There are plenty of headlines to justify why equity markets are so high and bond yields so low but there are also many reasons why this is one of the most hated bull markets in recent years. In particular, fundamentalists will point to low growth, inactive fiscal policies, high price/earnings multiples, and late-in-the-cycle concerns as to why they are so cautiously positioned in terms of asset allocation.
Furthermore, although world equity and bond markets in aggregate have posted solid returns this year, closer inspection shows huge divergences in performance. For example, whilst the MSCI World index is up 2.5% year to date, the EuroStoxx 600 index is down close to 6%. Sector-wise, Energy and Materials have been two of the global winners, but investments in European Financials and Telecoms would have delivered investors double-digit losses.
Key points of the Investment Strategy
We are maintaining a diversified and cautious approach in our portfolios, in line with our investment scenario.
We continue to keep a close eye on the US dollar, as we do on the monetary policies of the leading central banks.
We maintain our under-weight position in equities and are diversifying geographic risk by adding an allocation to UK equities.
The impact of Brexit, at least for the time being, is less dramatic than the financial markets expected.