Bonds
The global economy is normalising, as are yield curves. However, overall valuations are not compelling. Some investors are adding to duration as a hedge against continued deflation. We have a preference for less interest rate duration and more credit duration. Within high-yield we saw significant inflows from mid-February but, more recently, there have been outflows following strong performance from the asset class. We are maintaining a modest overweight with a preference for Europe over the US.
Paul Flood, portfolio manager, multi-asset team, Newton Investment Management
UK equities
With the UK referendum on membership of the EU in investors’ minds, many global fund managers have reduced exposure to UK equities, leaving a number of these companies looking attractive relative to global opportunities. With betting firms predicting a victory for the ‘Remain’ campaign, we may see a move back to domestic UK equities following the vote and a pick-up in economic activity which has been delayed in view of the uncertainty. Overall, a positive view.
European equities
The European equity market is full of financial firms that must recapitalise their balance sheets, as well as industry stalwarts that are being subjected to abundant capacity caused by QE and low interest rate policies. However, some areas of the market will prosper from the changing dynamics, particularly companies that can benefit from ageing populations and the increased migration from the Middle East. Valuations are attractive in a global context, and there is opportunity for improvement outside the financial and industrial sectors.
Emerging markets
While some countries have suffered as a result of lower oil prices, this environment bodes well for some net-importing oil economies. India and Mexico are making the right decisions for long-term economic development. Georgia is in a favourable position, benefiting from China’s revival of the ‘Silk Road’ and ties with Iran, where sanctions are loosening. However, concerns remain, such as the structural challenges in China. We are negative overall owing to the dependence on commodities, with overweight positions in select countries.
US equities
The US market is one of the most highly valued at headline level across the globe. But it is also one of the most dynamic economies, where businesses can evolve and benefit from technological advancements rapidly. Overall, it is a mixed affair with lofty valuations and historically high profit margins set against the stability of earnings from some high-quality companies in a low-return, uncertain backdrop.
Property
Western property is facing headwinds owing to challenges identified by our ‘net effects’ theme, as more retail business is moving online, making many high-street and industrial buildings redundant. In the developing world, much of the infrastructure is still to be built and should be more suited for the online economy. Many emerging markets are also beneficiaries of population dynamics and a rising middle class. We are overweight select emerging-market property; underweight developed-market retail property.
