Investment Desk Bulletin

26 July 2017

Global Asset Class Outlook

IDB 26 07 17

By Craig Shute, Petra Posnikova and Kristian Richmond

In the last IDB before the summer break, we take stock of asset class performance year to date and consider the outlook for the second half of 2017.

The global economic upswing remains intact led by the US, with its advanced position in the economic cycle, and aided by momentum in Europe. Ultra-loose policy in Developed Markets has been a key asset driver, therefore a reduction in Central Bank asset purchases will have significant consequences for markets.

Fixed income markets have performed strongly in 2017, with strong fundamentals underpinning the asset class. For both investment grade and high yield credit; declining leverage and higher interest rate cover have helped spreads to narrow. For Financials, balance sheets continue to strengthen and funding is more stable.

Within equities, summer seasonality could create a healthy correction with overbought markets looking technically vulnerable and valuations not overly supportive. London & Capital have pre-emptively reduced cyclical equity exposure and continue to favour US equities, domestic European and Emerging Markets, with a focus on compounding high quality core STAR equities; ‘all weather’ longer term investments.

For London & Capital there is a positive outlook for hedge funds, with consistent alpha generation offering attractive returns as well as low volatility relative to peers. Our UCITS Hedge Fund Model Portfolio is an alternative approach for non-professional clients, offering an alternative source of return, uncorrelated to bonds and equities.

Current risks remain; mistakes in Central Bank policy, an abrupt slowdown in Developed Markets and geopolitical uncertainty.

London & Capital’s strategy is to focus on income generating assets and reduce equity cyclicality.