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Tom Becket's uninspiring US road trip
by Tom Becket on Apr 30, 2014 at 14:04
The greatest risk appears to be from rising interest rates and Treasury yields. However, we believe this threat is not excessive for the remainder of 2014. There is increasing complacency in credit markets, mostly driven by investors’ demand for yield, but I do not see this as a threat this year.
In short, be willing to accept credit risk, but look to restrict interest rate risk. Our positioning with mostly high-yielding, short duration funds therefore seems sensible.
We have been structurally underweight US equities for the last year and we will remain that way.
Evidence from companies (admittedly distorted by the effects of a dreadful winter) is that profit growth this year should be close to the range expected by analysts – namely high single digits percentage growth.
Such an outcome, while far from certain, seems sufficient to justify current equity valuations mostly, especially given that interest rates, inflation and other asset classes’ yields remain so low.
But with US equity valuations rich by historical comparison, any disappointment will be punished. However, I don’t see any reason why, based upon our economic forecasts, US equities cannot return circa 6% annualised over the next few years.
However, we feel there are better opportunities in Asia, Japan and selected European markets.
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On the road
by James Phillipps on Jul 29, 2014 at 07:55