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Investment Insights

April 2020

Global Asset Allocation Viewpoints

T. Rowe Price

Portfolio Positioning

As of 31 March 2020

Leaning Into Weakness

  • Amid the coronavirus-related sell-off in risk assets, we have incrementally added to equities over the month as the broad-based, indiscriminate selling has created opportunities to buy into quality companies at discounted levels. We are averaging into positions as volatility is likely to persist over the near term and markets could revisit recent lows.
  • We have pared back exposure to higher-quality, U.S. Treasuries that have reached extreme valuations as yields have fallen to record-low levels.
  • Within fixed income, we added to high yield bonds as spreads have reached attractive entry points that historically have led to the sector delivering equity-like returns, with lower volatility over our 12- to 18-month investment horizon.
  • We also added modestly to floating rate loans as the sector has sold off, leaving spreads at historically attractive levels relative to high yield bonds; loans also have less exposure to the energy sector and higher standing in the capital structure.

Market Themes

As of 31 March 2020

Cushioning the Blow

Pledges of fiscal spending have been quick to follow actions taken by major central banks to combat the looming impacts of the coronavirus pandemic. G-20 countries have pledged more than $5 trillion USD in stimulus through a wide range of avenues to stave off the effects on the global economy. The U.S. has passed a record-setting $2 trillion USD stimulus package, nearly 10% of its gross domestic product, that includes checks paid directly to families as well as loans and guarantees to impacted sectors, including airlines, hotels, and hospitals. Other major countries have followed suit, with a similar emphasis of broad support to both workers and businesses, large and small. While the measures thus far have been quick to be enacted, their effects will take months to come through and positively impact the economy. Only time will tell if these efforts will be enough to offset the damage thus far. The longer the pandemic keeps the global economy on pause, the more support it is going to need to bounce back.

U.S Initial Claims for Unemployment Insurance
As of 31 March 2020

Sources: Bloomberg Finance L.P., Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.

How Low Can It Go?

Oil prices slid more than 60% in the first quarter while many oil stocks have lost more than half their value. If the demand-destructing impacts of the coronavirus-related shutdowns were not bad enough, already oversupplied markets were challenged by the market share war between Saudi Arabia and Russia, which is now showing signs of healing. While the steep decline in oil prices has resulted in low fuel prices not seen in decades, with current social distancing measures in place, consumers and airlines are unable to take advantage of the low levels. With prices near $20 USD per barrel many producers are operating well below their break-even levels, notably U.S. shale producers that continue to operate to generate cashflow despite the low levels. The rising risk is evident in the U.S. high yield market–with approximately a 10% exposure to energy–as yields have blown out to more than 10%. While the battle between OPEC+ members may be resolved, lingering structural imbalances and the severity of the economic downturn will further weigh on the sector.

WTI Crude Oil Price
As of 31 March 2020

Sources: Bloomberg Finance L.P., Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.

Emergency Plumbing Fix

As markets faced sharp declines in response to the coronavirus outbreak, liquidity strains in bond markets exacerbated the situation as investors flocking out of bonds were unable to find buyers in the open market and forced to sell at unattractive levels. Some of this issue can be attributed to dispersed traders and the sheer magnitude of the outflows coming from bonds, but the crux of the issue lies with the enhanced regulations placed on banks after the global financial crisis–limiting banks ability to leverage their balance sheets–leaving fewer buyers to step in. In rapid response to the looming liquidity crisis, the Fed swiftly injected a massive amount of liquidity into markets including unlimited, open-ended quantitative easing, as well as corporate and municipal government bond-buying, in hopes to instill a floor in bond pricing. For now, the extreme measures appear to be alleviating some of the pain as credit markets have shown signs of stabilization. However, it remains to be seen if these measures will be enough to get markets through this crisis, otherwise the Fed may need to show what they meant by “whatever it takes.”

Fed Balance Sheet Changes Since the Beginning of Crises
As of 31 March 2020

Sources: Bloomberg Finance L.P., Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.

Regional Backdrop

As of 31 March 2020

United States

  • Unprecedented levels of monetary and fiscal support
  • Healthy consumer balance sheets prior to the crisis
  • Pause in trade war escalation
  • Health care infrastructure is stronger than most regions
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
  • Size of country and freedom of movement means there is higher potential for continued outbreaks
  • Elevated corporate leverage going into the crisis
  • Service-oriented economy, means higher economic impact from social distancing
  • Margins under pressure going into the crisis
  • Elevated government debt levels


  • Long awaited fiscal stimulus measures are finally coming
  • Monetary policy remains very accommodative
  • Inexpensive valuations have become even more inexpensive as Europe has born the brunt of the sell-off
  • Weak economic growth going into crisis
  • Limited scope for the European Central Bank (ECB) to stimulate further
  • De-centralized government structure means fiscal response is somewhat delayed
  • Banking sector was weak going into the crisis

Developed Asia/Pacific

  • Outbreaks in this region have thus far been milder than in the rest of the world
  • Strong and aggressive fiscal stimulus
  • Japanese companies generally hold high cash levels, meaning they have more cushion for weakness
  • Highly sensitive to global industrial production and trade trends
  • Australia holds high exposure to natural resource prices, which have weakened considerably

Emerging Markets

  • Virus outbreak in China appears to be contained
  • Policy response from China has been significant
  • Younger population likely to be less affected by virus
  • Dovish Fed has given emerging markets central banks flexibility to ease
  • Easing trade tensions
  • Equity valuations attractive relative to developed markets
  • Weak health care infrastructure in many regions
  • Limited ability to enact fiscal stimulus (excluding China)
  • Highly sensitive to global industrial production and trade trends
  • Commodity prices under pressure
  • Instability in several key markets could weigh on sentiment
  • Potential for elevated currency volatility

Asset Allocation Committee Positioning

As of 31 March 2020

Portfolio Implementation

As of 31 March 2020

Source: T. Rowe Price.
Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
These are subject to change without further notice.
Please see “Additional Disclosures” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2020, Bloomberg Index Services Ltd. Used with permission.

Additional Disclosures

Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.

Used with permission of Bloomberg Finance L.P.

Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Key risks –The following risks are materially relevant to the information highlighted in this material:Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and, therefore, involve higher risks.
Foreign investing risk – investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchangerates; differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and thehigher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small- and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

Important Information

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on thematerial and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

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