Barclays Private Bank views on the positioning of assets in your portfolio.

Cash and short duration bonds: Overweight Our preference for better quality, higher liquidity opportunities translates into our conviction for short duration bonds, which are better poised to cope with a flattening yield curve as yields have become more attractive in the short end.
Developed equities: Overweight
  • Earnings’ growth is still positive, albeit slowing, with upside forecasted at low-to-mid single digits over the year ahead. Healthy fundamentals and strong balance sheets continue to underpin the investment case for this asset class, while valuations are not excessively stretched compared to historical precedent
  • Investors’ sentiment is gradually improving amid China’s renewed stimulus and progress on Sino-US trade disputes and less restrictive monetary policy, which should support recovery in the rest of the world and lift the asset class further
  • We are agnostic on the geographical allocation of our equity positions. In searching for companies to invest in we focus on businesses with high cash returns on capital with conservative capital structures and ideally an ability to reinvest cash in future growth at equally high rates of return. The US offers more opportunities to invest in these kind of businesses meaning that North America remains the largest geographical weighting within the equity allocation. 
Developed government bonds: Neutral Sovereign bonds worldwide have been losing their appeal as interest rates have remained at historically expensive levels amid lower economic growth, inflation and monetary policy expectations in most parts of the developed world. Given this backdrop, we anticipate the asset class to predominantly be a diversifier rather than a major source of returns.
Investment grade bonds: Neutral
  • The recent rebound in bullish sentiment and easing interest rates should be benign for investment grade bonds. Nevertheless, we remain neutral on the asset class amid mounting concerns over the rising pile of corporate debt and deteriorating credit quality
  • Spreads have tightened significantly since the beginning of this year. That said, we believe investment grade bonds will continue to earn some carry and so outperform low yielding government bonds specifically in Europe.
Emerging markets equities: Neutral
  • Emerging markets equities should benefit from benign valuations and increased appetite for riskier assets driven by cautious optimism around trade tensions and a recovery in economic growth
  • Fiscal and monetary easing in China are in the pipeline to counteract mounting signs of a slowdown in the region. Trade tensions still pose a risk but will likely dissipate amid hopes for a breakthrough in trade negotiations.
Commodities: Neutral
  • The sole exposure within commodities continues to be the position in gold which we view as complementary to the other risk mitigating assets in the portfolio
  • We find little attraction in this asset class outside of precious metals and find our risk budget better deployed elsewhere. 
High yield and emerging market bonds: Underweight
  • Default rates remain contained and fears of a bruising trade war have receded. Furthermore, lower expectations for US rates tightening and a weakening US Dollar should provide some relief to the largely dollar-denominated emerging markets debt
  • However, following the recent rally in riskier assets, high bonds look quite expensive by historical standards, we prefer to hold a minimal exposure to the asset class. Spreads are tight and we do not view high yield as attractive in context of the credit risk taken and the returns available from other asset classes. 
Real estate: Underweight Real estate should continue to provide mild diversification benefits. We anticipate a loose monetary policy to favourably impact returns, although weaker economic growth could prove to be a headwind.
ATS: Underweight We maintain a low conviction in ‘alternative’ assets due to high expense and a lack of investment opportunities. We continue to consider the asset class primarily as a diversifier and focus on funds with a low to negative correlation to equities. 

Market Perspectives April 2019

Find out our latest key investment themes. And with volatility set to stay elevated in 2019, can markets head higher still this year?


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