Asset Allocation

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. 

Allianz Global Investors’ Franck Dixmier expects faster monetary easing in the US now that inflation there is now largely under control. But only later in the year. In terms of allocations he favours investment-grade credit, emerging debt and sovereigns with short maturities. 

Fixed income portfolios are likely to face a more complex and volatile environment, as the rate cycle’s turning point varies across different central banks. Market consensus suggests that while easing may begin, it will not be as rapid or deep as previously anticipated, leading to greater dispersion of returns across sovereign bond markets.

Small-cap stocks in Europe seem to be making a comeback. After two years of declining relative valuations, the usual premium these stocks hold over large caps has vanished, even turning into a discount at the end of last year. However, recent weeks have seen this discount narrow significantly.

The suggestion that the Federal Reserve will maintain elevated interest rates is wavering after Tuesday’s unexpected declines in U.S. inflation figures, much to the delight of stock and bond markets.

Italian government bonds face a downgrade to “junk status”. Nevertheless, after years, the interest of foreign investors in this “ticking time bomb” is increasing.

The prolonged exodus of foreign investors from Italian government bonds has halted this year. According to research by Amundi Investment Institute, the asset class saw positive inflows of 35 billion euros in the first seven months, driven by foreign interest.

Bonds are now recognised as a legitimate investment alternative, long overdue for acknowledgment. Peter De Coensel, CEO of Degroof Petercam Asset Management (DPAM) since 2021 and a seasoned bond market specialist, discusses this resurgence in value.

De Coensel highlights a dramatic shift in bond markets, noting a return to valuations not seen in nearly two decades, occurring in three distinct phases.

Despite the resilience of the American economy, investors in Treasuries and bonds harbor stiff hopes for a quick Fed pivot during the third losing year. “But we aren’t there just yet,” said Fidelity’s global fixed income CIO Steve Ellis. 

Senior loans, currently the highest-yielding bonds, witness substantial inflows in tracker funds. 

Once a rising star among investment options, private credit now faces headwinds as defaults increase and traditional banks re-enter the fray as competitors.