"In addition, rising inflation and expectations of future interest rate rises do not suggest prices will rise. However, given the current market valuations, it might not take much to cause a change in sentiment and if there is an economic growth shock government bonds will be one of the asset classes investors will seek to protect their investments. It is important to look beyond the short term impact of the election result when considering investing in an asset class.”
Pioneer Investments’ head of global asset allocation research, Monica Defend: “We consider the inflation linked bond market to be too dear, as it strongly benefits from the demand of local defined benefit pension funds due to current legislation; any change to this could put pressure on linkers. We prefer Japanese and European linkers.”
Gold
As a safe haven asset, gold might benefit from higher demand as investors look for somewhere to shelter from market volatility in the wake of the election.
Pioneer Investments’ head of global asset allocation research, Monica Defend: “We seek to manage potential spikes in volatility with hedging strategies and assets perceived as safe haven, such as gold.”
LOSERS
Sterling
Sterling is the obvious loser from political turbulence, although the immediate falls have not been as dramatic as expected. But, looking forward, the currency looks set to remain under pressure, and managers are considering ways to hedge the risk.
Miton’s David Jane: “Currencies remain a difficult area, as they can add so much extra volatility for little extra return. So, we have much of our overseas-dominated portfolios hedged back into sterling, particularly the bonds. With overseas currency exposure broadly diversified and at roughly 25% of the portfolios, sterling strength is a risk but unlikely to dominate returns. Broadly we think the UK now appears even less compelling compared to opportunities elsewhere. We maintain a low overall exposure but recognise that there are some good value situations available.”
Paul O’Connor, head of multi-asset at Janus Henderson: “We remain wary of exposure to the UK economy and retain a cautious view on sterling. While the currency has already fallen a long way, it is likely to retain a negative bias until macro momentum has stabilised and political uncertainly has eased.
“Perceptions of the Brexit process will remain the key driver of sentiment on the currency. The possibility of a soft Brexit holds the promise of a more constructive view on sterling, but the fog of domestic political uncertainly will need to clear before much faith can be placed in that scenario.
