Much of this year, the U.S. has seen low growth, easy monetary policy and low inflation.
But, Maura Murphy, vice president at Loomis Sayles, is starting to see a shift.
“The assets that were winning for much of the year were yield-seeking assets – going into high yields; going into emerging markets; thinking about more defensive sectors in the U.S. equity market, like Staples or REITs or utilities (things that are more rate-sensitive),” Murphy said during a press luncheon featuring top investment experts from Natixis Global Asset Management’s affiliate asset managers. “But we think we’ve seen a shift since the start of the third quarter. We’ve seen a massive sector rotation from defense into pro-growth and pro-cyclical.”
One area where that shift is already hitting is REITs. Over the last three months, according to Murphy, REITs underperformed financials by 10%.
“We haven’t had that in three or four years, and we think that’s because people are starting to price in higher rates, higher growth and a better inflation outlook,” she said.
Murphy, who is co-portfolio manager of Loomis Sayles Multi-Asset Income Fund and Loomis Sayles Inflation Protected Securities Fund, said they’ve taken REITs down to zero from 25% at the start of the year in the Loomis multi-asset portfolio.
“That’s a big shift for us, and we’re willing to stick our neck out and make that bet because of the signs that we’re seeing out there,” Murphy said. “Growth is picking up in the U.S., and inflation is set to pick up quite substantially actually just with the change in oil prices in the last year.”
In mid-October, the Consumer Price Index, before seasonal adjustments, showed inflation rising at 1.5% over the past 12 months, according to the U.S. Bureau of Labor Statistics