IN FOCUS6-8 min read

Portfolio positioning – January 2024

Falling inflation and a peak in interest rates have prompted us to add to equities. However, elevated valuations and buoyant market sentiment mean we remain somewhat cautious for now.

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Caspar Rock
Chief Investment Officer

Following the invasion of Ukraine in 2022, we reduced our exposure to equities in favour of diversifying and defensive assets. This served us well in 2022, but was more of a headwind in 2023, when corporate profits and equity market performance were both stronger than anticipated.

To guide our transition to a more positive stance on equities, we have been monitoring four key indicators. The most important of these is a peak in interest rates. It now looks increasingly likely that this has been reached. Inflation continues to fall, with the latest US readings at the lowest level in over two years. US wage increases, a key driver of inflation, appear to have at least plateaued as unemployment slowly ticks up. Even if the Fed does not pivot to rate cuts quite as soon as markets currently expect, a peak in interest rates is in itself supportive for stock markets. As a result, we have been increasing our exposure to equities across different risk profiles.

Other indicators are less clear cut. Earnings expectations still look relatively optimistic, but this may be justified by the resilience of corporate profits over the past two years. Valuations and market sentiment look less supportive. Both are currently elevated, which could be a signal of excessive optimism in markets.

Switching from alternatives

Recent equity purchases have in part been funded by reducing our exposure to gold and absolute return funds. We still believe that gold can act as a valuable hedge against shocks. However, it has performed far better than we would have expected in today’s high interest rate environment and looks vulnerable at current levels (near a record high as at the end of November). We have trimmed our exposure.

Absolute return strategies, such as long/short equity funds, can also perform well in certain market environments. However, at a time when other diversifying assets, such as government bonds, are a better risk-adjusted trade, the high fees associated with these strategies are harder to justify. We have again cut our exposure.

Taking advantage of the bond market rally

Bond markets enjoyed one of their strongest months in decades in November. We took advantage of the rally to sell longer-dated bonds, which we bought earlier in the year. Our bond allocations now have a slightly shorter maturity profile, meaning they are less sensitive to potential increases in government bond yields.

Across portfolios, we remain slightly overweight fixed income overall. Bonds now provide attractive levels of income and could also help to protect portfolios if economic growth slows significantly and central banks cut interest rates to support growth.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. 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.


Caspar Rock
Chief Investment Officer


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.