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Asset Allocation Views


Our Overall View We continue to favour equities over fixed income in recognition of their leverage to a sustained global economic recovery. Most fixed income looks expensive today against the reflationary backdrop but pockets of credit offer some value. Alternatives, including in favour infrastructure, are attractive for their diversifying qualities as much as the return potential.


Equities

Equities offer the potential for decent forward returns as the global economy leaves the pain of 2020 behind. Huge stimulus programs, central bank support and pent up consumer demand and savings paint a favourable backdrop. The UK looks attractive as it shakes off its Brexit discount and is well positioned sectorally to benefit from the economic recovery. We are bullish on UK Equities, neutral on European, Developed and Emerging Market Equities and cautious on US Equities.


Fixed Income

Bonds remain expensive today. Yields have lifted off their lows but remain unattractive at current levels, notably so in the quality sovereign bond space. Inflation linked bonds have marginally better prospects but the easy gains there have been made. We remain fundamentally constructive on higher yielding credit but see limited upside and returns to come mostly from carry in the near term. Convertibles play an important role in multi asset portfolios but look fairer value today.


Real Assets and Alternatives

Real assets look attractive on both fundamental and valuation grounds, with a bias to infrastructure assets which ultimately should benefit from government policy initiatives. Investors are paid reasonably well to wait, and the diversifying qualities, also offered by the more esoteric liquid alternatives allocation, is attractive today in a world of expensive bonds. We are neutral on Commodities and Property and Bullish on Infrastructure.


Currencies (versus US Dollar)

US yields creeping higher makes it challenging for the more rate anchored currencies not to depreciate. Against that, a global recovery tends to benefit higher beta currencies and idiosyncratic factors drive nearer term dynamics making Sterling attractive today. The Yen has already weakened meaningfully this year and its defensive qualities make it attractive as a portfolio diversifier. We are bullish on GBP and JPY and Neutral on the Euro.

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