The Big Picture: Global asset allocation 2024 Q2

The strong performance of many assets over the last four months, and our concerns about the state of the global economy, lead us to expect lower returns and to spread the risks within our Model Asset Allocation.  Consequently, we reduce investment grade, high yield and equities, while boosting cash and bank loans.  That more conservative stance is balanced by moving commodities (a performance laggard) from zero to the maximum that we allow.  From a regional perspective we still prefer European and emerging market (EM) assets. 

Model asset allocation 

In our view: 

• Cash rates are now more competitive given falling yields on other assets. We increase to Overweight.
• Bank loans also offer an attractive risk-reward trade-off. We increase to the Maximum.
• Commodities have lagged and may benefit from eventual economic upturn. We increase to Overweight.
• Corporate investment grade (IG) is now less compelling than it was. We reduce but stay Overweight.
• Corporate high yield (HY) has built in a lot of good news. We reduce to Underweight.
• Equities have performed very well and potential is now limited. We reduce to further Underweight.
• Real estate (REITS) has the potential to produce the best returns. We remain Overweight.
• Government yields have fallen and we prefer cash and IG as defensive assets. We remain Underweight.
• Gold may be helped by falling yields and weakening dollar but is expensive. We remain at Zero.
• Regionally, we favour Europe and EM.
• US dollar expected to weaken and we add to the hedge into JPY.

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

• EM government bonds
• US bank loans
• Eurozone equities