23.08 Liontrust Views Summer 2023 Literature (Single) - Flipbook - Page 7
Financial markets today run the risk of being too fickle – investors are too shorttermist, creating excessive volatility by over-reacting to whatever the latest data or
news angle dictates. A longer term view is required.
Market sentiment is on a tightrope, thanks to the rate
of inflation not going down as quickly as investors
would like, but the general situation is not so bad
either. Economies are rumbling along. Inflation remains
persistent but arguably we are through the worst of it.
Adjustments to the asset allocations we target have
been moderate following the more significant changes
we made earlier this year after a review of our Strategic
Asset Allocation (SAA). This is the long-term, underlying
asset allocation for our funds and the first stage in our
investment process.
In our most recent review, we maintained our overall
positive outlook for markets. We had raised it earlier in
the year because we sensed a positive change in the
underlying tone of markets and we continue to focus on
assets where we can see potential for improving prospects.
We have also raised our ranking for cash to neutral.
This reflects the fact that cash deposits are looking more
attractive in an environment of rising interest rates. But
it is important to remember that these higher rates on
cash are still lower than
inflation and they are unlikely
to preserve the real spending
power of savings.
NG?
Our target allocations to
equities have mostly been
increased, except at the
higher risk end which already
has substantial exposure to
this asset class, following the sell-off in 2022. This put us
on the right side of markets in the second quarter when
equities performed well. We are turning more positive
on the US because we believe it is cheap in historical
terms. This, together with the entrepreneurial spirit in its
economy and its energy independence, makes for a
positive case.
We have also raised our outlook on European smaller
companies to neutral, in line with our view on European
equities generally. We had downgraded them last
year because of the risk of recession and the problems
associated with energy supplies from Russia due to
the war in Ukraine. But concerns over the European
We are turning more
positive on the US because
we believe it is cheap in
historical terms.
economy have abated and, arguably, the region’s
equities have been impacted disproportionately.
Our target exposure to fixed income has been broadly
reduced in the last quarter, except at the highest risk
profile end. This has mostly been achieved by reducing
targets in high yield bonds and, at the lower risk profile
end, global government bonds. UK corporate bond
targets were increased in some risk levels, however.
Our view about high yield bonds, which give investors
higher rates of interest because of the greater risks
associated with them, was the only area where we
downgraded the outlook in the last quarter. We had
raised it from neutral to positive in the fourth quarter of
2022 when we thought they were attractively priced
compared to government bonds. We added exposure
to them but the window of opportunity has since
reduced and we have taken profits. Our view on high
yield is back to neutral.
We remain most positive on the outlook for UK,
emerging market and Asian (ex-Japan) equities and
emerging market bonds. The UK market is still relatively
good value despite its outperformance versus other
markets in 2022, while emerging market and Asian
economies are recovering well after the pandemic
and have strong underlying fundamentals that give
them dynamic, longer term potential. The prices
for emerging market bonds, both government and
corporate, are also favourable versus what is available
in more developed markets.
Trying to time markets for short-term gains is hazardous.
We are cautious and expect further volatility, but this
might present opportunities to buy good, long-term
investments at more attractive prices.
LIONTRUST VIEWS – SUMMER
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