The geopolitical escalation at month’s end marks a further rise in volatility, even as the Fed and the ECB displayed hawkish overtures earlier. We suggest a more cautious stance in credit amid rising liquidity risks and a less appealing risk/return profile for credit compared with equity.
On duration, our overall stance is still defensive, but we recommend staying active across the curves, given the safe-haven status of government bonds such as USTs. On the other hand, in equities, value, quality rotation should continue amid a pause but investors should enhance hedges. Overall, a well-diversified stance with strong hedges is recommended.
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