Current views - December 2018
Our investment team assesses the prospects for a range of asset classes and currencies
Improved valuations and solid fundamentals, but peak earnings growth led us to be neutral on equities.
We prefer USD bonds versus EUR and GBP bonds. More attractive valuations in inflation-linked and high yield bonds.
Attractive diversification characteristics compared to equities and bonds.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
Brexit uncertainty continues to weigh on sentiment, especially on domestically-oriented small and mid-cap companies.
Slowdown in domestic economic growth and increased trade tensions could hamper earnings.
Economic fundamentals are solid with relatively attractive earnings growth versus rest of world.
Progress on corporate governance offsets some concern about the upcoming consumption tax hike.
Trade war remains a headwind but a weaker dollar should be supportive.
Valuations and fundamentals look attractive relative to developed markets, and a weaker dollar should be supportive.
US Treasuries are relatively more attractive given the normalisation of yields that is taking place.
Returns are likely to be driven largely by government bond markets. Relative value is returning as corporate spreads have widened to post 2009 averages. UK spreads have been particularly affected by Brexit concerns.
Significant spread widening, particularly in Europe, has improved the risk/reward outlook.
US inflation-linked government bonds are particularly attractive compared to conventional ones and will outperform if inflation expectations rise again. Elsewhere they are fairly valued.
Emerging market bonds offer good value, selectively, and would benefit from a weaker US dollar.
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.
Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.
This article is issued by Cazenove Capital which is part of the Schroder 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.