Current views - May 2018
Our Investment team provide their current views on asset classes based on the status of markets.
Growth and inflation underpins a positive outlook for equities, however valuations cannot be described as cheap. The risk of a trade war is an increasing concern.
We prefer USD versus EUR and GBP, and prefer inflation linked bonds to nominal bonds.
Attractive diversification characteristics compared to equities and fixed interest.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
The economy continues to lag the expansion seen in other markets and political uncertainty remains. However, we are mindful of the market derating and that investors are underweight in the UK equity market.
Strong cyclical upturn in economic growth is supportive, although the strength in the euro may temper performance.
Potential for a strong increase in growth and earnings is offset by higher valuations.
Stronger growth and inflation after many years of disappointment is driving a recovery in corporate earnings, and the yen remains relatively undervalued.
The increase in global trade is helpful to Asia Pacific although they performed strongly in 2017.
Continued global growth should be supportive to emerging markets that are cheap relative to developed markets.
We remain negative on GBP and EUR bonds but US Treasuries are becoming relatively more attractive given the normalisation of yields that is taking place.
Credit spreads provide a small pick-up in yields but are at a historically narrow level.
High-yield credit spreads are at a historically low level so we remain wary.
Inflation-linked government bonds remain relatively attractive and provide a hedge against unexpected higher inflation and any currency weakness.
Selectively, local emerging market bonds offer good interest rate and currency exposure.
Increased volatility and dispersion should provide opportunities. We favour trend followers and long/short strategies to fixed interest.
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.