Current views - July 2018
Our Investment team provide their current views on asset classes based on the status of markets.
Improved valuations following on from strong earnings growth.
We prefer USD bonds versus EUR and GBP bonds, particularly inflation-linked bonds.
Attractive diversification characteristics compared to equities and fixed interest.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
The UK is now one of the slowest growing economies in the G7. Brexit uncertainty leads us to remain cautious.
Slowdown in domestic economic growth and increased trade tensions could hamper earnings.
Strong US consumer and tax reform are supportive to earnings growth.
Japan has the most accommodative monetary policy and the yen remains undervalued.
Escalating trade wars are a concern but solid and consistent earnings growth supportive.
Emerging markets valuations look attractive relative to Western developed markets.
We remain negative on GBP and EUR bonds but US Treasuries are 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 so capital gains are unlikely. Returns will be driven by government bond markets. We see opportunities in some shorter maturity areas of the markets.
High-yield credit spreads are at a historically low level compared to Investment Grade credit spreads, so we remain wary.
Inflation-linked government bonds remain relatively attractive compared to conventional government bonds and will outperform if inflation expectations rise, which we anticipate. Recent strong performance by US TIPS prompted our recent downgrade.
Selectively, local emerging market bonds offer good interest rate and currency exposure.
Increased volatility and dispersion of returns should provide opportunities. We favour trend followers and long/short equity 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.