Asset allocation

Current views - September 2018

Cazenove Capital's investment team assesses the prospects for a range of asset classes and currencies

17/09/2018

KEY

Asset classes

 
 
 

Equities

Improved valuations following on from strong earnings growth.

 
 

Fixed income

We prefer USD bonds versus EUR and GBP bonds, particularly inflation-linked bonds.

 
 

Alternatives

Attractive diversification characteristics compared to equities and fixed interest.

 
 

Cash

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

 

Equities

 
 
 

UK

The UK is now one of the slowest growing economies in the G7. Brexit uncertainty means we remain cautious.

 
 

European

Slowdown in domestic economic growth, increased trade tensions and Italian politics could hamper earnings.

 
 

North American

Strong US consumer and tax reform are supportive to earnings growth.

 
 

Japanese

Upcoming elections and weak economic data reduce the relative attractiveness of Japanese equities.

 
 

Asia Pacific

Solid and consistent earnings growth is supportive, but trade war remains a headwind.

 
 

Emerging markets

Valuations look attractive relative to Western developed markets, but trade war remains a headwind.

 

Fixed income

 
 
 

Government bonds

US Treasuries are relatively more attractive given the normalisation of yields that is taking place. We are cautious on European government bonds.

 
 

Investment grade

Returns are likely to be driven largely by government bond markets. We see opportunities in some shorter maturity areas of the markets.

 
 

High-yield

High-yield credit spreads are at a historically low level compared to Investment Grade credit and Emerging Market Debt spreads, so we remain wary.

 
 

Inflation-linked

Inflation-linked government bonds remain relatively attractive compared to conventional government bonds and will outperform if inflation expectations rise.

 
 

Emerging markets

Emerging market bonds offer good value across the board, but struggle amid a stronger US dollar.

 

Alternatives

 
 
 

Absolute Return

Increased volatility and dispersion should provide opportunities. We favour trend followers and long/short strategies.

 
 

Commercial property (UK)

Post-Brexit concerns have resulted in the marking down of property valuations, 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.

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