At GAM Investments’ Weekly Investment Meeting held on 24 April 2019 the speaker was Charles Hepworth who outlined his latest asset allocation views.
The second half of 2018 was a particularly tough period from an asset allocation perspective as the global growth outlook became more clouded and, rather than the co-ordinated global expansion that we experienced in 2017, a global slowdown seemed to be developing. We had advocated an overweight equity position, while fixed income exposure was tilted towards emerging market debt and subordinated financials – all of which endured challenging market conditions in the second half of the year, but more accurately the last quarter. However, at the start of 2019 we held our ‘allocation’ nerve as, anecdotally, a softer year in performance terms is generally followed by a stronger one as history has shown a tendency for oversold markets to mean revert to trend values.
This has played out so far this year as equity markets have had a very strong start to 2019, especially those stocks with a bias to the technology sector, emerging markets and Japan. Traditional fixed income has had a more difficult start to the year, but again those areas that underperformed heavily last year have recovered, such as EM debt and credit. In terms of alternatives, we favour exposure to pan-European property investments. Additionally commodity exposure through gold allocations acts as a useful diversifier amid geopolitical noise in our view.
In terms of our outlook, we remain positive on equities and we believe that the modest Chinese stimulus programme in Q4 last year has been a positive tailwind for the asset class this year. This and the Federal Reserve walking back its rate hike talk for 2019, realising that raising rates at the same time as they wanted to reduce their balance sheet was a policy over-reach, have helped equity markets get to the levels we now see. US-China trade negotiations remain ongoing, however the rhetoric around this has softened this year and we believe a resolution is unlikely to yield a further bounce in equity markets as the issue would seem to be already priced in for now. We still see the Brexit end-state as a depressingly clouded affair and this translates to elevated levels of risk, especially for UK equities, but any concrete developments (should they materialise rather than can-kicking deadlocks) will quickly enable more tactical positioning to be taken. For now though we remain cautious on UK risk assets in general.
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Source: GAM unless otherwise stated.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. Reference to a security is not a recommendation to buy or sell that security.