Shoqat Bunglawala, who heads the multi-asset business for Europe, the Middle East and Africa, Asia-Pacific excluding Japan at Goldman Sachs Asset Management, said the outcome of the US election and the enthusiasm of investors had simply accelerated a cyclical recovery that had already been underway. “The market had underpriced the level of growth that we have experienced,” he added. “It was overly pessimistic.” He said his team had started repositioning the portfolio to capture an economic recovery in Europe, which he said was typically behind the US economic cycle. The multi-asset solutions team at Russell Investments is also increasingly thinking about inflation. David Vickers, a senior portfolio manager, said US equities were already looking expensive amid valuations last reached during the technology boom. “We have peak margins in the US and we think these peak margins have been driven by low interest rates and low wages, both of which are turning a corner,” he said. “Wage inflation is already coming through and interest rates are clearly on the rise… there is going to be margin pressure, which is going to lead to earnings pressure.” Vickers said he now spends more time thinking about the downside risk in the US economy, increasingly convinced there is little room for US equities to rally further. “Every day I wake up and hope that every other person in the equity market believes that equity markets are still appropriately valued today. That can change quickly in an uncertain environment.” There are multi-asset managers who believe the US equity market has still further to go. Nathan Sweeney, who manages the Architas Multi-Asset Active range of funds at Architas, said the US was actually in a mid-market slowdown but on the cusp of breaking out. He said companies had been all about cutting costs and avoiding risks since the global financial crisis, but the question was whether the new wave of populism would change that. “It was all about austerity, but I have not heard that word for a long time. Now they are talking about growth, they are talking about infrastructure, cutting taxes, a language that CEOs and CIOs understand – [and] the more they hear that, the more likely they are to increase spending and stop cutting costs.” ©2017 funds europe
Portfolio Manager Davide Cataldo discusses the results of the Pioneer Investments’ survey on liquid alternatives and how investors can be encouraged to increase their allocation.