– Global growth remains firm despite the length of the current cycle. In the US, consumption is supportive while recession risk is low globally.
– However, inflation risk is rising as markets fail to fully reflect stronger wage growth and higher oil prices.
– We are defensive on government bonds but see value in breakevens and commodities. We are also broadly positive on equities in both developed and emerging markets.
The long bull market run following the 2008 global financial crisis has created considerable sector biases in all major equity indices across regions. In our view, the risk of concentrated positions in market capitalisation-weighted indices is now significant. Attempts to time the direction of the market or predict the bursting of a bubble are seldom successful. However, in light of the market turbulence earlier this year, we believe investors should be mindful of the increased risk of traditional passive investment strategies in the current market conditions.
- We think investors do not have sufficient exposure to the small and mid-market, especially given there is no strict definition of small and mid-market across the private equity landscape.
- By investing in small and mid-market funds, we believe that investors will benefit from: exposure to a large, attractive segment of the economy, greater portfolio diversification and potential outperformance versus large and mega funds.
- In order to effectively navigate the small and mid-market and identify the best opportunities, it requires boots on the ground, local knowledge, in-depth experience and dedicated resources.
Over the last few years, the price of gold has traded in a very tight range, often disappointing investors and leading some to question its use in portfolios as a diversifier and to preserve wealth. Despite heightened geopolitical risks, the so-called ‘Goldilocks’ scenario we experienced last year (i.e. solid growth, low inflation and low interest rates), where risky assets thrive, meant gold lost some of its appeal and delivered mixed returns along the way. With monetary policy normalisation by several key central banks underway, rising inflation and heightened market stress, gold is becoming ‘hot’ again and drawing investors back in.
Will gold be a ‘free lunch’ over the next couple of years? We are doubtful, given current valuations. However, we believe gold will potentially offer great diversification properties as it will ultimately benefit from the changing monetary policy environment.
- After a decade of low labour costs, there are early signs of upward pressure on wages, both in published data and anecdotally.
- Any increase in labour costs could hurt corporate margins and, ultimately, investment returns, especially for companies with stretched valuations.
- A focus on quality companies that can maintain margins will be essential, as will selecting stocks that are less susceptible to valuation compression.