So, where should investors hide?
David Jane, head of multi-asset at Miton, has reduced his exposure to Japanese exporters and says: “We continue to take the view that interest rates will peak at a lower level and rise more slowly than the market expects, so feel comfortable with our developed market credit exposure.”
“While we cannot be sure that current events in China and Asia will not have a negative knock on effect more widely in financial markets, we are at least confident we are not exposed to the first and second order effects and that our high cash weighting gives us flexibility to take advantage of opportunities when they arise.”
Iggo too points to a defensive stance. In fixed income, he says, that means higher quality and shorter duration exposure, especially in the US and UK where rates are going to be increased.
“This year will be one of poor returns to bond holders compared to most of the last decade. But I’ve said it on more than one occasion, bear markets in bonds don’t last that long because of the opportunity provided to re-enter the market at a higher yield to maturity levels. The key is clearly to avoid credit losses, but diversification and active management can help in that respect.”
