(Bloomberg) -- A $90 billion quant is prepping for more cross-asset carnage now cracks have emerged in credit markets.
Multi-asset portfolios at Acadian Asset Management have extended a bearish stance on equities and a bullish bet on developed countries’ sovereign bonds. The allocation call is based on quantitative models with inputs like policy stimulus and valuations.
It all belies Wall Street calls for a risk-on rotation with bond yields trading near all-time lows and global stocks reeling from a more than 20% plunge.
“Acting somewhat as a shock absorber is the unprecedented stimulus that global central banks have put in the system,” director Ilya Figelman said on a recent webinar, referring to equities. “However, this stimulus, even though it’s positive, is not enough to offset the negative outlook from credit risks.”
While credit spreads have narrowed from their peaks in late March, the riskiest U.S. debt is still trading about 9 percentage points over Treasuries, levels unseen since the global financial crisis.
As the economic shutdown sparks a plunge in corporate revenues and a rise in bankruptcies, the outlook for profits and shareholder payouts is darkening. Stocks with weak balance sheets have plunged toward the lowest versus the opposite cohort since 2009, Goldman Sachs Group Inc (NYSE:GS). baskets show.
Low inflation and strong momentum are also driving the firm’s bullish stance on government bonds, says portfolio manager Clifton Hill. The firm prefers U.S., Swiss and Japanese bonds, with American Treasuries in a good position as the strong dollar keeps price growth at bay and allows room for further monetary easing.
The multi-asset team is also sticking to hedges via longer-dated stock options. It’s down on gold as a collapse in inflation expectations pushes up real yields, according to the webinar.
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