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In this latest issue of FundsTalk, we first examine the outlook for 2019 and the key factors we expect to influence global economies, equity markets, fixed income investments and other assets.
Volatility, which increased sharply last year, is likely to remain a feature as geo-political concerns, not least simmering trade tensions between the United States and China, will continue to weigh on market sentiment. There is evidence of world economic growth slowing and becoming less broad-based; however, we believe fundamental factors, such as continuing expansion of the world’s biggest economies, the United States and China, will be a positive force.
The outlook considers the significance of key moves in US bond yields, and explains how the concept of ‘yield inversion’ can spark fears that a recession is on the way. We do not expect imminent recession in major economies, but that does not rule out further potential bouts of weakness this year in fixed income and equity markets in the United States and other developed economies.
We see opportunities for investment growth from increased exposure to assets that have fallen so far in value that they represent a buying opportunity, as they are trading at historically low discounts to global peers. In our view, emerging market equities and UK equities fall into that category.
Our second article focuses specifically on the case for UK equities. Undoubtedly one of the biggest factors weighing on UK equities, UK bonds and sterling has been Brexit uncertainty, as investors fret over the terms and timing of the UK’s withdrawal from the European Union. At time of writing, there are still more questions than answers on how Brexit will eventually pan out, but beyond Brexit, there are a number of other critical issues affecting the outlook for UK equities. In “Is it time to rethink UK equities?” we discuss current UK equity valuations, economic fundamentals and options for investors mulling whether they should adjust their positions or their investment strategy.
More volatile times for markets can be stressful for investors, particularly those in retirement and using drawdown as their source of income. It can prompt concerns over how much and when they should withdraw money and the potential impact on the sustainability of their retirement pot.
That leads to our next article, in which we take a look at the pros and cons of different strategies for customers in drawdown. We assess the ‘natural yield’ approach, in which rather than selling your investments to fund retirement spending, you live off the income they produce in terms of share dividends, bond coupons or interest on cash. We also look at the upsides and downsides of choosing to withdraw a fixed amount from your retirement pot and sticking with this, regardless of changes in the investment backdrop.
And finally, after concluding one of Europe’s largest-ever asset management tenders last year by selecting Schroders and BlackRock as our two new asset managers, we provide snapshots of both firms and the diverse strengths and capabilities they will each bring on board when they assume their new roles.
We are looking forward to a new chapter and working with our strategic partners for customers’ benefit when the new arrangements take effect. In the meantime it is business as usual while we plan for a smooth handover designed to achieve uninterrupted good service and performance.
It was a challenging year for most asset classes in 2018.