Schroder Multi-Asset Investments Monthly views - February 2019

Global economic data continues to be soft but central banks have generally reacted by stepping back from tighter monetary policy, helped by muted inflationary pressures.

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Feb 28, 2019

Against this backdrop, we believe there is an opportunity for risk assets to move modestly higher, but we do not want to take too much cyclical risk. As a consequence, we are emphasising carry in our strategies – US high yield, European investment grade, and currency carry. 

The US 10-year Treasury yield has rallied and is close to our target of 2.5%, so we have reduced our portfolio positions in US bonds. We still like having interest rate sensitivity in our portfolios given the ongoing risks to growth, but are now favouring positions which offer better carry, such as Korean rates versus Japanese rates. 

In Q4, we judged that the US dollar was too expensive, and established positions that are negatively correlated with the US dollar, namely gold and emerging equities versus European equities. Within the US, we believed that small caps looked oversold, and added exposure to US small caps versus US large caps. 

After the fall in US Treasury yields in December and January, we now see limited opportunity for further rate convergence between the US and the rest of the world. This leaves us more neutral on the US dollar. We are reducing portfolio sensitivity to a weaker US dollar by increasing our exposure to Japanese and European equities at the expense of the US and the UK.

The key risks to our view are:
A) World ex-US continues to decelerate
and / or
B) US rate tightening in Q2 as the US remains at full employment.

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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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