5 min read 13 Dec 22
Looking to next year we see an environment of lower growth and lower inflation, relative to 2022. We think those conditions will favour high quality bonds, which should perform well even as growth slows. In our view, earnings expectations for equities remain too high. Equities tend to perform worse than other asset classes when growth is weak. However, equities fell in 2022 in anticipation of a weaker economy and could be early to recover next year. Markets discount future expectations and history suggests that investing into an economic downturn is often more rewarding than waiting for recovery to be confirmed.
Here’s how our portfolios are positioned going into 2023:
The Strategic Asset Allocation is the overall mix of assets. It’s the key driver of long-term returns. We haven’t made any changes to our long-term views. Within equities, we have more in Asian and Emerging Market equities. Within fixed income, we don’t own UK government bonds. We have more in investment grade bonds and emerging market bonds.
Tactical views are applied to a small part of the portfolios and are based on our views over the next six to 12 months. We made changes in December, to reflect a slightly more optimistic outlook.
We also made changes to the funds in our passive and hybrid ranges. We did not make any fund changes in our Global ESG Themes portfolios.
The higher rate environment presents both opportunities and risks. Fixed income finally offers a reasonable income - something investors have not had for many years. While we think rates will fall, they will not go back to the lows of the past decade. We think a higher rate environment will require more dynamic asset allocation within multi-asset portfolios.
We wish you a happy holiday season and look forward to 2023.
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