Quarterly Review Q3 2024 - Balanced - Flipbook - Page 6
Market outlook
As a reminder, each of the Multi-Asset Blend Funds has a distinct long-term Strategic Asset Allocation that
is speci昀椀cally formulated based upon each fund’s stated risk pro昀椀le. The higher the risk-pro昀椀le selected, the
more is allocated to equities and the less to diversi昀椀ers such as bonds, real assets or absolute return strategies.
Around that strategic asset allocation, we implement tactical tilts when we observe highly attractive return
opportunities where we believe the risk-reward is strongly in our favour.
Japanese equities
One such market we remain positively inclined towards is Japanese equities and, if anything, our conviction
in this positive tactical bet is getting even stronger. The Japanese market has been highly volatile of late,
exacerbated by a badly communicated interest rate hike by the Bank of Japan as it seeks to slowly move
its way out of years of very low or even negative interest rates now that the economy and wage growth
are robust. With interest rates expected to rise further in Japan while they are falling in the UK, the ensuing
strengthening of the Yen versus the Pound is also positive for returns in Sterling terms.
While these shorter-term macro gyrations may continue, at the company level we see more and more reallife evidence of the corporate governance reforms taking effect across Japan. This long-needed change in
mindset, which has had many false starts over the last 20 years, is 昀椀nally showing tangible signs of taking effect
and is resulting in more and more companies prioritising actions that will generate the best returns for their
shareholders. In our regular meetings with our incumbent Japanese managers, we see a wide range of both
large and small companies changing their behaviours in a way that is helping drive their share prices higher
and supporting our managers to outperform the wider market. We believe the bene昀椀ts of this phenomenon
have some way to run.
UK equities
Another equity market we remain tactically overweight is the UK equity market. UK equities outperformed
global equities over this quarter but we think they still represent good value. Corporate activity also continues
to remain prominent. One example is UK property portal, Rightmove, being the latest high pro昀椀le UK stock
to bene昀椀t from a number of takeover bids from a foreign buyer. Although Rightmove’s board have repeatedly
rejected these bids, the positive impact on the share price is welcome and is just another example of corporate
buyers seeking to take advantage of the undervaluation of many high quality UK companies. The Funds have
bene昀椀tted from the uptick in takeover activity via our active managers’ portfolios and we expect this to
continue. In the meantime, UK companies continue to grow their pro昀椀ts, notably with consensus earnings
growth expectations for the FTSE 250 Index of UK mid-caps still sitting at nearly 20% for 2024/25. And UK
equities are collectively paying a near 4% annual dividend yield while you wait. All in all, we think this is highly
attractive.
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