Tighter monetary policy is throwing up problems in the finanical system and we are not ready to increase risk asset exposure yet, though pockets of opportunity are being created. Some portfolios see a modest reduction in equities in favour of fixed income.
OVERSEAS EQUITIES
Earnings from many companies have actually been reasonable so far in this reporting season, but the impact of the economic slowdown may not be reflected yet. A recession in most parts of the globe looks very likely for 2023 and this will act as a persistent headwind. Valuations are more attractive, but could well go lower.
UK EQUITIES
The UK has not covered itself in glory and domestic assets are being destabilised by political uncertainty. Larger companies offer some protection against weak sterling but some sectors like financials and energy also face question marks over windfall taxes. We are reducing smaller companies exposure for some portfolios.
SPECIALIST
These allocations have benefited from the dollar exposure which they bring and some of the more defensive areas such as global insurance and healthcare have been helpful.
FIXED INCOME
The dramatic volatility in the bond markets is throwing up some interesting investment ideas. Sovereign bonds themselves are now starting to look attractive given the likelihood of recession and some sort of policy reversal at some point. Bond fund managers are excited about credit opportunities, and we are watching closely.
PROPERTY
Rising gilt yields have created a headwind for the sector but the stabilisation in the bond market has calmed nerves somewhat. There are some excellent long-term opportunities in the space with plenty of niche ideas not as impacted by economic difficulties.
ALTERNATIVE STRATEGIES
Few strategies meet our criteria here, but it may be that in a world of lower returns, alternative strategies become the real differential in terms of relative performance.
CASH
We continue to hold higher levels of cash against a backdrop of market turbulence.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns.
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