SLI’s head of global strategy Andrew Milligan, and multi-asset investing quantitative analyst Craig Hoyda, continue to expect the hunt for yield by investors to drive asset class returns and as a result cash remains very light in the firm’s portfolios.
“As markets face a variety of political hurdles in coming months – notably the long, drawn out process of UK/EU negotiations, requiring continued easy policy from central banks – it would seem inadvisable to be light duration assets,” said Milligan.
Select government bond markets offer return potential, according to SLI, and it sees safety in the UK gilt market and value in emerging market sovereign bonds. “Corporate profits continue to come under pressure, as shown by the current S&P 500 Index earnings season, while the ability of companies to issue debt in order to fund share buybacks is lessening.”
SLI continues to position further up the capital structure by holding a large position in investment grade credit, and smaller positions in high yield debt, as well as emerging market bonds.
“The yields on such asset classes remain relatively attractive, while these positions to an extent shield the portfolio from earnings or political volatility,” said Milligan.
The investment company said it remains more concerned about the impact a continued slowdown in China will have on some markets; hence the light position in developed Asia – mainly Australia and Hong Kong.
Meanwhile, commercial real estate continues to offer an attractive yield over other asset classes, more so outside the UK, if the illiquidity premium can be tolerated, noted the firm.
“European property should outperform other markets as the eurozone economy is earlier in the business cycle, while the US market will benefit from cheaper funding costs as the Federal Reserve delays hiking rates,” said Milligan.
However SLI pointed to the fact that its ‘global investment group’, which held its latest quarterly meeting in July, said that going forward investors should look on a global basis and not focus on an individual markets.
