Three areas piquing the multi-asset team’s interest in 2024
This time last year, it looked like we were heading for a recession. Today, the macroeconomic outlook is far more positive. Toby Gibb, Head of Investment Solutions at Artemis, reveals which asset classes he thinks are most likely to thrive in this improving environment.
A year is a long time in investment. Twelve months ago, the consensus view was that we were heading into recession, which turned out not to be the case. A combination of China’s reopening, fiscal stimulus on both sides of the Atlantic and the continued strength of the US consumer created a more positive backdrop.
So, what will 2024 hold for investors? We know it will be a year of the Olympics, the men’s European football championship, and elections for more than half of the world’s population, so whatever happens, it isn’t going to be quiet.
Bond yields at their highest for years
The market backdrop and valuations make me positive for fixed income in 2024. Yields at today’s levels have typically coincided with strong total returns over the subsequent few years. The economic environment is likely to provide further support: with central banks bringing inflation back under control, rates are likely to have peaked.
I am particularly positive on corporate and high-yield bonds. Corporate bond yields are at their highest for years, which should act as a buffer against any market volatility. High-yield bonds are offering yields above 8%, even at the short end of the curve, and there is no need to compromise on quality. While carry – or relying on bond coupons to deliver returns – has returned to fixed income markets, so has dispersion – active stock selection will be key this year.
Value stocks to win out over growth
In equity markets, my preference is for value stocks. Emerging markets are particularly attractive on valuation grounds and should see discounts to their developed peers begin to close in 2024. China remains a risk, but the improving geopolitical picture allows policymakers to focus on the economy, with more supportive policy measures already beginning to come through.
I am cautious on the US market from a valuation perspective, particularly in technology. When it comes to the Magnificent Seven mega caps, artificial intelligence is likely to continue capturing investors’ imagination, so the focus should be on the winners of the theme. For me, that’s Microsoft and Nvidia.
UK equities stand out
From a valuation perspective, the UK remains the standout region. Multiples languish below those of other markets as international investors have shunned UK plc post-Brexit. This has resulted in some extreme anomalies where UK multinationals trade at significant discounts to their international peers, for no other reason than their headquarters’ address.
World equity market valuations versus history: 12-month forward P/E ranges over last 20 years
Fortunately, we are seeing signs that this is beginning to change – global investors have recently begun to increase their weighting to the UK, while inbound mergers and acquisitions are on the rise. Bargain hunters are circling, and so are we.