Asset allocation

Current views at a glance - November 2016

30/11/2016

KEY

Equities

 
 
 

UK

Ongoing concern over Brexit suggests favouring large-cap equities as higher overseas earnings will benefit from weaker sterling.

 
 

European

We are concerned about the deceleration in growth, low business confidence and rising political risk.

 
 

North American

Trump's reflationary stance should be supportive for US equity, in particular more domestically oriented.

 
 

Japanese

Stronger yen will weigh on foreign earnings, while domestically, abenomics has not produced the growth or increase in inflation as expectations desired.

 
 

Asia Pacific

Slower interest rate cycle in the US and better relative growth momentum will be more supportive to Asian equities.

 
 

Emerging markets

Risks remain elevated given the uncertainty around Trump's protectionist policy and fears of further US dollar strength.

Fixed income (bonds)

 
 
 

Government

Core inflation rising in the UK and US, with continued volatility in bonds expected after sharp sell-off.

 
 

Investment grade

Credit spreads provide some pick-up in yield but we prefer short duration.

 
 

High-yield

Spreads have tightened giving potential for setback but yields are still attractive (on a relative basis).

 
 

Inflation-linked

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.

 
 

Emerging markets

Post-Trump sell-off has provided a cheaper entry point but we believe there may be better opportunities to come.

Alternatives

 
 
 

Absolute: equity

Increased volatility and dispersion should provide opportunities. 

 
 

Absolute: fixed income

Lower liquidity and flatter rate profiles reduces attractiveness of many strategies.

 
 

Absolute: macro

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 infrastructure

Uncorrelated income continues to be attractive and in demand.

 
 

Precious metals

Gold has continued to act as a diversifier and as portfolio insurance.

 
 

Industrial metals

Ongoing excess supply likely to weigh on prices for some time.

 
 

Energy

Oil continues to be volatile as politics and supply concerns dominate the market.

Cash

 
 
 

Cash

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

This article is issued by Cazenove Capital which is part of the Schroder Group and 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. 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 unless otherwise stated.

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