The Investment Committee in charge of our Core portfolios met today to review recent market events.
The second quarter of 2024 saw a continuation of the mixed economic data that has so challenged investors for some time, making it very hard to get a handle on the path of inflation and interest rates. Whilst inflation continued to fall, even hitting its 2% target in the UK, concerns about service sector inflation and wage growth meant that the US Federal Reserve and Bank of England kept rates unchanged, although the European Central Bank did cut. In spite of markets having to deal with a ‘higher for longer’ narrative, equities in many regions made ground, especially Emerging Markets and Asia. However, as would be expected in such an environment, Fixed Interest had a more difficult time, particularly longer-dated bonds.
With no further clarity around the key issues, the committee did not feel that any changes were required to the portfolios, which remain diversified around a range of outcomes. Our core case remains that a ‘soft landing’ can be achieved, and the data is not indicating that we are wrong. However, it is not clear enough yet to make us more aggressive in our positioning, perhaps by increasing our exposure to equities. There may come a time when adding risk in this way will be the right move, and the conversation has certainly begun. However, we do not feel it is now, especially as the parts of the equity markets that are attractive on a valuation basis are possibly cheap for a reason, and Fixed Interest from this point offers the potential for strong returns if our core case plays out.
