Asset allocation

Current views at a glance - Q4 2016

Our investment team provide a brief overview of our current views on asset classes.

10/10/2016

KEY

Equities

 
 
 

UK

Ongoing concern over Brexit suggests favouring large-cap equities as higher overseas earnings will benefit from weaker sterling.

 
 

European

Post-brexit challenges remain with a weak financial sector potentially constraining growth. 

 
 

North America 

Earnings expectations lowered, but the market is likely to be more resilient.

 
 

Japanese

Stronger yen will weigh on foreign earnings, while domestically Abenomics has not produced the growth or increase in inflation as desired.

 
 

Asia Pacific

Slower interest rate cycle in the US and better relative growth momentum will be more supportive to Asian equities.

 
 

Emerging markets

Despite a boost from weaker currencies, domestically there are still many challenges, and externally a difficult outlook for commodity markets.

Fixed income (bonds)

 
 
 

Government

Core inflation is rising in the UK and US, with continual volatility in bonds expected.

 
 

Investment grade

Credit spreads provide some pick-up in yield but we prefer short-dated bonds.

 
 

High-yield

Spreads have tightened giving potential for setback, but yields are still attractive (on a relative basis).

 
 

Inflation-linked

Domestic inflationary pressures are rising (UK and US), while commodity inflationary impact is turning positive.

Alternatives

 
 
 

Absolute: equity

Increased volatility and dispersion should provide opportunities.

 
 

Absolute: fixed income

Lower liquidity and flatter rate profiles reduces the attractiveness of many strategies.

 
 

Absolute: macro

Increased volatility across many asset classes should counter flatter rate cycles.

 
 

Commercial property (UK)

Post-Brexit concerns have resulted in the marking down of property but income characteristics are still attractive.

 
 

Uncorrelated infrastructure

Uncorrelated income continues to be attractive and in demand.

 
 

Precious metals

Gold has continued to act as a diversifier and as portfolio insurance.

 
 

Industrial metals

Ongoing excess supply is likely to weigh on prices for some time.

 
 

Energy

Oil continues to be volatile as politics and supply concerns dominate the market.

Cash

 
 
 

Cash

Cash has defensive and opportunistic qualities in uncertain and volatile markets.

Currency versus £

 
 
 

US$

We are neutral on the US dollar overall however there is potential for further weakness in sterling.

 
 

Post-Brexit concerns and the trade deficit weigh more on sterling than euro.

 
 

¥

Abenomics continues to struggle although in the short term the yen could benefit from US election uncertainties.

 
 

Asian currencies

A dovish Fed tightening cycle may reduce pressure on Asian currencies.

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

Contact Cazenove Capital

To discuss your DFM requirements, or to find out more about our services and how we can help you, please contact:

Nick Georgiadis

Nick Georgiadis

Head of DFM Team nick.georgiadis@cazenovecapital.com
Simon Cooper

Simon Cooper

Business Development Director simon.cooper@cazenovecapital.com