where to put your money in q2

It’s around now the big investment houses send out their asset allocation views for the next quarter and detail the changes they have made to portfolios. Who is doing what and do you agree with them?

where to put your money in q2


Today alone I have had outlooks from Standard Life Investments (SLI) and BlackRock and yesterday Lombard Odier Investment Managers’ CIO of asset allocation Jean-Louis Nakamura gave his two cents worth.

Newton’s director of investments, Iain Stewart, has also warned against investor "jumping the gun" because of a more bullish market sentiment and failing to pay enough heed to structural headwinds.

Is there anything they all have in common?

Equity exposure on the up

BlackRock and Lombard Odier are both in favour of increasing equity exposure and expect the market recovery to continue on a more sustainable basis.

Nakamura says: "The US economy could see growth of slightly above 2.5% in 2012 versus a consensus currently standing at around 2.2%. This means that the biggest risk, if the strengthening in US growth were to be confirmed, is that expectations of further quantitative easing might wane."

He maintains a positive bias towards risky assets, particularly Asia, North American and a selection of European (Amsterdam, FTSE) equity markets.

Meanwhile, BlackRock’s Bob Doll and Jeffrey Rosenburg, chief equity strategist for equities and fixed income respectively, are also overweight equities compared to fixed income, with US favoured over non-US stocks and believe opportunities in emerging markets are growing.

On the fixed income side Rosenburg prefers short duration, with a lower quality bias and favours neither developed markets nor emerging markets.

The pair also predicts US economic growth to average somewhere around 2.5% for 2012, which is seen as "hardly stellar, but good enough to help equity markets extend their gains".

Not one-way traffic

"The economy has certainly not entered into robust expansion mode, nor is it likely to do so any time soon, but growth has been accelerating. In addition to the economic backdrop, monetary policy remains market-friendly, and while the chances of an additional round of quantitative easing from the Federal Reserve have diminished to near-zero, the Fed is committed to keeping rates low for the foreseeable future." Doll explains.

The house view is that on balance stock prices will end the year higher than where they are today, although there is an expectation for the price appreciation to become slower and more uneven with some sort of near-term pullback or correction.

SLI’s chief executive, Keith Skeoch, also thinks equities can make further progress in 2012/13 but adds that this could be erratic as external event cause investors to periodically reconsider the outlook for corporate earnings.

The house view for SLI shows a preference for corporate bonds over government bonds and US equities over Japanese and European counterparts.

Caution is key

Newton’s Stewart, who manages the firm’s Real Return and Balanced funds, is perhaps the most cautious of all.

He says: "Despite some sell-off in mainstream government bond markets (which has caused yields to rise marginally from their lows), real (inflation-adjusted) bond yields remain broadly negative. This implies that participants in these markets do not yet see a normalisation of economic activity on the horizon.

"A further concern for equity investors and particularly investors in US equities is that corporate earnings and margins are at record levels. What we can be sure of is that in an economy where both households and governments have overstretched themselves and where growth is a priority, the corporate sector will be encouraged to spend. Such spending is likely to eat into corporate earnings. With earnings growth for S&P 500 companies now slowing fast, it may be that we have already seen peak profits."

But the debt and equity of more stable non-financial companies will offer attractive opportunities for investment in the coming quarter, Stewart maintains, with healthcare, telecoms, and non-cyclical consumer stocks his favoured sectors.

What changes are you looking to make to your portfolios given the recent market rally? Do you think it has further to go and so risk assets deserve more allocation, or has the correction over the past couple of days dampened your spirits? Let us know below…

Look out for more from Iain Stewart in the May issue of Portfolio Adviser.


Latest Stories