Post Summer Update
As most readers know, our approach to investment is very much long term in nature. We felt, however, that an update was warranted given recent changes in the macro-economic environment and the resulting alterations we are making to client portfolios.
Back in January we highlighted a challenging outlook for traditional asset classes. Our longer term expected returns for a 60/40 global equity/bond index were in the mid-single digits, and we highlighted five key themes which formed the backdrop to our investment decision making:
- Higher interest rates, in time, depressing future asset price returns, though in the shorter term we believed interest rates would remain roughly where they are.
- An increasing risk of a recession in the US in the next 24 months. Global asset prices would likely react ahead of it occurring. Arguably (at the time of writing) they had already factored in a reasonable probability of one occurring.
- Political risks were not likely to reduce anytime soon. This made the kind of global co-ordinated response we saw in the last financial crisis less likely to occur with governments now more inwardly focussed than in the past.
- China’s slowdown and associated macro issues would be a long-term problem and consequently we are cautious on emerging market allocations on a long-term basis.
- Brexit uncertainty would result in attractive opportunities. We believed some were emerging already and we favoured defensive assets which would be resilient whatever the outcome of Brexit.
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