Q2 2024 Rebalance – the environment is good for stocks but the leaders may come from a broader section of the market

3 min read 14 Jun 24

We’ve changed our tactical views. These changes were reflected in the portfolios in a rebalance instructed on 14 June 2024.

  • We added to Europe equities

We continue to think the backdrop for stocks is positive and we are broadening our stance on equities by adding to Europe. We continue to hold more in the US and Japan and have less in bonds. The changes were reflected in a rebalance on the 14 June 2024.

The equity gains at the start of the year were very concentrated in a handful of US companies leaving the market looking a little lop-sided. We’re seeing a recovery in global manufacturing and we think there is a good opportunity for other markets to do well such as Japan, Europe and emerging markets. We’ve liked Japan for a while and continue to hold more but reduced our overweight position and added to Europe. While some US stocks are expensive, companies have delivered earnings above expectations to underpin their valuations and we expect this to continue.

The biggest risk for bonds is still inflation; if Central Banks can’t bring inflation lower for a sustainable period then bonds are unlikely to deliver capital gains. Investors now expect fewer interest rate cuts which is more aligned with what we expect. We still maintain our underweight stance as we think equities will do better. Our focus within fixed income remains on the yield bonds are generating rather than any expected capital appreciation.

Here is more detail on the key changes:

  • More in Europe equities: the European economy is in recovery mode and we’re seeing an upturn in global manufacturing sectors - both of which should be a catalyst for European equities.

  • Reduced allocation to Japan: we retain our positive view as it goes through a cultural shift towards better capital allocation. We have reduced our overweight position to add to Europe equities.

Fund changes:

  • We added the Fidelity US Index Fund to Passive and Hybrid models: We have swapped the US tracker fund to one that tracks the S&P 500 as opposed to the FTSE North America. The FTSE North America also includes Canada equities and our long-term strategy team prefer to allocate to the US.

  • Hybrid Fund Changes: Given the stark valuation gap between the UK and international stocks it won’t take much for better sentiment to boost FTSE shares. Recent M&A activity and better economic data could help lift sentiment and we’ve tilted our UK exposure to more cyclical companies like energy and financials.

  • We did not add new funds to the Global ESG Themes models.

Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.

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