Before giving a preview on our upcoming portfolio rebalance, a quick comment on the latest announcement from the US Fed on Wednesday evening. They expect the economy to grow around 7% this year and expect no increase in interest rates until 2023. At the same time we have continued quantitative easing and President Biden’s $1.9 trillion stimulus package. No central bank has ever had an economy growing at speed, zero interest rates and money printing at the same time. This all adds to the growing expectation that inflation is the likely outcome.
The amount and duration of this inflation will be key for investors and could have a significant impact on bonds and bond-like equities. In a rising inflation environment, investors would normally want exposure to sectors such as Materials, Energy and Banks and be wary of highly-rated equities like technology, consumer staples and utilities.
This leads me to our rebalance, planned for next week. We have been overweight cash since the end of January and we are cautiously feeding some of this back into markets. First, there will be a small increase in equities (Asia and Europe given their low valuations) and Alternatives. Second, and perhaps more importantly given these inflation concerns, we are switching some of our growth funds into value funds in the UK and Europe.
We remain overweight cash on a short-term tactical basis and are on alert for possible further equity weakness over the next month or so if bond volatility continues on inflation concerns.
Julian Menges, Head of Strategy & Hardy Managed Portfolios
Important Information
This update is for information only and does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The views and opinions within this document are those of Casterbridge Wealth at time of writing and may change without notice. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge Wealth nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.
