Key Investment Themes – September 2019, with Chris Leyland, Investment Director
Chris Leyland, Investment Director, looks back on September 2019 for investors.
Hello, ladies and gentleman, my name is Chris Leyland and I am the Director of Investment Strategy here at True Potential. Today I want to give you and update on our views on what is happening within stock markets.
Central banks have maintained their “dovish” stance, with an expectation that this will continue to underpin risk assets. Fiscal stimulus, increasing public spending and reducing taxation, has been at the forefront of investors’ minds with the European Central Bank (ECB) restarting its quantitative easing programme in November, purchasing €20bn of bonds each month. The key question here is will other central banks follow suit?
Economic data remains mixed with the service sector holding up, in contrast manufacturing data continues to be weak. The US consumer is in rude health, with low unemployment and rising wages encouraging spending.
The exceptional performance of bond markets has been beneficial to multi-asset investors and now many are questioning the validity of sovereign debt pricing on negative yields. This has encouraged investors to look to more esoteric areas to find yield opportunities.
Overall, the general investment outlook remains positive. Risk assets are still seen as offering the most attractive return prospects, but in a fast changing environment with many moving parts, diversification is essential, a way to help guard from unforeseen events. This means diversification by asset class, currency, geography and style.
The True Potential manager partners are mindful of risk. They recognise that opportunities arise when asset prices ebb and flow. Diversifying into different asset classes and within asset classes means our managers can capitalise on volatility during periods when it is elevated. Diversification also helps manage liquidity risk. Investors expect to be able to access their money when needed. If they can’t it comes as a shock. At the risk of repeating ourselves, advanced diversification is not solely about dampening volatility, it also ensures liquidity for investors invested in our portfolios.
Below are some of the key themes our fund manager partners have discussed with us this month:
Value/Growth – ‘Value’ underperforming ‘Growth’ has been a feature for the majority of the current cycle. Recent market moves have reversed this trend, with the disparity in valuations between the two styles at what many commentators believe are extreme levels. This filters into the US versus the rest of the World, with valuations outside the US pricing at lower levels.
Emerging Markets – Debt is the preferred way to access emerging markets. The hunt for yield and low issuance have driven prices up in this asset class, with investors moving up the risk spectrum in order to find income.
Yield levels – With over $16trn of sovereign debt now pricing on negative yields many of our managers are questioning why investors are still purchasing this type of paper. Many institutions have no option to buy from a hedging/liability driven standpoint and depending on where an investor is based, there is the potential to hedge back returns allowing for a positive carry due to interest rate differentials. Overall, in order for yields to move positively there would need to be an inflation shock or a reacceleration of growth.
Japanese equities –Despite low valuations relative to other geographies, benefiting from structural reform and a more shareholder friendly attitude, many of our managers see Japan as more geared towards global trade and don’t have the conviction to add at this time.
Precious metals – specifically gold, but also silver and platinum. Very strong performance this year and favoured for offering a form of portfolio insurance against economic dislocation.
US equities – dovish policy from the Federal Reserve, a healthy US consumer, generally good economic data and a more domestically focussed economy all point positively towards US equities.
Currency – our managers are very focussed continually looking to insulate investment returns from unfavourable exchange rate fluctuations.
That’s everything from me, thank you for listening and I look forward to speaking to you all again soon.