The group’s chief investment officer Mark Burgess said in spite of substantial supply growth in base metals and a general easing of political tensions, the asset class remained a useful diversifier, adding he would likely increase exposure again next year, following the start of QE tapering and a more evident global recovery.
The group remains bullish on equities as an asset class, with Burgess expecting corporate earnings to resume growth after a flat period.
He said more accommodative monetary policy would favour equities, chasing yield that appeared attractive versus other asset classes.
“The current reporting season has been reasonably encouraging,” he said.
“Within the US, three-quarters of companies have reported earnings ahead of market expectations. In Europe and Asia, half of companies have beaten earnings expectations so far and in the UK, the figure is around two-thirds.
“Equity valuations remain attractive, especially in terms of yield which is generally supported by strong cash flow. However, other valuation measures are not as compelling as they were prior to the material re-rating that markets have enjoyed.”
As such, Threadneedle’s equity portfolios have tilted in favour of cyclical sectors, such as housing, consumer discretionary, banks and chemicals.
While the group has taken profits from some companies in these sectors, higher growth companies have been left behind in recent months leaving valuations at still-attractive levels particularly in consumer staples and pharma, to which exposure has been increased.
In fixed income, Threadneedle has moved to an underweight position although corporates are offering far preferable yields to government bonds, given the QE situation.
UK commercial property sits overweight the benchmark with attractive yields off the back of rising investor appetite and an improved economic backdrop.
