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DoubleLine Podcasts

S12 E1: Outlook for 2022 – Stocks, Bonds, Rates, Macro and Global Allocations

After a review of January market returns, co-hosts Jeffrey Sherman and Samuel Lau are joined by fellow DoubleLine portfolio manager Jeff Mayberry to discuss their outlooks for securities and ideas on asset allocation for 2022. Mr. Mayberry foresees a relatively benign economic backdrop (7:35) this the year, with positive GDP growth, particularly in the second half of 2022, and inflation likely to moderate to 3%. However, he adds, if inflation persists above 5%, the Federal Reserve would have to tighten more aggressively. Mr. Lau (17:31) observes that “inflation has been high enough, persistent enough (that) it’s made its way to wages, which are sticky. Ultimately, they’re probably going to make their way up the employment chain.” Mr. Sherman sees politics at work behind the Fed’s turn from dovish to hawkish monetary policy. “The Fed,” Mr. Sherman says, “cares more about inflation, not because of the Fed’s mandate, but because politically, that’s what the (White House) administration cares about.”

In terms of asset allocation, given a Fed so far bent on tightening and markets pricing in tighter financial conditions, Mr. Lau recommends (28:30) fixed income investors focus on quality, paring back on high yield corporate bonds in favor of investment grade corporates with strong fundamentals and less reliance on debt. He also likes floating-rate assets like collateralized loan obligations and non-Agency residential mortgage-backed securities. For an investor’s corporate exposure, Mr. Sherman likes a mix of 60% IG and 20-30% bank loans given their floating rate coupon and the rest in selective high yield names. Turning to equities (38:36), Mr. Lau expects U.S. equities to produce positive returns, but he notes that European stocks are starting to play catch-up. Mr. Lau says emerging markets equities could become a “top-performing region in 2022,” although he advises investors to practice patience, giving time for uncertainty over the macroeconomic environment and interest rates to moderate. Mr. Mayberry says (39:59) U.S. stocks, especially large-cap growth stocks, are expensive based on CAPE ratios versus European stocks. “It may be time,” he says, “to peel back a little U.S. exposure and move into Europe.” Mr. Sherman advises equity investors, especially those with heavy exposure to U.S. stocks, to “watch real yields. Real yields are what drive multiples, not nominal yields. And that’s what you’ve seen transpire. This has been a big real yield move,” which has compressed valuation multiples. This episode of The Sherman Show was recorded Feb. 2, 2022.

Guest Speaker Bio

The views and opinions expressed herein are as of the date recorded and should not be construed as an offer to buy or sell any securities. Such views/opinions may differ from those of DoubleLine Capital or other of its affiliates and are subject to change without notice. DoubleLine has no obligation to provide any updates or changes. The following audio presentations represent DoubleLine’s intellectual property. No portion of these presentations may be published, reproduced, transmitted or rebroadcast in any media in any form without the express written permission of DoubleLine. DoubleLine has no obligation to provide any updates or changes. To receive permission from DoubleLine please contact [email protected].

Neither DoubleLine nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.

DoubleLine is not providing any financial, economic, legal, accounting or tax advice in these podcasts. The receipt of these podcasts by any listener is not to be taken as constituting the giving of investment advice by any DoubleLine entity or individual to that listener, nor to constitute such person a client of any DoubleLine entity. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

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