Asset Allocation

Current views - June 2019

Our investment team assesses the prospects for a range of asset classes and currencies

02.06.2019

Key

Asset classes

 
 
 

Equities

Valuations have moved above long-term averages but continued growth and central banks’ actions are supportive. Increased concerns over trade tensions. 

 
 

Bonds

We prefer USD bonds versus EUR and GBP bonds. More attractive valuations in US inflation-linked and emerging
market bonds. Maintaining a short duration bias.

 
 

Alternatives

Attractive diversification characteristics compared to equities and bonds. Remain cautious on UK commercial property.

 
 

Cash

Cash has defensive and opportunistic qualities in uncertain and volatile markets.

 

Equities

 
 
 

UK

Brexit uncertainty continues to weigh on sentiment.

 
 

European

Weaker economic data and the uncertainty around trade tension continues to be a headwind.

 
 

North American

Economic fundamentals are relatively attractive vs. rest of the world and earnings growth expectations have moderated.

 
 

Japanese

Concern about the impact of the upcoming consumption tax hike.

 
 

Asia Pacific

Slowing Chinese growth and trade tensions remain headwinds but Chinese stimulus should be supportive.

 
 

Emerging markets

Valuations and fundamentals look attractive relative to developed markets.

 

Bonds

 
 
 

Government bonds

US Treasuries are relatively more attractive given a more supportive Federal Reserve.

 
 

Investment grade

Returns are likely to be driven largely by government bond markets. While corporate spreads are close to post 2009 averages, we are mindful of increasing company leverage and the late stage of the economic cycle.

 
 

High-yield

Volatility will likely continue and will offer opportunities if spreads move sufficiently in either direction.

 
 

Inflation-linked

US inflation-linked government bonds are attractive compared to conventional ones and will outperform if inflation expectations rise again. UK linkers are attractive as a Brexit hedge.

 
 

Emerging markets

Emerging market bonds generally offer good value.

 

Alternatives

 
 
 

Absolute return

We like the diversification characteristics of trend followers and long/short strategies.

 
 

Commercial property (UK)

Ongoing concern for the UK commercial property environment, but income characteristics remain attractive.

 
 

Commodities

Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.

 
 

Structured products

Offer attractive returns but we acknowledge the shorter-term correlation with equities.

 

Author

 

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Alexander Prinz von Hessen

Alexander Prinz von Hessen

Geschäftsführender Direktor alexander.hessen@schroders.com