Schroder Multi-Asset Investments Monthly views- April 2019

Against a backdrop of dovish central bank behaviour, we continue to believe that the path of least resistance is for markets to grind higher

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Accordingly, we continue to favour carry strategies via high yield debt, European investment grade, Italian bonds and emerging market currencies. This month we also upgrade equities, reflecting the stabilisation in earnings revisions and the fact that the rally so far has been under-owned. This view is tactical, however, as we have yet to see clear signs of a cyclical pick-up that would justify a more medium term uptrend. Indeed, we are still concerned that signs of a more pronounced slowdown could emerge later this year. 

Reflecting the cyclical risks, we continue to balance our risk exposures with some exposure to rates given our view that inflationary pressures are under control; albeit we have trimmed duration and we could see US 10-year yields rise towards 3%. Having shifted into US 10/30 steepeners earlier this year, we also see value in gilts vs. Bunds as the gilt market has not rallied as strongly as German Bunds. 

From a currency standpoint, we continue to like long USD vs EUR as a positive carry hedge against further cyclical deterioration in the rest of the world.

To the extent that there is potential for cyclical surprise, we view the US (where the Federal Reserve has moved to a proactively dovish stance in spite of a tight labour market) and China (where there has been some evidence of looser liquidity) as being the most likely sources. This leads us to favour banks in the US and China within emerging markets. 

At this point, the biggest risk to our portfolios is that the US economy proves to be weaker than expected, as the US has been the main locomotive of global growth.

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Important information Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change.  This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No.1893220, who is authorised and regulated by the Financial Conduct Authority.

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