We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Features

Twitter board

Follow us
  • Friday View: Piecing together the pooling puzzle- DGF Roundtable - Royal Mail names pensions boss -LGPS Central sel… https://t.co/DPfZ3WUv6K2 days ago
  • portfolio institutional is launching a new series on LGPS pooling, tracking changes to investment strategies and up… https://t.co/Ld04PZ2TNK4 days ago
  • Friday View: ESG: What lies beneath? - Industry backs DWP's ESG push - LGPS Central CEO to step down - Railpen hire… https://t.co/S3knBieob09 days ago
  • Out now- The portfolio institutional September issue feat our cover on ESG: What lies beneath? -Interview: Railpe… https://t.co/x9EYxDVXEl13 days ago
  • Friday View: LGPS pool appoints CIO - Jack Dromey on cost reporting - TPR hires former FCA director - NEST issues p… https://t.co/aNVGQqK35Z16 days ago
  • RT @AonRetirementUK: How prepared is your portfolio? Read a write-up of the discussions at our recent event with @portfolio_inst, along wit…18 days ago
  • "Shadow pensions minister Jack Dromey comments on the need to set compulsory standards for cost reporting." Read m… https://t.co/vH1gGZBm1q18 days ago
  • "Border to Coast, a recently launched £46bn public sector pension pool, has appointed Daniel Booth as its chief inv… https://t.co/AlIwikhgli19 days ago
  • Friday View: Spike in shareholder rebellions - Investors ditch GBP funds - Access launches first  pooled fund - GAM… https://t.co/aFzvBWgsmp23 days ago
  • Join us and HarbourVest Partners for breakfast to discover how access to private companies can provide diversificat… https://t.co/JaRlWiziJl23 days ago
  • "Ian Scott tells Mark Dunne about being back on the buy side, hedge funds, self-sufficiency, the trouble with infra… https://t.co/G0UUF9ldSx24 days ago
  • "Aon has developed an ESG rating system for buy-rated investment strategies which is designed to assess whether and… https://t.co/mstoAc3vr325 days ago
  • "With hedge fund performance improving and pension scheme investment increasing, has more institutional backing res… https://t.co/JVcIEXXKwr30 days ago
  • "The infrastructure repair bill is huge and more and more pension funds are willing to step in and plug the funding… https://t.co/zXy2lbpj6K31 days ago
  • "For investors looking to own sustainable businesses, engagement is the new divestment." Read more here:… https://t.co/YiA28qc6BI32 days ago
  • "Thanks to climate change, pension scheme portfolios are in danger of overheating. So what are trustees doing to pr… https://t.co/8gND4lC1OZ33 days ago
  • RT @eVestment: With research claiming that companies with high #ESG standards make better #investments, are sustainable strategies on the v…37 days ago
  • "The revolution in how investors are assessing companies is gaining momentum. No longer considered niche, responsib… https://t.co/uFCHnMlOux37 days ago
  • Friday View: Beyond bonds: The future of LDI - Responsible investing: Just reward - Just buys DB adviser - Ex Railp… https://t.co/1suOFFSprA37 days ago
  • "An increasing number of pension schemes are adopting a more efficient way of investing." Read more in our in-dept… https://t.co/F6Y0e9DB5E37 days ago

On the radar

Interest rates: The slow return to normality

Interest rates: The slow return to normality

Lynn Strongin Dodds
Friday 15th December 2017

Interest rates are rising, inflation is climbing and it is goodbye to QE. Lynn Strongin Dodds looks at what impact these changes will have on portfolios.

“The shrinking of central bank balance sheets and the end of the extraordinary monetary policy means asset prices will no longer be based on liquidity but will be driven by fundamentals.”

Tom Wells, Aviva Investors

After bumping along the bottom for years, interest rates are starting to rise while central banks are pulling the plug on their abundant stimulus programmes. Although the moves are gradual and well flagged, experts are advising investors to review their portfolios and prepare for this slow return to normalcy.

Governments may be moving at their own pace, but as Tom Wells, a fund manager in Aviva Investor’s multi-asset team, notes: the withdrawal may be slow but the direction of travel is one way and QE is not increasing. “In our view, the shrinking of central bank balance sheets and the end of the extraordinary monetary policy means asset prices will no longer be based on liquidity but will be driven by fundamentals.”

Asset allocation, of course, depends on an institutional investor’s particular objectives, funding levels and requirements but pockets of opportunities may be harder to find going forward. “The high valuations in nearly all asset classes, the persisting economic cycle, rising inflation and less expansionary-minded central banks now make us less optimistic about the period after 2018,” says Ivo Kuiper, head of Kempen Capital Management’s asset allocation team.

“Yet sentiment is very positive, both in an economic sense and on the financial markets, and we therefore expect the equity rally to persist in the short term,” he adds. “Economic confidence indicators are high, corporate earnings continue to rise and money will remain cheap for the time being,” Kuiper says. “The expected rise in inflation means that we are slowly becoming more positive about real estate, commodities and other inflation hedges.”

GOING GLOBAL

Ron Temple, co-head of multi-asset and head of US equity at Lazard Asset Management, also believes that global equities are more attractive than fixed income assets thanks to robust earnings growth. “Our strong belief is that security selection will be critical to generating returns in the years’ ahead, given the risk of drawdowns on the back of unforeseen events and as different countries and companies deliver varying degrees of growth,” he says.

Temple singled out Japan in particular because the MSCI Japan Index is the “only major market index that is not trading at a substantial PE premium to an historical average, with the index trading at a premium of 0.3 times earnings relative to its 10-year median,” he adds.

“We believe Japanese companies still have substantial room to improve their returns as the macroeconomic backdrop has improved and the corporate governance reforms of recent years have better positioned many companies for future profit growth.”

Columbia Threadneedle Investments head of multi-asset Toby Nangle is also bullish on Japanese as well as European equities believing that they are well-placed to benefit from a global and synchronised cyclical upswing. “Both markets should see reflationary forces translate into higher levels of profitability for shareholders, and it is these forces that are prompting higher interest rates in the US where there appears to be little economic slack,” he says.

Page: 1 2 3
0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!

Friday View

Friday View

Shareholder engagement: