
different asset allocation mixes between equities and fixed the average historical annualised performance drag, or the
income. Irrespective of the overall fixed income weight in the opportunity cost of not being 100% invested in stocks.
portfolio, 60% of the fixed income segment is allocated to
US Treasury bonds, 30% to US corporate bonds and 10% to Our results (see last chart at the bottom of page 18) indicate
US Treasury bills. Selected portfolio mixes are highlighted on that, regardless of the share of fixed income in the portfolio,
each line. both diversification benefits and costs steadily drop with the
holding period (except for the twenty-year horizon, where
The identical portfolio mixes for different holding periods there is a marginal uptick in diversification costs). Importantly,
are connected by dotted black lines. The dashed red line benefits erode more quickly, resulting in an inverse
separates the region in which diversification benefits relationship between the benefit-cost ratio and the holding
outweigh costs (shaded green area) from the region where period.
the opposite holds (shaded red area).
Overall, the average diversification benefit-cost ratio is
The portfolio allocated 100% in US stocks is marked by a black favourable for holding periods up to ten years. For the longest
square, and is associated with zero benefits and cost due considered horizon, investors would have been better off
to the lack of diversification in fixed income (it represents a sticking with equities only. Finally, for any holding period, the
benchmark for measurement of diversification effects). marginal utility of increasing the percentage of fixed income in
a portfolio regularly decreases, and at an accelerating rate.
MACRO REGIMES DRIVE LONG-TERM RISK PREMIA
The decomposition of the annualised ten-year rolling total nominal return for US stocks between inflation, the real return of
Treasury bills and US term, credit and equity premia from 1933 to 2023. The data points are sampled on annual frequency from
1924 to 2023. Since the first estimates are calculated using observations from 1924 to 1933, our sample commences in 1933 for
this analysis
Sources: Federal Reserve Economic Data at St. Louis Fed, US Bureau of Economic Analysis, the websites of Prof. Robert Shiller (Yale University)
and Prof. Aswath Damodaran (New York University), Barclays Private Bank, May 2024
> 19 >
Equities Quant
These results corroborate the adage that investors should For most of this century, there has been a stable or mildly
avoid putting all of their eggs in one basket. The last century’s disinflationary regime. The burst of the dot-com bubble in the
data suggests that diversification is alive and well, whether over early 2000s erased the equity premium. The GFC inflicted one
tactical (up to one year) and strategic (up to ten years) horizons. of the worst shocks on stocks and poorly-rated debt.
A word of caution. Despite the above finding, when many However, low and relatively stable inflation, coupled with
investors rush to exit their positions simultaneously – typically quantitative easing and falling rates in the 2010s, significantly
seen during a market sell-off – price swings and potential boosted equity and credit premia. This remained stable and
losses can be exacerbated. Moreover, the heightened risk and historically elevated. Notably, real returns for Treasury bills
uncertainty may scare them off from re-investing in equities have been negative ever since.
and profiting from the market recovery.
Diversifying between equities and fixed income investments

"The average diversification
not only aids portfolio risk management, but helps investors
to remain invested during adverse market shocks.
benefit-cost ratio is favourable
FOUR SHADES OF DIVERSIFICATION
for holding periods up to ten
It is important to stress that our findings hold on average,
years"
and cannot be guaranteed in every situation. Correlations
can change rapidly with unexpected consequences. MIXED SIGNALS
Macroeconomic regimes, secular trends and exogenous
shocks (such as geopolitical flare ups, natural disasters and Finally, inflationary periods presented mixed signals for
pandemics) have often jolted risk premia over the last century. equities, depending on the initial inflation level. Typically,
Sometimes, such shifts persisted for many years, as has been scenarios where inflation accelerated after being low or
seen since the global financial crisis (GFC) of 2007-09. negative for a period, were favourable for equities, as they
coincided with economic recoveries after a recession.
We illustrate these dynamics from 1933 to 2023 by
decomposing annualised ten-year rolling total nominal Conversely, when inflation was high and rising rapidly, equities
performance for US stocks into five complementary sources typically suffered. Nominal Treasury bonds exhibit a strong
of return: inflation, real cash return, and term, credit and equity aversion to inflation, resulting in diminishing or even negative
risk premia (see chart at the bottom of page 19)2. The analysis term premiums during inflationary episodes. Treasury bills
shows that the long-term success of different asset classes is were less reactive due to their lower duration, but their real
strongly dependent on the inflation and growth regimes. returns eventually felt the inflation pinch. However, credit
premiums tended to be more resilient in such situations,
Starting with inflation, our analysis observes four distinct saving the case for diversification with fixed income even
regimes: deflationary (1930-1941), disinflationary (1952-1960 during the worst inflation scenarios.
and 1985-1999), stable (2000-2021) and inflationary (1942-
1951, 1962-1984 and 2022-2023). While based on ten-year FORTUNE FAVOURS THE CALM AND COMPOSED
averages and not capturing intermediate fluctuations, the
regimes provide insights into longer-term trends that are
Shifts in risk premia over time should not be neglected.
relevant for strategic investment horizons.
However, they are less problematic for a diversified portfolio
with different return sources and factor exposures. This allows
THE IMPACT OF INFLATION REGIMES investors to focus on the long run and rest easier at night.
The earliest deflationary period coincided with the Great We’ve only touched on the surface, addressing the first two
Depression (1929-1933) and a recession (1937-1938). This was pillars of long-term investments: staying invested and being
a time when US stocks saw their worst historical drawdown, well-diversified. Crafting an optimal asset mix involves a
a staggering -65% in 1933. Real returns for Treasury bills comprehensive analysis of various factors and their interplay.
gradually eroded, while Treasury bonds, and especially There’s no one-size-fits-all solution for investors, each with
corporate bonds, held up remarkably well, mitigating losses their own goals. Discipline and adherence to a structured
for diversified investors. investment process continue to be fundamental pillars of
successful investment strategies.
Disinflationary periods generally lifted all assets, with equities
and Treasury bonds neck-and-neck for the top spot. Equity Authors: Nikola Vasiljevic, Head of Quantitative Strategy,
premiums peaked in the 1950s and performed well in the Zurich, Switzerland; Lukas Gehrig, Quantitative
1990s, while term premia took off in the 1980s due to falling Strategist, Zurich, Switzerland
rates and remained attractive for almost four decades.
2
In our framework the term premium is determined by the difference in nominal performance between Treasury bonds and bills,
while the credit (equity) premium measures the same between corporate and Treasury bonds (equities and corporate bonds). Our
analysis begins with the first ten years (1924-1933) of data, thus our sample commences in 1933 for this analysis.
> 20 >
Equities Quant
Making use of climate-risk data

As climate-related disclosures become more prevalent in the financial industry, find out how to
understand and use the most prominent metrics when deciding how to invest your portfolio.
Please note: This article is designed to be thought MORE INFORMATION AVAILABLE

leadership content, to offer big picture views and analysis
of interesting issues and trends that matter to our The adoption of climate considerations in reporting
clients and the world in which we live. It is not designed standards gives them more weight. It should also lead to more
to be taken as expert advice, investment advice or a streamlined thinking around the topic.
recommendation, and any reference to specific companies
is therefore not an opinion as to their present or future A small number of providers have become dominant players
value or broader ESG credentials. Reliance upon any of in generating climate-risk assessments. For example, MSCI
the information in this article is at the sole discretion of and Willis Towers Watson (WTW) have developed tools which
the reader. Some of the views and issues discussed in produce a host of climate-risk characteristics when prompted
this article may derive from third-party research or data with a list of assets.
which is relied upon by Barclays Private Bank and may not
have been validated. Such research and data are made As an investor, no matter what your stance on climate goals
available as additional information for the reader where may be, more information should help. This article aims to
appropriate. help you to use TCFD reports most effectively and to add a
new lens through which to look at risk and opportunity in a
The amount of climate-related information available to portfolio.
investors has mushroomed in recent years. But for all the
fresh data, is it making much difference to how investors are
positioning their portfolios? FOOTPRINTS, COMMITMENTS AND SCENARIOS
The Task Force for Climate-related Financial Disclosures The direct or indirect emissions associated with a portfolio
(TCFD) has been a very successful British innovation, and one are identified in a section of the TCFD reports. This backward-
that is now being adopted in many jurisdictions around the looking information is most useful in helping investors to track
world. their progress towards meeting their climate-transition goals.
It’s so successful in fact, that the original body producing An interesting innovation for goal-tracking, introduced by
it, declared it was a case of ‘mission accomplished’ and MSCI, is implied temperature rise (ITR). This metric estimates
disbanded. Indeed, the TCFD and their reporting guidelines what global warming path the world would be on if the global
are now part of the International Financial Reporting economy had the same effect as a country. From this, average
Standards (IFRS) reporting framework. portfolio ITRs can be estimated.
Following the lead of the TCFD guidelines, investors around Forward-looking metrics, such as climate value at risk (climate
the globe are receiving reports disclosing information both on VaR, MSCI) or climate transition value at risk (CTVAR, WTW),
how financial institutions are incorporating climate risks and combine company characteristics, the commitments made
opportunities into their processes, as well as assessments by the companies and scenario projections on how the world
of the climate risks and opportunities inherent in their might evolve in models that aim to quantify potential climate
investments. risks in a portfolio.
“The applied methodologies

The scenarios are often comparable across providers, as they
leverage the same scenario providers1. However, the applied
can be complex”
methodologies can be complex and difficult to compare.
1
Chapter 1: Framing, context and methods, Intergovernmental Panel on Climate Change Sixth Assessment Report,
and The future is uncertain, the Network for Greening the Financial System climate scenarios, April 2024 > 21 >
Equities Quant
GETTING TO GRIPS WITH THE ASSUMPTIONS THE VALUE LIES BETWEEN THE ESTIMATES
MSCI’s climate value at risk, the most prevalent framework Turning to MSCI’s climate VaR metric: Despite there being
in TCFD reports, identifies climate opportunities, transition a potential cost estimate, the estimate itself is not that
risks and physical risks. For each aspect, scenario-dependent insightful. Not only do time horizons not match those of
future costs and gains in relation to the current asset price are most investors, but there is much uncertainty regarding
estimated. the likelihood of scenarios and the potential outcomes
within scenarios (see previous chart). The usefulness of this
Importantly, the MSCI framework assumes that none of these approach lies in the ability to compare risk estimates across
climate risks are currently reflected in the market valuation of climate scenarios and to understand in which positions there
companies. The target horizon for all estimates is 15 years, might be concentrations of a specific climate risk.
though the evolution is estimated until 2050 for transition risk,
and 2100 for physical risk. SWITCHING LENSES
These are important assumptions, as a 15-year investment Leaving exact estimates behind, investors equipped
window is unrealistic for many investors. However, the choice with climate-risk estimates can now add another lens to
of time horizon is central to using forward-looking estimates, their portfolio analysis. As with any risk, be it geopolitical,
since transition risks are sensitive to policy changes. Physical concentration or currency related, one can overlay a climate
risks, however, do not materially differ between even the most lens to explore the robustness of a portfolio.
extreme scenarios (see chart) in the short term, but can vastly
differ as time horizons grow beyond ten years. A first, helpful tool by MSCI is the re-arrangement of
traditional economic industries into so-called emission
As such, while physical near-term risks exist, the path of policy sectors. A typical balanced multi-asset class portfolio with
is unlikely to change them. This may be one of the reasons a focus on capital-light businesses might have emissions
why WTW’s approach focuses on transition risk. Instead of exposures that look like those shown in the following pie chart.
estimating the potential impact on economies of various This re-grouping of traditional industries can already shed
climate scenarios, WTW considers what costs would be light on the climate-risk concentrations, based on the type of
associated with a transition in order to be in accordance with climate risk each emission sector might be most exposed to
the Paris Agreement of limiting global warming to 1.5°C above (see chart on page 23).
pre-industrial levels (see chart).
FROM 2035 ONWARDS PHYSICAL SCENARIOS DIVERGE
Median (50%-percentile) and 95%-percentile projections of global warming projections for Network for Greening the Financial
System climate scenarios Nationally Determined Contributions and Net Zero 2050
Sources: NGFS Phase 4 Scenarios, Barclays Private Bank, May 2024
> 22 >
Equities Quant
EMISSION SECTORS INSTEAD OF INDUSTRIES
MSCI emission sectors for a typical balanced multi-asset class portfolio
Sources: MSCI, Barclays Private Bank, May 2024
GOING DEEPER GETS MORE INVOLVED UNDERSTANDING THE PHYSICAL/TRANSITION

RISK TRADE-OFF
But transition risk is about much more than emissions:
TCFD guidelines name policy, legal, technology, market and TCFD reports often contain a forward-looking model output
reputational risks as subcategories. While the mining industry for an orderly transition scenario like Net-Zero 2050, and
may face significant transition risks in all subcategories, compare it with those looking at higher temperatures, such as
transition risks for the finance industry are concentrated in Nationally Determined Contributions. Using the same typical
legal and reputation risk. balanced portfolio, we explore the trade-off between physical
risks and transition risks (see chart on page 24).
Unfortunately, the MSCI transition risk framework does not
capture this notion directly and one has to build a scorecard Perhaps the chart’s first interesting observation is that the
of transition risks and physical risks themselves, as identified commercial emission sector, which includes both buildings
in our article, ‘Is your portfolio at risk from the low-carbon and services, contributes slightly above 70% of portfolio
transition?’ physical risk, while carrying around the same weight in the
sample portfolio2.
For physical risks, the MSCI model differentiates between
slowly evolving chronic risks, that may cause business One could say that this exposure is “neutral” towards the
interruptions, and acute climate risks, which may cause physical risk budget and is positive towards the policy-risk
business interruptions as well as damage to assets. budget, as commercial positions only contribute about
50% of policy risk. Second, even though commercial sector
“Investors...can now add exposures can decrease the physical risk exposure, they still
carry physical risk. Third, the difference between scenarios is
another lens to their portfolio significantly larger for policy risk than it is for physical risk. This
implies that policy risks should be re-evaluated more often.
analysis”
2
After excluding emission categories ”government bonds” and ”not applicable”, since there are no climate VaR
estimates from MSCI for these sectors. > 23 >
Equities Quant
TRADE-OFF BETWEEN TRANSITION AND PHYSICAL VALUES AT RISK
Emission sector breakdown of MSCI climate VaR estimates for NGFS scenarios “Net-Zero-2050” and “Nationally Determined
Contributions” on a typical balanced multi-asset class portfolio
PHYSICAL RISK
AGGREGATED POLICY RISK (TRANSITION RISK PLUS TECHNOLOGY OPPORTUNITIES)
NEW WAYS TO CHALLENGE INVESTMENT IDEAS For the near-term, scenario assumptions on policy risk
are more important than those on physical risk. The latter
Climate-relevant data is much more than just greenhouse gas depends more on the location of assets and can look vastly
emissions. Forward-looking metrics can help to identify and different from our shown example for less capital-light
manage the different types of climate risks found in an investor’s strategies that may have more geographical exposure to
portfolio. However, the risks need to be well-understood. emerging markets.
Climate scenarios open another long-term angle to portfolio Authors: Lukas Gehrig, Zurich Switzerland, Quantitative
analysis and put even more emphasis on the all-important Strategist; Nikola Vasiljevic, Zurich, Switzerland, Head of
question: what is your investment horizon? Quantitative Strategy
> 24 >
Equities Quant
Is your portfolio at risk from the low-carbon

transition?
Find out what you can do to prepare your portfolio for the effects of the transition to a greener
world.
Please note: This article is designed to be thought UNDERSTANDING TRANSITION CLIMATE RISKS
leadership content, to offer big picture views and analysis
of interesting issues and trends that matter to our Governments, companies and society are all adapting to
clients and the world in which we live. It is not designed climate change, some more so than others. Investors should
to be taken as expert advice, investment advice or a consider the transition risks, and opportunities, that arise
recommendation, and any reference to specific companies from these changes as they seek to protect and grow their
is therefore not an opinion as to their present or future wealth and make a positive contribution to our world.
value or broader ESG credentials. Reliance upon any of
the information in this article is at the sole discretion of The TCFD identifies four main types of transition risks: policy
the reader. Some of the views and issues discussed in and legal, technology, market, and reputation2.
this article may derive from third-party research or data
which is relied upon by Barclays Private Bank and may not
have been validated. Such research and data are made POLICY AND LEGAL RISKS
available as additional information for the reader where
appropriate. To deliver on their Paris Agreement commitments,
governments are adopting regulations and policies designed
Climate change is not only an environmental issue; it’s to reduce carbon emissions or promote adaptation to climate
an economic one. As such, the global economy needs to change.
transform into a low-carbon one.
Policy levers include stricter regulations on emissions, carbon
Like any structural change, this will have winners and losers. pricing or taxes, emissions-trading systems and more climate-
Industries and companies that do not adapt are at risk of related disclosures. As such, firms face the additional costs of
decline or disappearing. So too are investors’ portfolios compliance or the forgone revenues from not complying.
holding investments in such sectors.
At the same time, companies and governments are more
The financial risks that arise from the shift to a lower-carbon exposed to litigation from their actions, or lack thereof,
economy give rise to what the Task Force on Climate-Related relating to climate change. Since 2017, the cumulative number
Financial Disclosures (TCFD)1, calls “transition risks” which are of climate-related court cases has doubled, reaching 2,180
complementary to the “physical risks” reviewed in our Market climate-related cases filed in 65 jurisdictions by the end of
Perspectives publication, in May’s article, ‘Making portfolios 20223.
more weather resistant’.
Claims cover a diverse set of causes. For example, historically
Here, this article breaks down why these risks matter from a high emitters are at risk of legal action for contributing to
financial perspective and provides actionable insights to help climate change. More broadly, complaints of corporate
you to position your portfolio effectively. greenwashing are more common, with the threat to
reputation and revenues being ever present.
1
TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017
2
Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017
3
Global Climate Litigation Report: 2023 Status Review, United Nations Environment Programme, July 2023 > 25 >
Equities Quant
TECHNOLOGY RISKS to scarcity, higher demand or to reflect externalities. Input

costs, such as for energy, water or natural resources, and
Technological risks arise from the rapid development and output requirements, such as treatment of waste water, could
deployment of new ways to support moves to a low-carbon increase as market dynamics change.
economy, in the familiar process of ‘creative destruction’.
REPUTATION RISKS
Companies that fail to innovate or adapt to new technologies
risk becoming obsolete. Reputational risks concern the perception of companies by
consumers, regulators or peers to their attempts to adjust,
Prime examples include shifting energy production from fossil including how they present themselves to the outside world.
fuels to renewable energy, or automotive firms converting In a social media age, such risks can harm a company’s bottom
from internal combustion engines to electric drivetrains. line quickly.
Adoption of new technologies can begin slowly, especially Reputations can be affected on an absolute basis, perhaps an
given the competing solutions. Businesses may believe that incident for a single company, or on a relative basis, that is how
such proposed solutions are unviable or doubt that they have one company compares with others.
time to switch. However, once adoption reaches a tipping
point and accelerates, they face greater risk of disruption. Reputational damage can affect a firm’s attractiveness
to clients or suppliers, the degree of engagement from
MARKET RISKS stakeholders and potential stigmatisation. Without reconciling
reputational damage, in the worst case, a firm may lose its
Market risks arise from the increased awareness of climate “license to operate” socially or legally.
change and the impact it has on supply and demand for
certain commodities, products and services. HOW TRANSITION RISK AFFECTS INDUSTRIES
Consumers, corporations and governments, not wanting Efforts to transition to a low-carbon economy can affect
to worsen climate change, are shifting spending to more companies’ revenues and profits (see chart). For example,
sustainable options. Conversely, companies with high greener buying preferences or damage to reputation from
emissions, or not seen to be making the transition quickly greenwashing may hit sales. Making required technology
enough, may see less demand or their assets repriced lower. changes or paying for emissions will increase costs.
As well, firms may suffer from increased production costs due
AGGREGATE VALUE AT RISK IN A 1.5C NET-ZERO TRANSITION SCENARIO
Potential financial impacts by sector of from policy risks and technology opportunities
Sources: MSCI, Barclays Private Bank, May 2024
4
The chart is based on MSCI Climate Value-at-Risk (CVaR) tool assessing industries in MSCI ACWI Index applying the Networking for Greening
Financial System (NGFS) REMIND model of 1.5C Disorderly scenario. CVaR is designed to provide a forward-looking and return-based valuation
assessment to measure climate related risks and opportunities in an investment portfolio. The tool aggregates potential future policy costs,
and does not explicitly identify market, technology or reputational risks. It does include technology opportunities based on low-carbon patents
and revenues held by companies. As a scenario-based, forward-looking model, it does not predict future performance, and only indicates the
potential impact of transition risk.
> 26 >
Equities Quant
The extent and nature of transition risks, though, will vary by As well, the four transition risks can be intertwined and
industry. When assessing specific sectors for policy risks and reinforcing. Generically, a policy risk that requires new
technology opportunities, the aggregate value at risk can be technology may add to reputational risk, if a firm does not
substantial. It will matter more for “hard to abate” sectors that make progress, thereby affecting consumer demand ( a
find it tougher to cut their carbon footprint. For example, steel market risk) and potentially leading to litigation (a legal risk).
or cement industries face greater transition risks. However,
even apparently unrelated industries, such as fashion, food or The table below summarises some of the transition climate
tourism, will also be affected. risks for specific industries and their effects on a company’s
value chain5.
INDUSTRY ILLUSTRATIVE TRANSITION RISK POTENTIAL IMPACT ON VALUE CHAIN

EFFECTS
Agriculture, Food Policy and Legal: Implementation of stricter Supply chain: Increased costs and disruptions due
& Beverage agricultural emissions regulations increasing to new compliance requirements.
operational costs.
Production: Need for investment in sustainable
Technology: Shift to sustainable farming farming practices and technologies.
technologies requiring significant investment.
Distribution: Changes in logistics to support
Market: Growing consumer demand for organic sustainably sourced products.
and sustainably sourced food products.
Sales and Marketing: Shift in strategies to highlight
Reputation: Negative publicity for companies with sustainability efforts.
poor environmental practices affecting brand
loyalty.
Apparel Policy and Legal: Introduction of regulations on Supply chain: Increased scrutiny on sourcing
textile waste and water usage. practices and supplier compliance.
Technology: Adoption of eco-friendly materials Production: Higher costs due to sustainable
and sustainable production methods. materials and production processes.
Market: Consumer preference shifting towards Distribution: Enhanced focus on reducing carbon
sustainable and ethical fashion brands. footprint in logistics.
Reputation: Backlash against fast-fashion brands Sales and Marketing: Rebranding and marketing to
with poor environmental records. emphasise sustainability credentials.
Tourism Policy and Legal: New regulations on carbon Supply chain: Increased costs due to compliance
emissions from travel and tourism. with new environmental regulations.
Technology: Investment in sustainable tourism Operations: Need for investment in sustainable
technologies and practices. infrastructure and practices.
Market: Shift in consumer preferences towards Marketing: Rebranding efforts to attract eco-
eco-friendly travel options. conscious travellers.
Reputation: Destinations known for unsustainable Revenue: Potential decline in revenues from
practices losing tourist appeal. regions not adapting to sustainable practices..
Insurance Policy and Legal: Regulatory changes mandating Underwriting: Adjustments in underwriting criteria
climate-risk disclosures. to account for climate risks.
Technology: Integration of advanced analytics to Claims: Increased claims due to climate-related
assess climate risks. events affecting profitability.
Market: Increased demand for climate-related Product development: Creation of new insurance
insurance products. products to cover climate risks.
Reputation: Negative perception if insurers fail to Risk management: Enhanced focus on risk
address climate risks. assessment and mitigation strategies.
5
Industry list, illustrative climate effects and potential impacts are representative and not exhaustive. > 27 >
Equities Quant
INDUSTRY ILLUSTRATIVE TRANSITION RISK POTENTIAL IMPACT ON VALUE CHAIN

EFFECTS
Electric power Policy and Legal: Stricter emissions regulations Generation: Increased investment in renewable
and renewable energy mandates. energy infrastructure.
Technology: Transition to renewable energy Transmission and Distribution: Upgrading grid
sources and smart grid technologies. systems to support renewable integration.
Market: Growing demand for clean energy from Operations: Higher costs and operational changes
consumers and businesses. to reduce carbon footprint.
Reputation: Pressure on companies reliant on Sales and Marketing: Promoting renewable energy
fossil fuels to transition to cleaner energy. offerings to attract eco-conscious customers.
Oil & Gas and Policy and Legal: Implementation of carbon pricing Exploration and production: Increased costs due
Mining and emissions reduction targets. to regulatory compliance and new technologies.
Technology: Shift towards carbon capture and Operations: Diversification into renewable energy
storage technologies. sources and sustainable practices.
Market: Decline in demand for fossil fuels and Distribution: Changes in logistics to support
increased investment in renewables. reduced carbon footprint.
Reputation: Growing public and investor scrutiny Revenue: Potential revenue decline from reduced
of environmental practices. fossil fuel demand.
Real estate Policy and Legal: Stricter building codes and Development: Higher costs for incorporating
energy efficiency standards. sustainable building practices.
Technology: Adoption of green building Operations: Investment in energy efficiency and
technologies and materials. renewable energy systems.
Market: Increased demand for sustainable and Valuation: Potential devaluation of properties not
energy-efficient properties. meeting sustainability criteria.
Reputation: Negative impact on property values in Marketing and Sales: Promoting green
regions not adapting to sustainability. certifications and sustainability features to attract
buyers
Sources: Barclays Private Bank, May 2024
APPROACHES TO ASSESS TRANSITION RISKS IN 3. Assess transition targets, plans and reporting: Review
PORTFOLIOS current sustainability commitments, corporate disclosures
on exposure to transition risks and stated transition
To mitigate the transition risks on their portfolios, investors strategies and pathways. Evaluate transition plans for
could adopt several practical strategies: credibility and assess corporate capabilities to deliver large-
scale, business-model transformation programmes.
1. Conduct comprehensive risk assessments: Evaluate the
exposure of investments to transition risks across different 4. Monitor regulatory developments: Stay informed about
sectors, regions and asset classes. Consider all four transition regulatory changes and policy developments related to
risks as well as their interdependencies. To identify specific climate change. Regularly review how new regulations could
risks, assess environmental records, past R&D and capital affect specific industries, both domestically and for imports,
investments and transition plans to adapt to the transition. as well as how the changes might drive investment flows.
2. Utilise climate-scenario analysis: Model potential faster 5. Integrate climate risk metrics: Incorporate transition-
or slower policy change scenarios and assess their impact on risk metrics, such as exposure to carbon-related assets or to
potential investment performance. Consider factors such changes in energy costs or carbon pricing, into investment
as how orderly, including the speed and consistency, policy decision-making processes. Evaluate scale and nature of
changes will be made against the risk of a disorderly process, climate risks on portfolio performance using quantitative
perhaps one where policies are delayed or divergent. tools and models, and adjust asset allocations accordingly.
> 28 >
0
Equities Quant
PREPARE YOUR PORTFOLIO FOR TOMORROW’S

WORLD
“The extent and nature of
transition risks...will vary by
Climate transition risks can be more subtle than the physical
effects of climate change. However, they can still hit the value industry. When assessing
of investment portfolios.
specific sectors for policy
The longer governments and companies take to address
climate change, and the larger its physical impacts become, risks and technology
the swifter and more severe the action needed will likely be.
Furthermore, complacent investors may be more surprised by opportunities, the aggregate
any sudden action that amplifies transition risks.
value at risk can be
Making your portfolio more resilient to transition risks requires
actively assessing and anticipating how the world might substantial”
move to the required low-carbon economy. While impossible
to predict perfectly, preparing your portfolio for such a
shift should help you to reach your long-term goals more
effectively.
Author: Damian Payiatakis, London UK, Head of

Sustainable & Impact Investing
> 29 >
Equities Quant
Elections or economy – which matters most for

investors?
With several momentous votes due this year, beware of your behavioural biases interfering with
the best investment approach to take.
This would seem to be a year of heightened political risk for November’s election in the world’s largest economy, the US,
investors’ portfolios with a deluge of elections across the will be a focal point for many investors in 2024, given its heft
world, not least in the US. Indeed, approximately half of the in global indexes and thus how exposed investors might be to
global population is eligible to vote at the polls1. the region.
A question on many investors’ minds is how do I position ALL EYES ON WASHINGTON

my portfolio for the upcoming elections? Should I hold off
investing until the outcome of an election is clear before The political environment in the US, and the media coverage
getting invested or making investment decisions? of it, is extremely charged and partisan. But for all the
partisanship, and in turn how it affects people’s views on the
Elections are difficult to predict. Even if the outcome could be domestic economy and other important issues, what might
predicted, the market implications of an election result can the effect of the election outcome be on financial markets?
still be very uncertain. That said, for all the noise, sometimes
the effects of votes on valuations can be limited. The best The chart on page 31 shows the outcome of previous US
course of action for investors is to stay invested and follow elections, and the subsequent performance of the S&P 500.
good investing principles, which hold across all periods in time, The data is mixed, showing that the common consensus that
whether in an election year or not. one party is unanimously good for investors, and the other
bad, is not necessarily the case.
BEWARE OF BEHAVIOURAL BIASES
Probably more important than the vote, is the outlook for the
Before examining the interplay between elections and global economy, and therefore prospects for the domestic
investing, it’s important to be aware of behavioural biases one, for investors. A boom period will be unanimously be
that can affect the way that investors perceive coverage of better for both parties than a recessionary period, irrespective
elections. of domestic policy. As stated in our Macro chapter, ‘Global
economy readies for storms ahead’, US economic activity is
Be wary of ‘confirmation bias’ − when people seek out, and likely to slow in coming months.
pay more attention to, news and stories which confirm their
own pre-existing views or beliefs. Using a personal view on a Additionally, the sectors that might be expected to perform
candidate or the likely impact of them winning an election, and best under a particular party can surprise. For instance,
using this as the lens through which to take in information and under Joe Biden’s presidency the S&P Oil & Gas Exploration
make investment decisions, can introduce bias and lead to and Production Select Industry Index is up 269%, whereas
poor results. the NASDAQ Clean Edge Green Energy Index is down 29%.
Despite climate change initiatives being a central policy
It is important to consult a range of sources and viewpoints to priority for the Biden administration, the US oil and gas
ensure that decisions are being made objectively, on the basis industry has flourished, with production at record levels and
of all the information. This includes data or views that might higher energy prices than in 2020.
contradict an investor’s view on the world.
1
Your evening briefing: Half the world’s population – and GDP – is heading to the polls, Bloomberg, 11 January 2024
> 30 >
Equities Quant
US ELECTIONS AND SUBSEQUENT EQUITY MARKET PERFORMANCE
WHAT TO LOOK AT? Nonetheless, 57% of voters disapprove of Joe Biden’s record2.
One reason has been soaring inflation until recently; price
What tends to drive markets in the long run is economic rises have been higher than those seen for many decades
growth, and thus economic fundamentals should be the key under the Democrats. People who feel poorer under this
factor for investors. administration are unlikely to feel much sympathy towards
it, whatever the contributing external factors not within its
Whilst elections will occupy the headlines, it’s important to control. People who feel big increases in the price of groceries
remember that political stories do not always translate into appear to extrapolate them.
policies, or market events. The test for both US candidates will
be on the fiscal side, and whether the market will allow them More important is the fact that perceptions of the economy
to follow an accommodative fiscal policy, or whether they will are political, with Republicans seeing a bad economy when
have to be restrictive, with the associated uncertainty if and their opponents are in power and vice versa. Today, in part
when the US debt ceiling becomes a sticking point, as it has due to the media landscape, people do not just have their own
been in the past. opinions and facts are more disputed. The economy they see
is not necessarily the one they experience day to day. Rhetoric
In the US, the economy is a top priority for voters. Whilst voters can matter more than the economic reality. So, what does this
pay great attention to economic data when going to the ballots, mean for investors?
it’s important to recognise that perceptions of the data can
differ wildly between voters with different political affiliations.
STICK TO GOOD INVESTING PRINCIPLES
ECONOMIC DATA IS SUBJECT TO PERCEPTION Elections matter for a host of different reasons, be that for
domestic politics, society or economics. A new administration
The US has been the strongest performing economy of any can introduce legislation that can alter the path for growth,
other large high-income country since 2019. Growth, jobs inflation and potentially interest rates. Thus, they can be
and investment have been strong. Inflation has also retreated significant for financial markets, and investors are right to pay
recently, without a significant rise in unemployment, a fear attention to them.
that had worried some. It has been a period of economic
boom, one backed by fiscal spending and high-profile That being said, voters and election results can be
legislation that has supported this performance. unpredictable. Even predictable outcomes can have
2
CNN poll of polls, CNN, 18 April to 20 May > 31 >
Equities Quant
THE CASE FOR LONG-TERM INVESTING

Barclays US total return indices in nominal terms with gross income reinvested
The growth of $100 invested in 1925 with income reinvested gross

Nominal Real
Equities $ 984,858 $ 57,471
Bonds $ 13,299 $ 776
Cash $ 2,293 $ 134
Sources:CRSP, Barclays Research, Barclays Private Bank, May 2024
unpredictable impacts on markets. Those holding fire on The importance of staying invested through wars, elections
making investment decisions until after an election outcome and much else besides is seen in the next chart. This shows
is clear so that they are acting under less uncertainty, may be that the different consequences of choosing to invest $100 in
disappointed to find that uncertainty is a constant. one of US equities, bonds or cash over the last century.
In election years, as in others, following tried-and-tested As can be seen, the power of compound returns is significant.
investing principles is likely to be the best way for investors to As is the choice between equities and cash.
protect and grow their wealth and that of the next generation.
This means getting, and staying invested, so as to reap the Please remember, that past performance is never a guide to
rewards from putting capital to work over the long term. future performance. You may get back less that you invested.
Deploying this capital in a well-diversified portfolio allows Author: Alexander Joshi, Head of Behavioural Finance,
investors to better achieve their long-term goals through London, UK
different market environments and in a smoother manner,
from both a financial as well as an emotional standpoint.
> 32 >
Equities Quant
Multi-asset portfolio allocation

Barclays Private Bank discusses asset allocation views for a multi-asset class portfolio. Our views
elsewhere in the publication are absolute and in the context of each asset class.
- = +
Cash and short duration bonds
Fixed income
Developed market government bonds
Investment grade bonds
High yield bonds
Emerging market bonds
Equities
Developed market equities
Emerging market equities
Other assets
Alternative trading strategies
Commodities
- denotes a cautious view = denotes a neutral view + denotes a positive view
CASH AND SHORT DURATION BONDS ALTERNATIVE TRADING STRATEGIES (ATS)

• Recent additions to shorter-dated bonds reflect • There are a limited number of opportunities in the
less perceived risk-reward in equity markets and the ATS universe, as the cost/benefit trade-off can be
continued inversion of the yield curve. challenging.
• Our focus is on strategies that offer low correlations to
FIXED INCOME equity markets, so providing diversification benefits.
• Value is seen in developed market government bonds,
which can also hedge against macroeconomic volatility. COMMODITIES
• In credit, the higher-quality segment is preferred, driven • As a risk-mitigating asset, gold remains the only direct
by what is considered to be better relative value. commodity exposure held in portfolios.
• Exposure is relatively low in high yield, where selection • Elsewhere, we believe that our risk budget is better
is key, as spreads have room to widen in an adverse spent outside of the asset class.
scenario.
EQUITIES Author: Julien Lafargue, London UK, Chief Market

• In line with our long-term investment philosophy, Strategist
portfolios remain geared towards high-quality, cash-
generative and conservatively capitalised businesses.
• As a function of bottom-up selection, more
opportunities are found in developed market equities
compared to those in emerging markets.
> 33 >
privatebank.barclays.com
Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.
Disclaimer:
This communication is general in nature and provided for information/educational purposes only. It does not take into account any specific
investment objectives, the financial situation or particular needs of any particular person. It not intended for distribution, publication, or use
in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be
unlawful for them to access.
This communication has been prepared by Barclays Private Bank (Barclays) and references to Barclays includes any entity within the Barclays
group of companies.
This communication:
• is not research nor a product of the Barclays Research department. Any views expressed in these materials may differ from those of the
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Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not
guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
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> 34 >

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巴克莱银行｜2024年年中投资展望

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Mid-Year

A year of distractions, distortions and decisions 4

Global economy resilient in the face of headwinds 5

Stay defensive and focus on ‘alpha’ opportunities 8

Bond market road map: the path(s) ahead 12

A century of diversification – was it worth it? 16

Making use of climate-risk data 21

Is your portfolio at risk from the low-carbon transition? 25

Elections or economy – which matters most for investors? 30

Multi-asset portfolio allocation 33

A year of distractions, distortions and decisions

Global economy resilient in the face of headwinds

Sources: Barclays Investment Bank, Barclays Private Bank, June 2024

GEOPOLITICAL RISK Inevitably, the upcoming presidential election makes

Despite more signs of US inflation moderating this year, price

Turning to UK inflation, the headline rate eased to 2.3% in

In contrast, the key drivers of retail sales, the housing market

Meanwhile, the real estate sector continues to be a cause for

Stay defensive and focus on ‘alpha’ opportunities

EQUITY VALUATIONS TEND TO COMPRESS WITH NEGATIVE GROWTH/INFLATION SURPRISES

Sources: LSEG Datastream, Barclays Private Bank, May 2024

UNCERTAINTY AROUND THE ECONOMIC 1) At the stock level

2) At the sector level 3) At the regional level

EUROZONE EQUITIES TEND TO OUTPERFORM THEIR US PEERS WHEN ECONOMIC ACTIVITY IN

Sources: LSEG Datastream, Barclays Private Bank, May 2024

EUROZONE EQUITIES TRADE AT A SIGNIFICANT DISCOUNT RELATIVE TO THEIR US PEERS

Sources: LSEG Datastream, Barclays Private Bank, May 2024

Author: Dorothée Deck, London UK, Head of Cross Asset

Bond market road map: the path(s) ahead

SPREADS TIGHT BUT YIELDS ARE HIGH

Sources: Bloomberg,Barclays Private Bank, May 2024

CONSIDERING ALTERNATIVE PATHS MARKETS ARE IGNORING CYCLES

“A rate cut by the Fed towards

the end of this year seems

EVERY BOND SEGMENT HAS ITS PLACE

Sources: Bloomberg,Barclays Private Bank, May 2024

SHORT-TERM BONDS HAVE UNDERPERFORMED SIGNIFICANTLY

Sources: Bloomberg,Barclays Private Bank, May 2024

A century of diversification – was it worth it?

A CENTURY OF REAL GROWTH

A CENTURY OF VARIATION IN TOTAL REAL RETURNS

Over a one-year investment horizon, stocks displayed the DIVERSIFICATION OR “DIWORSIFICATION”?

A CENTENARY CASE FOR DIVERSIFICATION

MACRO REGIMES DRIVE LONG-TERM RISK PREMIA

Diversifying between equities and fixed income investments

Making use of climate-risk data

Please note: This article is designed to be thought MORE INFORMATION AVAILABLE

“The applied methodologies

FROM 2035 ONWARDS PHYSICAL SCENARIOS DIVERGE

Sources: NGFS Phase 4 Scenarios, Barclays Private Bank, May 2024

EMISSION SECTORS INSTEAD OF INDUSTRIES

MSCI emission sectors for a typical balanced multi-asset class portfolio

Sources: MSCI, Barclays Private Bank, May 2024

GOING DEEPER GETS MORE INVOLVED UNDERSTANDING THE PHYSICAL/TRANSITION

TRADE-OFF BETWEEN TRANSITION AND PHYSICAL VALUES AT RISK

AGGREGATED POLICY RISK (TRANSITION RISK PLUS TECHNOLOGY OPPORTUNITIES)

Is your portfolio at risk from the low-carbon

TECHNOLOGY RISKS to scarcity, higher demand or to reflect externalities. Input

As well, firms may suffer from increased production costs due