Q: Which asset classes, sectors or strategies are attracting your attention and why?
There is a high degree of uncertainty given the economic backdrop. Even among economists there’s uncertainty around the degree and the timings of a recession, for example. Therefore, it’s difficult to pick a strategy or sector that will do well in the short term. I prefer asset classes that are at historical extremes in terms of valuations, which means they’re more likely to normalise in the medium term. UK and European equities are looking very attractive, given the general outlook on earnings growth – especially relative to US equity valuations.
Q: What asset classes should investors be thinking about beyond equities and bonds?
Alternatives have always been a consideration in our portfolios, especially when rates remain extremely low. However, traditional assets such as equities and bonds are in a good shape right now amid a normalised rate environment. Diversification benefits from alternatives should be considered alongside the opportunity cost of not holding traditional sources of diversification such as government bonds. Investors should assess the premium they can expect from balancing their allocation to different asset classes.
See also: Generation Next with Imogen Millington: A pathway to value
Q: How do you see sustainable and ESG-oriented investing evolving from here?
I believe investors will come to think of it less as a trade-off between the investment returns and doing the right thing, but rather something that is very much integrated into the investment process. With the guidelines becoming stricter around what label investors can use for sustainable or ESG-oriented products, I expect that what people think of today as sustainable or ESG-oriented products will be at the core of what most companies will integrate into their portfolios.
Q: What will be different about the investment sector a decade from now?
I think we will see an improved understanding around the nature of active and passive investing. Rather than favouring one or the other the industry will evolve to understand in what environment the respective strategies work well, and therefore choose the right strategy at the right time. It is going to be interesting because passives are offered at a much lower price point and active managers will have to prove they can add value to be considered.
Read the rest of this article in the April issue of Portfolio Adviser magazine
