It’s the end of the calendar year, and how better to end it than by taking a look at how DFMs’ are feeling as they go into 2024.
We took another survey spanning over 20 investment houses to check up on their sentiment on various asset classes, markets and regions, the finer details of which we will be sharing with you over the new year.
For now, the broadest brushstrokes reveal some interesting shifts since we last checked the pulse back in early September.
Most notably, our allocators have become even more positive towards fixed income, up from already-high levels, while the overall mood on equities as a whole has turned negative.
70 per cent of the DFMs we cover are optimistic on bonds, with just five per cent expressing a negative sentiment. By far the most popular area of fixed income going into 2024 is found in government bonds – 66 per cent of allocators are positive here.
Current positivity towards government bonds is an increase on the already boyant feeling towards this asset class in September.
Such positivity is reflected in their allocations, too. Fixed income exposure is at its highest level since the inception of our database – 30 per cent – as are govvies, with almost 8 per cent placed here on average.
Shanti Keleman, chief investment officer at M&G Wealth, had this to say on how the team’s views have altered over the course of 2023.
“We’ve reduced equities and increased bonds in our portfolios. As bond yields have risen further over the course of 2023, they are now attractive,” she says. “This is particularly true in inflation-linked markets where real yields have risen to 14-year highs. We introduced a new allocation to index-linked gilts, whilst increasing the allocation to gilts and Treasuries.
She adds that M&G doesn’t have a negative view on equities per se, but she sees more opportunities in fixed income.
The wider industry view offers a slightly more negative consensus, with 38 per cent now negative on equities as an asset class, reflecting a downturn in mood over the course of the past few months.
And at a more granular level, there has been some hardening of opinion across the various equity regions since we last looked.
In August we reported that allocators were most bullish on Japanese equity, and this feeling has remained broadly the same, with 52 per cent of DFMs expressing positivity going into the new year, and nobody at all viewing it negatively.
Equally surprising, the equity market with the most optimistic prospects for DFMs is now the UK, with 54 per cent viewing it positively. Several allocators have expressed the view that the FTSE is undervalued and has plenty of room to run in the future.
David Hambidge at Premier Miton is one of them. He says: “The UK stock market remains unloved, under-owned and undervalued in our opinion. However, this has been the case since the Brexit referendum in 2016.
"That said, returns over the last three years haven’t been too far away from the global benchmark, albeit the gains have been primarily in the FTSE 100 index. It’s not clear when a proper re-rating will occur but at least investors are being paid a decent dividend while they wait.”
You Asset Management agreed, saying the UK market was "remarkably cheap", particularly in the context of global equity valuations.
Contrast this with sentiment about the US and the results seem even more stark. Now, 54 per cent of allocators are negative on the region, while just 9 per cent positive.
Abrdn is among the many names anticipating a US recession, while Tatton thinks the nation may become a victim of its own success in 2024.
We will have a bit more to say on this in when we return on Tuesday, January 9.
Until then, have a happy Christmas.
