The choice: Expensive assets or negative returns?

ASSET ALLOCATION

Assets have become expensive, and the threat of interest rate rises could mean significantly reduced returns for investors. Gregory Lenoir, head of asset allocation at Lombard Odier, explores the best allocation for assets today

The downward trend in interest rates came as a surprise for investors this year. In an environment where assets have become expensive, the repercussions of rising interest rates would reverberate far beyond fixed income, shaping portfolio construction at large. Two outcomes can be considered. In the first scenario, the long-term potential growth remains intact. The output gap continues to put significant downward pressure on inflation, with central banks having time and freedom to progressively adjust their monetary policies. Long-term interest rates are likely to converge to their natur...