David Absolon, Investment Director at Heartwood Investment Management
The year has started on a positive note, which has not just been driven by revised expectations of US growth but also broader improvements in global manufacturing surveys and confidence indicators. In developed economies, labour markets remain supportive of future consumption and we expect corporate profitability to improve in a slightly more reflationary environment. Rising confidence has been reflected in positive financial market performance since the US election. However, fundamental change, if any, takes time and as expectations have raced ahead of reality there is the potential for disappointment in the short term. We expect any pullback to be a pause rather than anything more serious. Policy uncertainty – whether driven by Trump, Brexit or national elections in Europe – will continue to aggravate markets and may potentially be a source of disruption.
Overall, we believe that global growth will be stronger in 2017 and this should support investor appetite. However, acknowledging that underlying risks do not suddenly disappear, we are also retaining reasonable levels of liquidity to take advantage of periods of volatility as they inevitably occur. Although sterling has seen meaningful weakness, we are not yet ready to bring money back into the UK and retain our preference for other developed economies. We continue to believe in the longer term investment case for emerging markets, but expect in the near term it will remain vulnerable to US policy risks. We are becoming more positive on specific hedge fund opportunities, given the greater likelihood of increased stock dispersion (i.e. between winners and losers), as well as credit long/short strategies.
Equities: Having gone overweight overall post the Trump win, there is no desire to add further to equity positioning at present. Markets have given back some gains recently, but we expect this to be a pause rather than anything more serious. The improved growth picture is supportive, and the start of earnings season has so far been encouraging. We are holding a greater exposure to US equities than we have had for some time. We maintain overweight positions in the cyclical markets of Europe and Japan, which represent attractive value on a relative basis and are expected to benefit from a corporate earnings recovery. We continue to underweight the UK, but expect to be rebuilding exposure in the medium term. We are not yet ready to add to our emerging markets exposure, given vulnerability to headwinds in the near term. However, we remain optimistic on a longer term view and would use any weakness as an opportunity to add.
Bonds: We are maintaining our long-standing short duration position to reflect gradual reflation and the shifting bias of some central banks towards a more balanced tone. The US Federal Reserve is very slowly normalising interest rates and the European Central Bank will scale back its asset purchase programme this year. If yields rise to a meaningful degree, we may take the opportunity to extend duration as our shorter-dated bonds mature. We have also sold our US High Yield energy position following strong performance and expect to recycle assets into the broader high yield market to take advantage of potentially higher US growth. We are maintaining our modest allocation to emerging market sovereign debt (hard currency), given our expectations that the asset class should benefit from cyclical and structural economic improvements.
Property: We remain underweight in UK commercial property on concerns around supply, especially in the South East, and uncertainties around Brexit. Our portfolios are invested in diversified and select parts of the market. Across sectors, we continue to seek income opportunities in the industrials and offices. On a regional basis, we are invested in cities outside of London, which are less exposed to the ‘Brexit’ fallout. Outside of the UK, we are also looking at opportunities in the US REIT (real estate investment trust) market, where valuations have cheapened but are not yet compelling.
Commodities: An improving global economic environment, reflation and a tighter supply/demand balance leads us to hold a more positive view on commodities in 2017, particularly for oil and base metals. Direct access to this market is through owning futures contracts rather than the physical assets and while the risk/return profiles are looking more attractive across some parts of the complex, they are not yet at levels where we are ready to invest. We have also bought gold in some strategies as a portfolio diversifier.
Hedge funds: While we have held a limited allocation to hedge funds in recent years on concerns around performance, we believe that a shifting economic climate should create more opportunities in this sector in 2017. Our preference remains for macro/CTA strategies, but we are also taking a more positive view on equity hedge strategies, given the greater likelihood of increased stock dispersion (i.e. between winners and losers), as well as credit long/short strategies.
Cash: We have reasonable levels of liquidity across our portfolios both in cash and short-dated bonds, which we are ready to invest as and when we see specific opportunities.
What should I invest and How do I invest
By Imogen Clarke, The Fry Group
With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.
For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.
If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.
There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?
With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:
Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.
So, how do you decide where to invest?
According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.
The main areas of ESG investing include:
- Environmental challenges (climate change, pollution, etc)
- Social issues (human rights, labour standards, child labour, etc)
- Governance considerations relating to company management
According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”
ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.
As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”
So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?
There are four areas of ESG investing:
- Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
- Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
- Positive screening strategies:when companies meet the ESG goals and are approved for investments.
- Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.
You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?
Investment Roundtable: Live with Jim Bianco
With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.
- Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
- Identify important intermarket relationships he is watching with respect to Global Equities
- Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.
Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.
Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.
At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.
The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March. As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.
These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.
The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term. A rise in the unemployment rate to 8% or so later this year still looks quite likely.
Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.
Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.
Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.
It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.
All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.
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