You are here: cherry > Press releases for July 2014 > Wealth manager HFM Columbus’ investment director Rob Pemberton delivers Q3 investment strategy forecast

10 July 2014

 

      The tide of monetary policy is slowly turning in the US and UK from the aggressive loosening post 2008 towards eventual tightening. Conversely, Europe and Japan remain committed to monetary easing.

 

      Interest rate rises in the US and UK will be ‘gradual and limited’ so as not to damage the economic recovery. The Bank of England is predicting a 2017 Base Rate peak of only 2.5%, well below historic norms. Central Banks will pursue ‘macroprudential’ policies using regulatory powers rather than monetary policy to control credit growth.

 

 

      The strength of the UK economy may be blinding domestic investors to more modest growth elsewhere. The US is recovering from a particularly weak Q1, the Eurozone continues to battle deflation and enigmatic China remains a puzzle. Encouragingly for financial markets, inflation continues to pose little threat.

 

      The year to date has been characterised by low volatility and little dispersion in asset class returns (low to mid-single digit).

 

 

      Equity markets now look fully valued and need a return to strong and sustainable corporate earnings growth to move appreciably higher. However, given the still supportive monetary policy equity prices should not come under pressure from multiple contraction.

 

      Equity indices have thus adopted a ‘wait and see’ attitude with muted returns and low volatility. There has though been a noticeable switch in investor positioning with previously favoured areas of the market suffering heavy profit taking. The continuing strength of the pound has reduced returns from overseas markets on translation back into sterling.

 

 

      Equities remain our preferred asset class, though our expectation is for only single digit annualised returns over the next few years with increasing volatility and risk to capital.

 

      Fixed Income markets have surprised by producing healthy returns in the first half of the year with 10 year Government Bond yields falling in the major developed markets and Corporate Bonds spreads seeing further compression. We expect only limited returns in the coming years and continue to favour Strategic Bond Funds with active duration management.

 

 

      Commercial Property has been the most buoyant asset class this year producing strong capital growth alongside a steady income stream.

 

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