Asset allocation
Current views - February 2019
Our investment team assesses the prospects for a range of asset classes and currencies
06/02/2019
Key
Asset classes
Equities
Reasonable valuations and moderating growth, but peak earnings growth lead us to be neutral on equities.
Bonds
We prefer USD bonds versus EUR and GBP bonds. More attractive valuations in US inflation-linked and emerging market bonds.
Alternatives
Attractive diversification characteristics compared to equities and bonds. More cautious on UK commercial property.
Cash
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
Equities
UK
Brexit uncertainty continues to weigh on sentiment.
European
Slowdown in domestic economic growth and the uncertainty around trade tension continues to be a headwind.
North American
Economic fundamentals and earnings growth are relatively attractive versus rest of world.
Japanese
Increasing concern about the impact of the upcoming consumption tax hike.
Asia Pacific
Slowing Chinese growth and trade tensions remains a headwind but a weaker dollar should be supportive.
Emerging markets
Valuations and fundamentals look attractive relative to developed markets, and a weaker dollar should be supportive.
Bonds
Government bonds
US Treasuries are relatively more attractive given a more supportive Federal Reserve.
Investment grade
Returns are likely to be driven largely by government bond markets. While corporate spreads are close to post 2009 averages, we are mindful of increasing company leverage and the lateness of the economic cycle. UK spreads have been particularly affected by Brexit concerns.
High-yield
Volatility will likely continue and will offer opportunities if spreads move sufficiently in either direction.
Inflation-linked
US inflation-linked government bonds are attractive compared to conventional ones and will outperform if inflation expectations rise again. Elsewhere they are fairly valued.
Emerging markets
Emerging market bonds generally offer good value and should continue to benefit from a weaker US dollar.
Alternatives
Absolute Return
Increased volatility and dispersion should provide opportunities. We favour trend followers and long/short strategies.
Commercial property (UK)
A general increase in concern for the UK commercial property environment, but income characteristics remain attractive.
Commodities
Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.
Author
Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. 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.
