This month:
Expert investment views:
A solid first quarter for equities is celebrated, although several ‘risks hiding in plain sight’ are acknowledged which could temper further ambition
A ‘return of diversification’ is hailed as one wealth manager expresses confidence there are opportunities to be found across asset classes
The prospects of obesity drugs are weighed up, alongside their impact on companies geared towards tackling the condition and associated maladies
Featuring this month’s experts:
1. A solid start to the year
Insights from:
The positive market momentum generated by central bankers last year, as they signalled not only the peak in interest rates but also dangled the carrot of cuts in 2024, was sustained through the first quarter of this year. Evidence of stronger economic growth added further impetus to the already improving sentiment.
These positive economic conditions have underpinned growing company earnings, improving outlooks and increasing confidence from management teams. This has proven fertile ground for equity markets which had their best first quarter in five years.
Our central view remains one in which global GDP remains steady, inflation continues a slow journey back to trend and, at some point, central banks are able to ease rates. This would be a good environment for markets. Even if rate cuts are delayed, markets should stay on course as long as the catalyst for this is stronger growth rather than higher inflation.
Equally whilst inflation has been becalmed it is not yet tamed and any shock to supply could quickly revive the stagflationary fears of 2022
What cautions us from getting more ambitious is the knowledge that the outlook can change quickly. Interest rates could ultimately begin to bite on the economy; signs of wider stress in commercial real estate is an area we will be watching closely for in the coming reporting season. Equally whilst inflation has been becalmed it is not yet tamed and any shock to supply could quickly revive the stagflationary fears of 2022.
There remain plenty of risks hiding in plain sight, whether in the middle east, the Taiwan Straits, or at the electoral ballot boxes. Whilst these may ultimately fail to derail economies and markets, they caution against our abandoning the balance and diversification of portfolios that has proven so valuable in more troubled times.
Rosie Bullard
Partner – Portfolio Manager at James Hambro & Partners
2. A return of diversification
Insights from:
The global economy’s resilience has surprised even the most optimistic investors although there is significant dispersion. The US seems to have shrugged off the most aggressive interest rate hiking cycle in history. UK industry has been robust, particularly within the services sector. The Eurozone is struggling with weak demand and China faces deflation.
Regarding inflation, the final journey from 4% to 2% is proving challenging. Under the bonnet one can still derive a subtle disinflation and we will likely see a further gradual easing of price pressures across the Western world over the coming months. The ECB is likely to cut rates in June with the BoE and the Fed possibly not far behind. In the face of persistent inflation Fed Chairman Powell mostly remains on the market’s side maintaining that the Fed are nearing the conviction to cut rates, keeping investor confidence buoyant.
The prospect of peak rates has coincided with a return of diversification. The return of the negative correlation between equities and bonds is reassuring. Since the post-COVID-19 recovery bonds and equities have largely moved in tandem, but this year has witnessed a normalisation, with bond risk moderating equity risk once again
With Q4 earnings season now behind us and Q1’s just getting started there has been little new information and forecasts have broadly trended sideways. With regards to valuations, the US looks expensive on an index level, but range considerably under the bonnet. The tech sector is twice as expensive as the broader market but is expected to drive growth in 2024.
The prospect of peak rates has coincided with a return of diversification. The return of the negative correlation between equities and bonds is reassuring. Since the post-COVID-19 recovery bonds and equities have largely moved in tandem, but this year has witnessed a normalisation, with bond risk moderating equity risk once again. We remain prudently optimistic and can find opportunities across all asset classes.
Thomas Hibbert
Investment analyst at Canaccord Genuity Wealth Management
Top Tip
Lee Goggin
Co-Founder
3. Keeping up with the Kardashians
Insights from:
Weight loss and obesity drugs have dominated headlines in the healthcare sector, but drugs like Wegovy are now all over popular mainstream media. What started as a research project into diabetes treatment in 1970 then led to the discovery of blood sugar regulating hormone GLP-1 in the 1980s. An unexpected side effect of this discovery was weight loss, which has led into treatments to tackle obesity… and it’s become the Kardashians’ worst-kept secret. The main companies operating in this area are Danish pharmaceutical business Novo Nordisk and Eli Lilly in the US. Recent announcements have also indicated these drugs can reduce the risk of heart attacks, strokes and kidney disease . The share prices of both companies have risen more than fivefold over the last five years.
This is great news for society (and shareholders of Novo Nordisk and Eli Lilly), but has been less good for healthcare businesses that make drugs and devices that treat these chronic conditions. This includes companies that manufacture glucose monitors, insulin pumps, CPAP machines for sleep apnoea and dialysis machines
This is great news for society (and shareholders of Novo Nordisk and Eli Lilly), but has been less good for healthcare businesses that make drugs and devices that treat these chronic conditions. This includes companies that manufacture glucose monitors, insulin pumps, CPAP machines for sleep apnoea and dialysis machines. Share prices across the sector have been very volatile around medical updates, and even Walmart referenced the drugs and noted customers were cutting on high-calorie products. As tempting as it is to own one of two winners, being able to predict the beneficiaries of a piece of news, or the timing of it, is difficult. This is why we prefer spreading exposures rather than concentrating them. Over time, the stronger parts will counter the weaker parts, and benefit the healthcare sector as a whole.
Duncan Blyth
Head of Private Client Portfolio Management at 7IM
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
