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.
Unstructured Learning Time
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.↩