3 Min | In focus

January 2020: how we are positioning portfolios

The initial reaction to last month's significant Conservative victory in the UK election was much as we expected. Sterling and domestically-exposed UK equities rose sharply. Overall, this helped portfolios.

In the last quarter of 2019, we moved from an underweight position in UK stocks to a more neutral one, as the risk of a “no-deal” Brexit receded. Our holdings have a bias to small, mid-cap and domestic UK stocks. There is probably scope for these segments of the market to rally further as international investors increase allocations to the UK in the coming months.

The benefit will be partially offset by the somewhat reduced sterling value of our overseas holdings. However, we expect the extent of moves in both domestic equities and the currency to be somewhat limited, as the UK’s trading relationship with the EU will remain a source of uncertainty.

Gold holdings remain significant

Our relatively large allocation to gold is a distinguishing feature of our investment strategy. Gold has performed well for us, though it retreated from its highs of the year as bond yields rose. However, it still ended 2019 up 19%.  We retain our holdings heading into 2020.

The performance of gold is highly correlated to bond markets. As one of my colleagues memorably put it, gold is a way of owning bonds “through the back door.” In 2019 we saw gold, bonds and equities all rising in tandem.

Stocks and gold have both rallied this year

Performance of S&P 500 and gold (rebased to 100)


Source: Cazenove Capital, Refinitiv Eikon, December 2019

On balance, however, we think gold is currently more attractive than government debt. Yields on government bonds are still below inflation in many major markets, and this does not suggest to us they will deliver attractive real returns in the long-term. We are underweight government bonds in most multi-asset portfolios. Our significant gold position makes us more comfortable with this approach.

Other areas within fixed income are more attractive. For instance, we recently increased our allocation to emerging market debt. While there have been pockets of distress in specific markets – such as Argentina – the fundamentals in larger emerging economies look attractive.

Staying neutral on equities... but aware of the risks

Our equity position remains in line with our long-term target allocations. There are several reasons to stick with shares. Some form of a US-China trade agreement is now looking likely, which should further support the uptick in global growth expectations we have seen in the last quarter. Central banks also remain highly supportive.

As ever, there are risks stacked against these favourable developments. A trade deal is likely to be only a partial one. And with a US election coming up next year, President Trump may take a tough stance in subsequent negotiations with China as he seeks to re-establish his credentials as the “America First” choice.

Increased regulation is another US election-related risk. Finally, while equity valuations are not extreme, the recent rally leaves US stocks looking more stretched than they did at the start of the year.

A “neutral” position does not mean we are inactive. Our manager selection team has made allocations to some interesting new funds this year. One of these is a specialist in mid-cap US growth stocks. Another is a long-short hedge fund that aims to generate attractive risk adjusted returns in all market conditions.


Asset classes



Valuations are above long-term averages but central banks’ actions continue to be supportive.



Valuations are expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer corporate bonds to government bonds.



Attractive diversification characteristics compared to equities and bonds. We favour gold as global central banks ease policy. We remain cautious on UK commercial property.



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





Brexit uncertainty continues to weigh on market sentiment. Preference for value and small/mid-sized companies.



Weaker economic data and the uncertainty around trade tensions continue to be a headwind, offset by bolder easing measures by the European Central Bank.


North American

Economic fundamentals are relatively attractive vs. rest of the world and earnings growth expectations have moderated.



Cheap valuations offset by weak domestic demand post-consumption tax hike.


Asia and Emerging markets

Valuations and fundamentals look attractive relative to developed markets. Slowing Chinese growth and trade tensions remains a headwind, but Chinese stimulus should be supportive.





Government bonds

Valuations are expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer corporate bonds to government bonds.


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 late stage of the economic cycle.



The higher starting yield may see European high-yield outperform investment grade.



We prefer US TIPS to conventional treasuries. Sterling linkers also look cheap relative to nominal bonds.


Emerging markets

Emerging market bonds generally offer good value.




Absolute return

We like the diversification characteristics of trend following and market-neutral strategies.


Commercial property (UK)

Ongoing concern for the UK commercial property environment, but income characteristics remain attractive.



Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.


Structured products

Offer attractive returns but we acknowledge the shorter-term correlation with equities.





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

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.