Schroders House View

Risk assets regained their strength over the past month following better-than-expected macro data and earnings results. This positive trend is likely to continue for longer than we previously envisaged, leading us to close our small short global equities position, taking us to neutral equities overall. However, we have also closed our long position in high-beta Pacific ex Japan equities as valuations are looking stretched, though we have retained our long emerging markets trade.

We continue to believe that the best way to play the recovery is mainly through credit ? both high yield and investment grade. Although spreads have continued to narrow considerably, we believe that there are still some gains to be made as investors continue to search for yield.

In anticipation of the next phase of the recovery, we have opened a long industrials versus consumer discretionary position. We have also added a long UK cash against Gilts trade as government bond yields will likely come under pressure as a result of the revival in activity. On the currency front, we have initiated two short positions in the Japanese yen versus the US dollar and sterling, as relative fundamentals should lend support to the latter.