EN - Business (Newsletter) - Flipbook - Page 5
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• Investing in China will have to come with an understanding
that the government is likely to treat certain sectors more
favourably than others.
• This plays into three long-term calls: global ex-US equities are
more attractive than the US, small caps should outperform
large, and value should outstrip growth.
• As outlined on page 7, we continue to be bullish on the reflation
trade that looks to be gathering pace again after a summer lull.
• More hawkish central banks have driven a rotation back into
the value end of the market after a pause over summer, and
we feel many of these companies remain very cheap.
BONDS
• With bonds, we continue to be broadly bearish but always
maintain exposure as zero weighting any asset class negates
the long-term benefits of diversification.
on areas where there are more attractive opportunities: we
are overweight high yield, hold some emerging markets debt,
and increased our position in index-linked bonds last year.
• We appreciate the direction of bond yields will be upward
over time as interest rates rise but, as ever, the path will not
be linear and we maintain exposure to this asset class for its
diversification to equities, some level of inflation protection
and increasing income.
• Amid a weaker few months for bonds as central banks move
towards tighter monetary settings to fight inflation, this indexlinked exposure has been positive, reinforcing the argument for
diversification not just across asset classes but also within them.
• At present, given challenging conditions for bonds, we are
avoiding beta (exposure to the overall ‘market’) and focusing
• We remain underweight duration (interest rate risk) in our fixed
income allocation while central banks prevaricate over the
timing and extent of rate rises and tapering asset purchases.
CHANGES
• Overall, we remain a four on our tactical asset allocation
scorecard, which ranges from one to five, with one most bearish
and five most bullish.
• In our most recent review, our conviction on Japan has fallen
(from four to three) and, for now, we prefer to take equity risk in
areas such as Europe and the UK. That said, Japan has made
great strides in its vaccination effort and recent political upheaval
looks to be resolved with new prime minister Fumio Kishida in
place.
• We continue to see convertibles as providing an attractive risk/
return profile as part of our fixed income exposure. Our view
has moved down from four to three, however, as we are taking
profits after a strong spell of performance and feel convertibles
have potentially peaked for this cycle.
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