Schroders remains constructive on equities and has upgraded commodities to a positive view, citing resilient growth, moderating inflation and supportive corporate earnings.
Patrick Brenner, chief investment officer for multi-asset at Schroders, said the macroeconomic backdrop is moving closer to a “Goldilocks” environment, although inflation risks remain tilted to the upside.
Strong labour markets, above-trend growth and continued fiscal support point to a reflationary backdrop, while uncertainty remains around future Federal Reserve policy following the nomination of Kevin Warsh as the next Fed chair.
With recession risks low and earnings still driving returns, Schroders continues to favour equities. The firm is shifting its US exposure away from mega-cap growth stocks towards broader and more cyclical sectors such as industrials and financials.
Outside the US, it favours value opportunities in Europe and Japan where valuations remain more attractive.
Schroders has also moved back to a positive stance on commodities, expecting gains to be driven mainly by higher oil prices and firmer industrial metals. The allocation is intended to provide protection in both supply-shock and overheating economic scenarios.
Gold remains a preferred holding despite recent volatility, supported by structural demand from emerging market central banks and its role as a portfolio diversifier.
In fixed income, Schroders maintains a negative view on government bonds and continues to favour shorter-duration exposure, reflecting expectations for stronger growth and persistent inflation risks. Credit markets remain neutral as tight spreads limit potential upside.
Regionally, Schroders remains positive on US equities but neutral on most other markets including the UK, Europe, Japan and emerging markets.
The firm said weaker UK growth and political uncertainty continue to weigh on sentiment towards domestic equities.
Overall, Schroders said the macro backdrop remains supportive for risk assets, but elevated valuations and concentration risks mean portfolios should remain well diversified.
Commodities, gold and reduced exposure to government bonds are being used to manage inflation and fiscal risks.
Leave a comment