Current views - May 2018
Our Investment team provide their current views on asset classes based on the status of markets.
Growth and inflation underpins a positive outlook for equities, however valuations cannot be described as cheap. The risk of a trade war is an increasing concern.
We prefer USD versus EUR and GBP, and prefer inflation linked bonds to nominal bonds.
Attractive diversification characteristics compared to equities and fixed interest.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
The economy continues to lag the expansion seen in other markets and political uncertainty remains. However, we are mindful of the market derating and that investors are underweight in the UK equity market.
Strong cyclical upturn in economic growth is supportive, although the strength in the euro may temper performance.
Potential for a strong increase in growth and earnings is offset by higher valuations.
Stronger growth and inflation after many years of disappointment is driving a recovery in corporate earnings, and the yen remains relatively undervalued.
The increase in global trade is helpful to Asia Pacific although they performed strongly in 2017.
Continued global growth should be supportive to emerging markets that are cheap relative to developed markets.
We remain negative on GBP and EUR bonds but US Treasuries are becoming 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.
High-yield credit spreads are at a historically low level so we remain wary.
Inflation-linked government bonds remain relatively attractive and provide a hedge against unexpected higher inflation and any currency weakness.
Selectively, local emerging market bonds offer good interest rate and currency exposure.
Increased volatility and dispersion should provide opportunities. We favour trend followers and long/short strategies to fixed interest.
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.