We combine deep qualitative analysis by our team of investment specialists with powerful quantitative analysis from our proprietary software to inform an unconstrained approach for strong, risk-adjusted returns.
Markets have faced a mixed picture over the course of July as US economic strength (and solid corporate earnings) have juxtaposed ongoing trade-war fears and weakening sentiment in the technology sector, driven by Facebook’s recent sell-off.
US manufacturing sentiment remains strong and we note signs of
stabilisation in Europe and the UK. On a global basis, the labour market remains robust and this is contributing to global growth. With another good earnings season in the US (with most of companies beating expectations), we maintain comfortable as equity investors and buy-the-dips in the asset class.
With regards to recent volatility in the technology sector, we remain constructive but shift our focus to a new acronym ‘MAGA’ (Microsoft, Apple, Google, Amazon) and away from ‘FANG’. ‘MAGA’ stocks have each delivered strong results, beating expectations (with Apple breaking the $1 trillion market-cap mark) providing evidence that the technology theme is intact.
Despite political or market volatility, we remain committed to our baseline scenario for a moderation in global growth (albeit at healthy levels) and higher inflation in the long term. We see the US economy remaining strong, continuation of the recent economic pickup in the UK, and stronger growth rate for Europe towards the end of the summer.
Turning to asset class views, we remain neutral on rates with a negative bias. Normalisation of monetary policy will continue, led by the hawkish US Federal Reserve, and followed by a cautious Bank of England. Both the European Central Bank and the Bank of Japan remain committed to loosen monetary policy, despite good economic performance. In the credit space, ‘carry collection’ remains the key theme and we prefer high yield globally over investment grade. US investment grade offers some opportunities given the recent underperformance since the beginning of the year.
For equities, we expect modest gains, after a strong July performance, in line with positive corporate results. Above expectations US earnings, good EU activity and macroeconomic revival in the UK are pillars for our positive view. On a sector level we continue to see value in the consumer sector followed by technology and energy.
Finally, political noise and implications from trade wars or emerging market-driven volatility remain sources of concerns. We prefer to look though this noise and focus on regions, sectors, and companies with a positive outlook and some income characteristics. Carry collection during the summer months where trading activity is low helps investors generate income and weather any volatility bursts.