“It’s easy to be negative but, in our view, 2015 presents greater downside risks and the possibility of volatility spikes across all asset classes. This is particularly if Europe is persistently weak and commodity prices remain subdued to the extent that resource-economies such as Brazil cannot contribute positively to global growth. In such an environment, however, diversifiers or hedge fund strategies that benefit from rising volatility can generate higher returns. Political risk will remain particularly high on the agenda in the UK, with the general election on the horizon, and where the outcome could have a significant market impact, be it greater governmental intervention or a referendum on Europe.
We remain underweight emerging markets, as political risk is high there also as newly elected leaders in Brazil and India must now show they can push through reforms. Overall, we remain constructive on equities, particularly the US, as there are signs that earnings growth can come through to justify further multiple expansions. Whilst interest rates may remain benign in the US and UK, fixed income investors may need to be more tactical in order to generate returns. If inflation falls further, however, real yields will rise and shorter duration assets could act as diversifiers.”
David Coombs, Head of Multi-Manager Investments, Rathbones