The Big Picture: Global Asset Allocation 2024 Q4

Further asset price gains over the last three months, and lower yields, lead us to expect lower returns and to continue derisking our Model Asset Allocation. We don’t believe we will be rewarded for taking risk. Consequently, we boost government bonds and investment grade (both taken to further Overweight), while reducing real estate and commodities (both to Neutral). From a regional perspective we prefer UK and emerging market (EM) assets and continue to boost JPY exposure via hedges from USD. 

Model asset allocation 

In our view: 

• Cash rates remain competitive on a risk-adjusted basis. We remain Overweight.
• Bank loans also offer an attractive risk-reward trade-off. We stay at the Maximum.
• Government bonds are defensive and we like the risk-reward trade-off. We go further Overweight.
• Corporate investment grade (IG) has a similar profile to government bonds. We go further Overweight.
• Real estate (REITS) has performed well. We reduce to Neutral.
• Commodities have suffered and we fear the effect of a global slowdown. We reduce to Neutral.
• Equities have performed very well and potential seems limited. We remain Underweight.
• Corporate high yield (HY) spreads are too tight. We remain at Zero.
• Gold may be helped by a weakening dollar and politics/geopolitics but is expensive. We remain at Zero.
• Regionally, we favour UK and EM and seek JPY exposure.
• US dollar is likely to weaken and we maintain the hedge into JPY.

Our best-in-class assets (based on 12m projected returns) 

• EM government bonds
• European bank loans
• China equities

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.