Data key as wealth managers gear up for volatile summer
By International Adviser, 1 Apr 16
Like Janet Yellen’s Federal Reserve, it would appear that UK wealth managers are planning to be very data dependent in the second quarter.
We are not generally predicting big asset allocation shifts in the coming quarter. However, news that the Brexit vote is likely to see us stay in the EU would (other things being equal) encourage us to hold more in domestic UK assets (from sterling and property to small caps) and less elsewhere. The reverse also applies of course, if a vote to leave becomes probable.
If news from elsewhere develops as we hope, and subject to what is built into prices, we may want to increase Asia/ emerging markets exposure before too long, though whether that is in the next quarter is completely unknowable now.
More generally, growth investments (i.e. less cyclical equities) have dramatically out-performed value stocks in the last five years in just about every market – the rolling 10-year performance gap between the two is now as big as it was at the peak of the dot-com bubble. That makes sense in a period where investors have moved down expectations for GDP growth, inflation and interest rates to today’s low levels. However, with the valuation gap so extreme, and given the long-term records of Growth & Value stocks, investors will need during 2016 to see if their look-through bias to Growth or Value is the one that they want for the next few years.
In the UK, the really big data point for this year (and perhaps for many years afterwards) will be seen on the 23rd of June. Though we will doubtless develop a strong aversion to yet more hot air on the subject over the next three months, each new poll or prediction will have to be considered and potentially acted on.
The Brexit issue has obvious impacts on broad investment areas (UK equities – domestic or global, overseas equities, sterling and non-sterling bonds, UK commercial property and so on). However, it also stretches beyond that. For example, the possible impact on sterling would have significant impact on decisions on whether or not to hedge exposure to other markets, such as Japan.