As part of our focus on providing a high quality, personalised investment service, our Investment Office look to support our investment managers in their decision making when it comes to constructing client portfolios.
Our asset allocation committee is one example of this, via their monthly output showcasing their views on a global basis; this is then complemented by a sectoral view from the stock selection committee. The combination of these top down and bottom up opinions is an important resource for our investment managers to validate their own investment theses or to generate new investment ideas.
These committees, which consist of members of our research team and a number of investment managers, aim to provide a view that seems most suitable in the current climate. The output of the monthly meetings remains a suggested stance and it is important to note, that the views expressed are those of the committees and may not necessarily be those of your individual investment manager.
Here we present a snapshot of the current views.
SECTOR FOCUS
|
Communications |
The communications services sector has a large weighting to companies which will likely be beneficiaries of AI and, as a result, valuations have begun to reflect this. Whilst we believe AI will be a key driver of the sector, expectations are high and valuations looks stretched. The telecoms sector is a smaller part of the sector and therefore the more reasonable valuations in this area are not enough to make the sector more attractive. We continue to like the sector from a structural perspective but remain underweight on valuation grounds. |
|
|
Consumer Discretionary |
Global inflation has been easing, while the sector’s performance is expected to be influenced by economic data and ongoing policy uncertainty. Given the non-essential nature of its products and services, the sector remains highly sensitive to economic cycles. However, we continue to see attractive valuations across the sector, which underpins our decision to maintain an overweight position in the sector. |
|
|
Consumer Staples |
The sector continues to grapple with elevated input costs, which are weighing on profitability as pricing remains high. After a prolonged period of inflation, margin compression appears increasingly likely. We're also seeing a clear split emerging among brands—those that can successfully drive volume growth are pulling ahead. With consumers staying cautious about spending, there's limited room for further price hikes, making volume performance a key differentiator going forward. |
|
|
Energy |
The oil price has declined so far this year and now sits at a level we believe is close to some producers’ marginal cost of production. The falling oil price is indicative to some extent of fears over the economy. The Trump administration’s encouragement of oil production is somewhat stymied by the current low oil price, which disincentivises producers. Given the level of uncertainty caused by the tariff regime, we remain neutral until we have more conviction on the direction of the oil price. |
|
|
Financials - Banks |
Financials delivered strong returns in 2024, leading to a rise in valuations. While we now anticipate a slower pace of rate cuts than previously expected, banks typically benefit from the spread between short- and long-term interest rates. However, with no major steepening of the yield curve on the horizon and current valuations already elevated, we maintain a neutral stance on the sector. |
|
| Health Care |
The health care sector was initially relatively unscathed by the tariff announcements however the Trump administration has since initiated a series of investigations into the sector with the aim of lowering drug prices. Whilst this poses a risk to the sector, we believe share prices have now more than baked in the worst-case scenario. Given how unsuccessful historical drug price regulation has been, and given where valuations sit, we are happy to remain overweight the sector. |
|
| Industrials |
As we had feared previously, the imposition of tariffs in April proved disruptive for the performance of industrial equities. Whilst reductions in tariffs mitigate some of the headwind, the impact on global growth may prove more difficult to unwind. Cognisant of this, and with valuations of industrial companies continuing to appear quite rich, we retain our neutral position. |
|
| Information Technology |
The tech sector has seen volatile share price performance recently with hardware companies being especially exposed to tariffs. Much of the sector is concentrated in software names though, which have limited exposure to tariffs. AI is likely to be a key driver of the sector’s performance, however this is reflected in the high valuations in the sector. AI is also likely to require significant increases in capital expenditure. Whilst we continue to like the long-term structural drivers in the sector, we are underweight on valuation grounds. |
|
| Materials |
The materials sector is exposed to the commodity cycle, much of which is driven by the performance of China. The Chinese economy has received some stimulus, but the crucial area of commodity demand is the property sector – and we do not have high conviction in a recovery here. We are cognisant of the structural lack of supply in commodities like copper however in the short term we expect the macro economy to dominate the performance of this sector. We therefore have limited conviction and remain neutral. |
|
| Real Estate |
The real estate sector faced significant headwinds in 2024, marked by persistent inflation and interest rates at their highest in 15 years. Elevated borrowing costs led to a sharp decline in commercial property transactions and downward pressure on valuations. However, recent rate cuts are beginning to revive market activity and investors are re-entering the market. Despite ongoing fragility, we believe the sector is poised for a rebound, supported by attractive valuations. |
|
| Utilities |
Performance of utilities has moderated in 2025 having been strong in late 2024, particularly in the US. Whilst we appreciate the defensive qualities of utilities amid a period of heightened global uncertainty, recent performance and positioning in the regulatory cycle appear to limit the potential for further positive catalysts in the sector, we remain neutral on utilities with preference for power over water. |
ASSET ALLOCATION
|
UK |
The UK economy has maintained minimal GDP growth, which aligns with the generally subdued expectations. Attention remains on the Bank of England and the path of the interest rate cutting cycle, where the Bank must balance the upside risk to inflation against the downside risk to growth over the coming years. Valuations are still appealing compared to the US, and with signs of expanding corporate earnings, a more proactive Bank of England, and a weaker sterling, the UK stock market is likely to be supported. |
|
|
North America |
The US economy is experiencing solid growth, but isolationist policies have introduced potential trade barriers and created uncertainty regarding the growth outlook. We continue to anticipate a risk-on, risk-off environment characterised by heightened volatility due to uncertain policies. We foresee a scenario where tariff risks could lead to increased inflation, but heightened trade risks might also elevate the risk of recession. Given these factors and the premium valuations of US companies, we remain underweight. |
|
|
Europe |
The European Central Bank (ECB) has persisted with monetary policy easing due to the continued disappointing activity data. The notable decline in Chinese demand has posed a significant challenge for the export sector, and domestic vehicle production has encountered considerable headwinds from Chinese competition. The potential for comprehensive US tariffs on all imports is a substantial concern for investors. However, the favourable equity valuations observed in Europe provide support to our neutral rating. |
|
|
Japan |
This year, a weakening yen has counterbalanced the improving domestic fundamentals for unhedged investors. We anticipate Japan will maintain a robust cyclical upswing throughout 2025. This will be fuelled by positive real wage growth, the definitive end to corrosive disinflation, and ongoing corporate sector reforms. These factors provide clear tailwinds to the growth outlook. Unlike other major central banks, we expect the Bank of Japan to moderately raise interest rates over the year. Given these tailwinds we remain overweight. |
|
|
Asia Pacific |
Policy easing by the People’s Bank of China, along with liquidity support for highly indebted local authorities, have led to a strong upswing in economic activity heading into 2025. However, the persistent threat of tariffs poses a significant potential headwind for China's export and industrial sectors. In contrast, elsewhere in the Asia Pacific region, with solid regional growth and the potential for central banks to ease policy from currently restrictive levels, we are more optimistic about the growth and earnings outlook outside of China and remain overweight. |
|
|
Emerging Markets |
In the aftermath of recent tariff developments, the dollar’s unexpected weakness caught many off guard. While a softer dollar often provides relief to emerging markets with dollar-denominated debt, the current environment is clouded by uncertainty. This is particularly evident in Latin America, where economic momentum is being weighed down by geopolitical tensions, tighter financial conditions, and the disruptive impact of US trade policies. Given these crosscurrents and the lack of clarity on the dollar’s path, we believe it is prudent to maintain a neutral stance on emerging markets for now. |
