The heads of our investment platforms identified the key themes they anticipate will guide investment decisions in 2022. These 10 themes are summarized below and discussed in more detail in the full Solving for 2022 publication.

TEN FOR 2022

MACRO: ENTERING A NEW AGE

  1. THE START OF ANOTHER LONG CYCLE—BUT ALSO A MORE VOLATILE ONE?
    Inflation and new redundancies built into supply chains could introduce more business-cycle and market volatility, but we think we could be in for another long expansion...
  2. INFLATION: HIGHER AND MORE PROBLEMATIC
    After 40 years of declining inflation and interest rates, the direction of travel appears to be changing, and the tilt toward supply-side, cost-push inflation in this dynamic will likely pose a challenge to central banks…
  3. A NEW AGE OF POLITICIZED ECONOMIES—AND NOT JUST IN CHINA
    Worldwide, political and monetary authorities now have more tools, more capacity and more willingness to direct economic activity than ever before—in pursuit of climate, social equality, political, geopolitical and security goals, among many others…
  4. NET-ZERO GOES MAINSTREAM
    As impetus grows at both government and corporate levels, it will become increasingly imprudent in our view to ignore climate and climate policy risks in portfolios…

FIXED INCOME: RATES ADJUST, INVESTORS EMBRACE FLEXIBILITY

  1. AN ORDERLY ADJUSTMENT FOR BOND YIELDS AND SPREADS
    Finding income with modest or no duration will continue to be the priority, in our view, but major market disruption or significant credit issues appear unlikely…
  2. INVESTORS PURSUE A MORE FLEXIBLE APPROACH TO SEEKING INCOME
    We believe a mix of short-duration, less-correlated and tactical sources of income could pay dividends in the year ahead, with opportunities ranging from short duration credit, loans and collateralized loan obligations (CLOs) to China bonds and European corporate hybrid securities…

EQUITIES: REFLATIONARY THEMES

  1. A REFLATION TAILWIND FOR VALUE AND CYCLICAL STOCKS AND REGIONS
    We think inflationary expansion is likely to support cyclical over defensive sectors, value over growth stocks, smaller over larger companies and non-U.S. over U.S. markets…
  2. WITH STRETCHED MARKET VALUATIONS, INCOME BECOMES MORE IMPORTANT
    The story of value underperformance is well known. But income, as a subset of value, has fared even worse over the past decade. In inflationary environment with low but rising rates, equity income is also a way to get short duration and inflation exposure into portfolios at relatively attractive valuations…

AALTERNATIVES: NO LONGER ALTERNATIVE

  1. A BIGGER MENU OF NON-TRADITIONAL DIVERSIFIERS FOR INVESTORS
    High valuations and rising rates are likely to encourage investors to make larger, more diverse allocations to alternatives, liquid and illiquid, as well as assets that can mitigate the impact of transitory and secular inflation, such as commodities and real estate…
  2. EXECUTION RISK, NOT MARKET RISK, WILL LIKELY DETERMINE SUCCESS
    Historically, private equity often relied on buying cheap and applying leverage, but we see that today’s average deal is comprised of more than 50% equity, and depends for its potential returns on successful operational and strategic enhancements, and merger-and-acquisition (M&A) “roll-up” programs…
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