Multi asset: Greater uncertainty but global growth remains positive

Overweight equities and commodities, neutral in property and bonds.

Our proprietary Investment Clock is indicating we are in the stage of the economic cycle when global growth is improving (if slowly) and interest rates can be cut as inflation weakens.

The US has been the best performing major economy while Europe and China have patchier growth pictures; so far, markets seem to be expecting sustained US economic outperformance with a new, tax-cutting Trump administration, but trade wars could change expectations for the global economy negatively. Germany appears to have stagnated for two years, France has significant economic and political challenges, China is now taking action to stimulate its economy, but much depends on whether significant tariffs on exports to the US will be faced this year.

Given this patchy but still somewhat improving global growth and inflation backdrop, we are positioned positively in our multi asset funds and have benefitted from an overweight position in equities. We are around neutral in bonds and given “spikeflation” risks are still present even if interest rates have begun to fall gradually. We are around neutral in commercial property as it has recovery prospects in the current environment.

Cross asset:

• Equities: overweight given a slowly improving macro environment, easing monetary conditions globally and signs of earnings growth recovering
• Commodities: slightly overweight given ongoing geopolitical and trade war risks which could easily lead to ‘spikeflation’
• Property: around neutral as interest rates are on a gradual downward trend
• Government bonds: slightly underweight as the market responds to the start of an interest rate cutting cycle
• Credit: constructive, but watchful for signs of stress
   

Equity regions:

• Slightly underweight US equities given valuation questions despite superior economic performance in America, compared to Europe, and the strength of tech-related earnings
• Underweight emerging market equities now that China faces trade wars while trying to stimulate its sluggish economy
• Underweight Europe given weaker relative economic performance compared to the US
• Slightly overweight UK equities given attractive valuations and most UK stocks’ earnings coming from abroad where there is stronger growth

Currencies:

• Overweight the US dollar given positive market sentiment on the reserve currency with more deglobalisation risk in the world
• Underweight the euro given economic and political challenges in Germany, France and Italy
• Around neutral sterling where rate cuts are likely to be less aggressive than in the US

Sectors:

• Overweight the interest rate sensitive consumer discretionary sector given rate cuts expected
• Underweight utilities given we are not in a defensive period, but growth is improving
• Neutral on technology given elevated valuations (but not underweight given growth potential)

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.