Investment Adviser asks three multi-asset experts for their outlooks on a selection of asset classes for the next three months.
John Stopford, head of multi-asset income at Investec Asset Management
We determine any investment’s outlook according to a common framework, called compelling forces. This involves scoring an asset according to its fundamental, valuation and technical merits to develop a thorough understanding of its return potential. Equities look attractive on this basis and we continue to find the most bottom-up opportunities in this asset class. Strong earnings trends are supported by decent momentum and market breadth now spreading to more cyclical sectors. These positives are marginally offset by somewhat demanding valuations, but it is notable that valuations provide little guidance to asset returns over the next one to three years.
Developed market sovereign bond yields are likely to experience some upward pressure – leading to limited potential for attractive total returns – as economic readings continue to display decent positive momentum. Survey data has posted material advances in the past quarter and inflation measures have firmed. Bond yields look expensive relative to history, though they reflect lower trend growth than that experienced before the financial crisis, meaning there is unlikely to be significant room for yield rises from here.
This is a disparate asset class ranging from energy through to agricultural products. As income-orientated investors, we tend to favour implementing opportunities identified in this area through other related yield-generating assets. We have noted some fundamental improvement in the energy complex with Opec’s application of production quotas and tightening of future supply, and this is supported by improving momentum and less extreme investor positioning. The valuation argument is less compelling at these levels, however, and therefore we think it is best to exploit the opportunity presented by commodities in other ways, such as through related equities.
Rising yields have affected global real estate markets. This initial reaction is typical and requires some time for investors to adjust. The sector can perform well in a rising rate environment if combined with rental growth fuelled by improving economics. The sector offers decent value relative to other asset classes. We are generally positive on property as a yield asset class underpinned by tangible assets and embedded growth with stable cashflows in an inflationary environment.
While cash can provide stability in times of market distress, a significant allocation can be detrimental to returns when inflation appears to be rising. This is particularly the case when rates are low or indeed negative – as they are across many developed markets. We continue to find sufficient opportunities across and within asset classes, leading us to conclude that cash is not a particularly attractive investment at present.
Thushka Maharaj, global multi-asset strategist, JPMorgan Asset Management
With global equities at record levels, what many are calling the ‘Trump rally’ or the reflation trade actually began some months earlier, but the US election gave it a shape and a focus that was previously absent. Out went the monetary policy emphasis and ‘lower for longer’, and in came a more reflationary world view. We maintain a positive fundamental view on US stocks even as we see the improving global economic environment creating a favourable backdrop for other equity regions. We view our regional exposures not as rotating away from the US, but as diversifying a core holding. Early winners are likely to be Japanese stocks – where domestic data is adding to the positive cyclical picture – and to a lesser extent emerging markets.