Pictet Asset Management has shifted its investment strategy, upgrading its allocations to global equities, UK government bonds, and information technology stocks.
This move stems from the firm’s latest Barometer report and reflects confidence in the market despite the backdrop of falling interest rates. This change is driven by a notable slowdown in inflation and consistent economic growth observed at the start of 2024.
“As long as this ‘Goldilocks’ scenario holds, there is a tactical opportunity to allocate more towards riskier assets,” the firm said in a note to investors.
‘Short-term move’
”We are upgrading global equities to overweight, balanced by an underweighting for cash which will become increasingly unattractive as interest rates start to fall. This allocation shift is a short-term move in a window of optimism and, as economic performance starts to cool, bonds will regain the upper hand over equities.”
Pictet has revised its U.S. corporate earnings growth forecast for 2024 to 4.3 per cent, up from 2.5 per cent. However, the firm has adopted a cautious stance by setting its US equity allocation to neutral, acknowledging potential risks in the US market, including the possibility of slowing household spending and a downturn in business investment.
Although it raised its U.S. equity allocation to neutral, Pictet stopped shorted over overweighting U.S. equities. The equity risk premium — an excess return that investing in the stock market provides over a risk-free rate in the U.S., stands at 3.8 per cent, the lowest of all developed equity markets. Pictet also said there are more attractive investment opportunities in other developed markets.
High IT valuations seen as justified
In the technology sector, Pictet has upgraded information technology stocks to overweight.
“The sector offers the strongest earnings growth estimates at a time when revisions are positive for both 2023 and 2024,” it said. ”What is more, growth opportunities for companies operating in the sector, particularly those generated by advances in artificial intelligence, justify IT’s lofty valuation.”
Pictet remains bullish on Japan and Switzerland. The firm continues to overweight these markets, recognising Japan for its economic resilience and Switzerland for its defensive stock offerings. This stance suggests a belief in the stability and growth potential of these markets.
Pictet has also revised its position on UK government bonds, also known as Gilts, moving them to overweight from neutral. This change is influenced by the firm’s view that recent inflation spikes in the UK are temporary. With easing price pressures, the Bank of England is expected to initiate rate cuts, making UK government bonds a more attractive investment, it said.
Further reading on Investment Officer:
- ‘Fixed income portfolios now require a tactical approach’
- Pictet moves its European hq out of Luxembourg