Here are the highlights from our recently updated House View:
Positive on equities and fixed income, given a better macro-outlook, an expectation that interest rate cuts are coming, and secular support from the tech sector.
The economic base case is for a US 'soft landing' with slowing but still positive growth. While there are risks, inflation should further decline gradually towards central bank targets.
An increasing number of central banks will begin rate cuts this year. Recent central bank communication supports this expectation. We like duration for both sovereign and investment-grade corporate bonds, including emerging market debt.
More positive on developed market equities because of the better probability-weighted economic outlook and a view that the performance of the 'Magnificent 7' stocks is underpinned by sound fundamentals. But there are important differences within this group.
The negative adjustment in global direct property markets is closer to completion, so we've moderated our negative view, and expect to move to a neutral stance (and in time even positive). We prefer exposure to the living, distribution, healthcare and technology sectors.
Neutral in our currency view, with conflicting dollar drivers from near-term US growth exceptionalism and carry, set against an expectation of moderating US growth and a global soft landing.
| Asset Class | Old | New | Change |
|---|---|---|---|
| Global Govt Bonds | 1 | 1 | 0 |
| Emerging LC Gov. Bonds |
2 | 2 | 0 |
| Global IG Credit |
2 | 1 | -1 |
| Global HY Credit |
-1 | -1 | 0 |
| DM Equities |
0 | 1 | 1 |
| EM Equities |
0 | 0 | 0 |
| Global Property |
-2 | -1 | 1 |
| Cash |
-2 | -3 | -1 |
| USD | 0 | 0 | 0 |
Many clients have expressed their concerns over the heightened levels of uncertainty this year. While this is completely understandable, I also think investors mustn’t let fear rule their thinking.
In the latest instalment of the Investment Outlook, we look at a few sources of uncertainty, and how they may affect investors.
Paul Diggle weighs up how different economic scenarios may unfold. With the end in sight for central banks’ inflation fight, he asks whether the ‘last mile’ will prove the most difficult.
On a related note, Adam Skerry and Maximilien Macmillan, review how financial markets may react during the ‘last mile’, especially if inflation and interest rates deliver unpleasant surprises.
Andrew Fraser looks at how an obscure monetary policy tool used by the Federal Reserve could affect financial market stability and shape bond markets for years to come.
Finally, smaller company equities have been out of favour with investors for many years. But Tzoulianna Leventi makes a persuasive case for their inclusion in sustainability-aligned 'Article 9' portfolios.
I hope you enjoy these insights.