This month:
Expert investment views:
A case is made for a buffering combination of longer-dated government bonds combined with shorter-dated corporate bonds
One wealth manager muses on whether the ‘mood music could easily turn’ for India’s equity market
Investors are urged to look beyond US technological disruption for exciting innovation stories, in particular to the UK
Featuring this month’s experts:
1. Buffering with bonds
Insights from:
We have been concerned over valuations of global equities, particularly the magnificent seven stocks (Apple, Microsoft, Google parent Alphabet, Amazon.com, Nvidia, Meta Platforms and Tesla), for much of this year. We expected the market performance to broaden out as interest rate cuts came in. Whilst areas of the stock markets have been driven up, valuations elsewhere look more attractive. Cuts in interest rates across developed markets (excluding Japan) should be beneficial to their economies, and support businesses with higher levels of debt and growth-focused companies. On balance, we remain positive on equities but have not been increasing exposure in recent months as the economic data has been weaker.
We continue to prefer longer dated government bonds, particularly in portfolios with more equity exposure. They typically offer better protection when recession concerns increase and expectations for interest rate cuts rise
We continue to prefer longer dated government bonds, particularly in portfolios with more equity exposure. They typically offer better protection when recession concerns increase and expectations for interest rate cuts rise. Alongside this exposure we have also continued to favour shorter-dated corporate bonds as, whilst we remain positive on the economic outlook, we believed the current pricing in corporate bond markets had fully reflected this view. This meant the risk was greater in owning longer-dated corporate bonds which are more sensitive to changes in outlook.
Adrian Lowcock
Investment Communications Director at Evelyn Partners
India: a fragile equity market?
Insights from:
The high rating and frothy local market behaviours suggest a fragile equity market. There is no doubting India’s economic progress, yet there are still big problems to overcome, and the mood music could easily turnThe high rating and frothy local market behaviours suggest a fragile equity market. There is no doubting India’s economic progress, yet there are still big problems to overcome, and the mood music could easily turn. I’m considering trimming my positions.
Edward Allen
Private Clients Investment Director at Tyndall Investment Management
ii Reuters https://www.reuters.com/world/india/india-proposes-tighter-rules-derivatives-trading-individual-stocks-2024-06-09/
Top Tip
Lee Goggin
Co-Founder
3. UK innovation
Insights from:
An important point for investors to remember is that innovation comes in many forms and not just US technological disruption. This might provide some comfort to investors who are worrying they have missed out on the magnificent seven boom (the mega-cap tech stocks, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla).
Longevity is a good signal of innovation — you need to stay innovative to succeed as a business. And there are some FTSE businesses that have been around for a long time. Diageo, which owns the best-selling whisky and vodka brands in the world, has been adapting to consumer tastes for hundreds of years. And RELX, the world’s largest publisher and exhibitions company, was formed from the merger of Reed International, a publisher with roots harking back to 1895, and the older-still Elsevier, a Dutch academic publisher.
Longevity is a good signal of innovation — you need to stay innovative to succeed as a business. And there are some FTSE businesses that have been around for a long time
Further down the market-cap spectrum, the UK can also boast about engineering brilliance, with the likes of Spirax-Sarco and its world-leading thermal and steam systems and Rotork, a global market leader in valve actuators.
Having cheap valuations is one thing, but investors are keen to know about catalysts, and those are already happening. There has been a surge in merger and acquisition activity, hitting the highest levels in decades. It’s a double-edged sword, as it means the UK is losing quality businesses to overseas buyers, but it’s also proof that we have something desirable and genuinely trading cheaply (not just optically cheap).
The UK has a reputation for being tenacious, innovative and ahead of the curve in many respects
The ever-decreasing size of the stock market is also partly self-inflicted through record share buybacks and we expect more investors to take note and take part. The UK has a reputation for being tenacious, innovative and ahead of the curve in many respects.
So, although our markets will evolve and change and our economy will dip and thrive again, regardless of the broader macro-outlook, there will always be pockets of opportunity in the UK for investors.
Kamal Warraich
Head of Fund Research at Canaccord Genuity Wealth Management
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
