Average returns from the ARC Sterling Steady Growth Index (based on the most common risk profile run by discretionary investment managers), for May is estimated to rise by 1.9% resulting in average year-to-date performance of 4.7% and 12-month performance of 10.6%, according to latest data from Asset Risk Consultants (ARC).
Equity sector positioning was key with technology outperforming while property, energy and oil stocks all disappointed. The performance of fixed-income investments was mixed, with flat to modest positive figures muting the returns of cautious mandates. US dollar investors benefited from a currency tailwind.
Speaking with investment managers in recent weeks the dominant factor shaping their current thoughts is the impact of premature euphoria on the Fed ‘pivot’.
Stubborn service sector inflation has jolted the expected smooth downward trajectory of inflation in the US. The central case is that most managers anticipate two Fed rate cuts in 2024 and are not expecting an adjustment at the Federal Open Markets Committee (FOMC) meeting on 10-11 June.
Whilst falling interest rates more generally support a positive view on equities, wealth managers are also focused on a defensive approach to portfolio construction and maintain a value-oriented mindset focusing on high-quality businesses with resilient consumers.
With 2024 seeing major elections across much of the democratic world, many managers emphasise the temporary nature of political shocks to equity markets, with most re-bounding in a few weeks. And whilst managers appear to see the rest of the year demonstrating modest growth with turbulence, the tail risk is US 10-year rates moving back above 5 per cent rather than geopolitical tensions breaking out into more ‘hot’ wars.
More generally, emerging themes are centred around the careful exploration of how best to exploit the future potential of AI and for those who missed the ride of the Magnificent Seven how best to express technology exposure in their portfolios.
Paul Kearney, managing director of ARC, said: “Results for the year to date are broadly better than they may have expected, and sentiment continues to be positive. Entering 2024 general anxiety centred on the likely depth of the anticipated US recession. Economic slowdown seems to have been averted and there remains significant liquidity in financial markets notwithstanding that this is diminishing as QE is reversed.
“However, the massive US stimulus driven by the US Inflation Reduction Act is possibly a counterbalance to the impact of quantitative tightening. The febrile geopolitical environment is not at the front of managers’ minds. The focus remains on macroeconomic factors and the resilience of underlying corporate profits.”
