Current views at a glance - November 2016
Ongoing concern over Brexit suggests favouring large-cap equities as higher overseas earnings will benefit from weaker sterling.
We are concerned about the deceleration in growth, low business confidence and rising political risk.
Trump's reflationary stance should be supportive for US equity, in particular more domestically oriented.
Stronger yen will weigh on foreign earnings, while domestically, abenomics has not produced the growth or increase in inflation as expectations desired.
Slower interest rate cycle in the US and better relative growth momentum will be more supportive to Asian equities.
Risks remain elevated given the uncertainty around Trump's protectionist policy and fears of further US dollar strength.
Fixed income (bonds)
Core inflation rising in the UK and US, with continued volatility in bonds expected after sharp sell-off.
Credit spreads provide some pick-up in yield but we prefer short duration.
Spreads have tightened giving potential for setback but yields are still attractive (on a relative basis).
Domestic inflationary pressures are rising (UK and US), while commodity inflationary impact is turning positive. We prefer US inflation protected securities over UK inflation-linked gilts.
Post-Trump sell-off has provided a cheaper entry point but we believe there may be better opportunities to come.
Increased volatility and dispersion should provide opportunities.
Absolute: fixed income
Lower liquidity and flatter rate profiles reduces attractiveness of many strategies.
Increased volatility across many asset classes should counter flatter rate cycles.
Commercial property (UK)
Post-Brexit concerns will weigh on the asset class for some time but property income characteristics still attractive.
Uncorrelated income continues to be attractive and in demand.
Gold has continued to act as a diversifier and as portfolio insurance.
Ongoing excess supply likely to weigh on prices for some time.
Oil continues to be volatile as politics and supply concerns dominate the market.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
This article is issued by Cazenove Capital Management which is a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Issued in the Channel Islands by Cazenove Capital Management which is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital Management unless otherwise stated.