Barclays Capital's Global Asset Allocator team is out with a note outlining
their positioning strategy in FX, equities, bonds, and other markets. The
following are the key points in Barclays' note.
The threat of higher US inflation and yields in H2 calls for a more defensive
portfolio. We go long US 30y breakeven inflation and are positioned for
a back-up in US front-end yields. We are also long USD versus EUR, JPY and AUD
via options.
We also go long value sectors in the US (energy and financials)
versus growth ones (healthcare and food and beverages) as this strategy
typically outperforms in an environment of rising US yields.
We are more defensive but not bearish as stronger global growth should
partially offset the headwinds from higher yields. We stay long a basket
of growth-linked assets (EM equities, resources stocks and base metals)
and also long euro periphery equities (Spain and Italy with equal weights).
Also in equities, we favour the FTSE 100 over the FTSE 250.
The former should benefit from firmer global growth in H2 while
small/medium sized firms in the 250 are expensive and are likely to underperform
with higher UK yields. European fixed income – core and periphery – looks less
appealing after prolonged rallies. But we still see room for spread compression
in European banks credit.
The Japan trade remains alive, but we think it is
better expressed via long equities and short fixed income. Go long
large caps as they appear cheap and pay 20yf10y JGB rates for slightly positive
roll down, unlike most other bearish duration trades.
We go long front-end Brent futures (Sep 14) to take advantage of the
backwardated curve/positive roll. Going long energy equities via
options (our current implementation) also makes sense as vol is low and there is
room for equities to catch up with crude prices.
