MAB Quarterly Review Q1 2025 - Adventurous - 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. Over the previous quarter, we
reduced our overweight to UK equities slightly, increased our overweight to Japanese Equity and went further
underweight Continental European equities.
Japanese equities
Japanese equities returned -2.5% in Pound Sterling terms over the 昀椀rst quarter of 2025, outperforming global
equities more broadly. The local (or Japanese Yen) return was down -4.4% for the quarter and the Pound
Sterling return was boosted by an appreciation in the Japanese Yen over the period.
In January, we increased our overweight to Japanese equities, meaning we now hold more than the strategic
asset allocation weight for this asset class across our range of Funds. Japanese equities is now our largest
overweight. There are multiple reasons why we like Japanese equities and think they could be a valuable
source of returns for clients in the coming years. Valuations are attractive across the Japanese market, whether
it be in high-growth companies, smaller companies or historically cheap companies. This is also true relative
to other global equity markets, particularly the US, which is trading on very high valuations in the context of
history. This is also increasingly true relative to Continental European equities, whose valuations soared over
the quarter in the absence of a meaningful increase in earnings. In contrast, we continue to see long-term
value creation in the Japanese market driven by strong corporate governance reforms. Japanese corporate
earnings continue to grow robustly, supported by expanded IT capital expenditure and wage increases.
While we do not seek to forecast currency returns, the Japanese Yen remains historically weak relative to
other currencies such as the Pound Sterling. In an increasingly uncertain world, we think there is a reasonable
chance that the Yen resumes its historical role as a safe-haven asset (as it did this quarter) which could serve
as an attractive complement to the strong returns we expect from the underlying equity market.
UK equities
At a high level, the UK Equity market was one of the strongest equity markets globally over the course of the
昀椀rst quarter of 2025. The FTSE All Share index, which is dominated by larger companies, was up +4.5%. For
smaller companies, the picture was very different. The FTSE 250 index of small and medium-sized UK 昀椀rms
was down -5.0% for the 昀椀rst three months of 2025.
This divergence in fortunes for indices covering different parts of the equity market is illustrative of how larger
stalwarts of the UK market such as Banks, Healthcare, Energy and Telecom names have performed strongly
this year while names in the Travel & Leisure, Consumer Products and Automobile sectors, which are exposed
to a moribund UK economy, have struggled.
We reduced our overweight to the UK equity market slightly in January. This is re昀氀ective of our view that
while valuations in the UK are certainly attractive, we felt there are relatively more attractive catalysts for
outperformance in the Japanese market. The fact that the UK market is cheap is likely a necessary, but not
suf昀椀cient, condition for outperformance. What is missing is a concrete and sustained catalyst to spur investor
interest. These have been hard to come by in the context of a weak economy, the shrinking number of listings
on the London Stock Exchange, a dearth of initial public offerings and lack of sustained interest from either
domestic or international retail or institutional investors (despite successive government’s modest efforts).
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