60 seconds with Matt Hudson on his favoured UK sectors
Matt Hudson explains why the return of inflation looks set to boost the case for financial and commodity stocks as we head into 2017.
A tough year
UK investors have had to deal with a lot this year, not only a slowing global economy but the fallout from the vote to leave the European Union.
In a period of uncertainty, investors are focused on those assets they feel add security, high yield and they’ve sought out companies with exposure to overseas currencies.
But we think there’s a more interesting outlook.
We are moving into an environment where inflation is going to pick up and it will be a more fiscally expansive period.
That premium of safety investors have been craving in defensive1 assets is going to be challenged by a more reflationary and inflationary environment.
In that context, the type of assets we think are interesting are financials, some commodity cyclicals and, broadly speaking, value areas of the market.
These are stocks that haven’t yet delivered but in an environment where nominal growth is picking up, earnings can grow.
With the market yields just under 4% yield, we think it is an attractive time to be investing in UK equities.
1. Defensive Assets: more conservative, lower risk investments which generally earn returns from interest but offer lower long-term returns.↩
Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.