Will opportunities come knocking in 2024?
Mark Rimmer, Fund manager from the Premier Miton’s Multi-Manager Funds investment team looks forward to 2024 and sees plenty of opportunity in markets.
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
The last few months have been challenging for the majority of bond and equity markets, as investors have been slow to come to terms with the narrative of interest rates being higher for longer, though markets appear to have now accepted this notion. Into early November, both bonds and equities have seen some recovery, as markets now believe that the interest rate hiking cycle may well have peaked. However, we still believe there is plenty of opportunity in markets, and we would highlight the following:
UK equities
UK equities have been unloved for some time now, arguably since the Brexit referendum way back in 2016. UK equities held up better than most markets last year in what was a difficult year for most equity markets. This year they have lagged most major developed equity markets, though they have still produced positive returns. However, we believe that valuations in UK equities remain compelling, certainly better than the US where valuations in our view remain stretched, while also producing an attractive level of income. In addition, despite the constant negativity concerning the economy, the UK’s GDP numbers were recently revised up, and since covid the UK has recovered better than either France or Germany.
A fund we currently favour in this asset class is: Montanaro UK Equity Income
Japanese equities
This is a market that we think has gone under people’s radar. We have felt there has been an opportunity here for some time, and our patience has finally been rewarded as Japanese equities have been performing better this year as the economy has gained some momentum as it has emerged from covid. We still think there is more to go from here as valuations remain reasonable, there are encouraging upgrades to company earnings, and there are several ongoing corporate governance improvements which may continue to appeal to investors.
A fund we currently favour in this asset class is: Man GLG Japan Core Alpha
Bonds
Bonds have had a torrid time over the last three years in the higher inflation and rising interest rate environment. Having been very cautious on bonds for a long period of time, it now seems that some value has finally emerged here. We remain wary of high yield bonds, as we do not think investors are being adequately compensated for the possibility of higher defaults if the global economy weakens more than anticipated. We do see value in shorter maturity high quality bonds. In countries such as the UK and the US the yield curve is inverted, meaning that yields on shorter dated bonds are higher than longer dated bonds, which we think offers very decent value. We also favour floating rate bonds, that can benefit from rising rates.
A fund we currently favour in this asset class is: Royal London Short Duration Credit
Property
The property market has been very sensitive to rising interest rates, with commercial property (by which we mean retail stores, offices and industrials) under pressure. With valuations much improved, this makes the sector more interesting. Our allocation to property tends to be focused on more niche areas, and we favour properties with long leases and less tenant risk. Rather than more traditional commercial property, we prefer property funds that invest in areas such as care homes and student accommodation. These can be less dependent on underlying economic growth, while also having some element of inflation protection.
A property company we currently favour in this asset class is: Assura Group
