Multi-Asset Strategies Outlook

Explore Our investment Outlook

Year of the Tiger Signals Change

According to the Chinese calendar, 2022 is the year of the tiger, which is associated with change. It’s hard to imagine a more fitting symbol for a year that appears to be an inflection in geopolitical terms, as well as for the economy, inflation, corporate earnings, interest rates, and monetary and fiscal policy. 

Growth and Earnings Slowing, While Rates and Inflation Rising

After a sharp recovery, the rate of global economic growth is slowing. Similarly, corporate earnings growth, which was the fastest in a decade in 2021, is forecasted to slow dramatically in the next two quarters. Another important difference is that for the first time since 2017, Europe is forecast to match the U.S.’s rate of growth.

But while earnings and the economy are slowing, inflation and interest rates are going the opposite direction. Supply disruptions and rebounding consumer demand mean inflation has jumped at the fastest rate since the early 1980s. In response, bond yields are rising. The 10-year Treasury yield exceeded 2% in February for the first time since July 2019.

Perhaps most consequential of all, federal stimulus spending has dried up at the same time the Fed is tightening monetary policy. The Fed is raising short-term interest rates and selling its long-term bond holdings, which is putting upward pressure on bond yields. 

Changing Interest Rate Regime Affects All Asset Classes

The changing interest rate and macroeconomic backdrop has significant implications for financial markets. In bond land, higher rates increase the appeal of cash and short-term bonds. These conditions also help explain the recent sharp stock rotation from growth to value.

Higher rates typically benefit more economically sensitive, value-oriented stocks such as banks and insurance companies. In contrast, growth stocks typically have low/no dividends and offer future returns primarily through capital appreciation. That makes them “longer duration” assets relative to value equities, and thus, more interest rate sensitive.

Real estate investment trusts (REITs) also suffer when rates rise. Finally, better relative growth prospects for overseas economies make non-U.S. equities more attractive than they’ve been in the past.  

Asset Class

It’s hard to imagine a more compelling case for a broadly diversified portfolio than the massive, ongoing change in macroeconomic conditions, which suggests significant volatility ahead. A land war in Eastern Europe further contributes to economic and market uncertainty. As a result, we are staying near our long-term strategic stock/fixed-income weights. However, rising interest rates have us favoring cash over long-term bonds on the margin.  

Equity Region

Our models look over a three- to six-month horizon, a period over which we are neutral on stocks by geographic region. That said, after years of underperforming the U.S., European equities may begin to look increasingly attractive as relative growth differentials close. In the meantime, our global growth managers see tremendous opportunity in select individual companies and securities in this space.

Before the Russian invasion of Ukraine, we saw emerging markets as offering increasingly strong economic and earnings growth. They had been making progress against the pandemic, and we saw a rebound in economic activity. That has changed with the invasion, and EM equity return is now poor. Nevertheless, we will maintain the overweight for now because the fundamentals remain positive, and select commodity-exporting economies actually benefit from inflation in energy and basic materials prices. This is also an area with tremendous potential to add value through individual security selection and risk management processes. 

U.S. Equity Size & Style

We’ve been “long and wrong” on small-cap stocks in recent quarters—small underperformed large by a wide margin in 2021, though small has held up better than large during February’s volatility. The thing is, our overweight is based largely on small stocks’ attractive relative valuations, which have only become more compelling after last year’s underperformance.

After having worked down our value overweight from recent quarters, we reinstituted the position in February. Relative valuations, the stage of the economic recovery and prospect for higher interest rates all argue for value over growth. The rate backdrop, in particular, is challenging for growth stocks, which often lack the cash flows and dividends to cushion share prices as rates rise. Nevertheless, we believe the sell-off in the highest flying growth stocks creates select opportunities for active managers.  

Fixed Income

We remain short duration (price sensitivity to rate changes) given the rising interest rate environment. We also continue to be overweight Treasury inflation-protection securities (TIPs), while underweighting mortgage-backed securities. We are overweight investment-grade relative to high-yield bonds and favor BBB-rated credits in select sectors and industries, such as finance companies and life insurance. Lastly, we continue to look for opportunities in EM high-yield bonds, where we believe individual security selection can help us add significant value.


Equity real estate trusts (REITs) performed remarkably well in 2021, leaving them relatively expensively valued. But rising interest rates and falling capitalization (“cap”) rates cloud the outlook for the sector. Cap rates are a measure of REITs’ expected returns, meaning these investments are less attractive. Of course, it’s an incredibly broad and diverse sector, so select opportunities remain, but we are underweight the asset class as a whole. 

Q2 2022 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

Diversification does not assure a profit nor does it protect against loss of principal.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.