Liontrust Views Spring 2023 - Flipbook - Page 6
PORTFOLIO POSITIONING:
WHAT ARE WE
History shows that investing in markets when investor pessimism is the deepest can
often lead to the best returns.
Financial markets have been pressured by a lot of
negative news in recent years, especially in 2022,
but the nadir that they reached last October is looking
increasingly like a turning point, with steady, albeit still
uncertain, recovery since.
We raised our overall outlook for markets in the last
quarter and we are focusing on where we can see
improvements.
The market volatility seen in 2022 has reset market
prices to more attractive levels, especially in bonds. The
interest rates being paid on them, both government and
corporate bonds, is more attractive than they have been
for many years.
We are particularly positive on higher-yielding bonds,
which are issued by low credit-quality borrowers and
hence come with more risk. We believe they offer sufficient
rewards to compensate for potentially higher default levels.
In the last quarter, we raised our ranking for emerging
market bonds, where we see attractive valuations. The
credit rating ratings in such bonds are generally superior
to comparable ‘high yield’ bonds in developed markets,
although the Russian war and subsequent sanctions does
show the political risks inherent in these markets.
We have even become less negative on UK gilts, which
were among the hardest-hit government bonds in 2022.
They now offer the prospect of delivering real yields
(which means above the rate of inflation) over four to
five years once the inflationary spike abates.
6
LIONTRUST VIEWS – SPRING
Certain equity markets offer reasons for optimism as
well after the sell-offs seen in 2022 pushed down their
prices. Investors are switching their attention away from
how far central banks will raise rates to more scrutiny of
companies and the results they are delivering in what
appears to be a steady business environment.
Equity regions we rate most
favourably include the UK, Asia
Pacific and emerging markets.
Equity regions we rate most favourably include the UK,
Asia Pacific and emerging markets. The UK stock market
outperformed many others in 2022 but it is still relatively
cheap after being shunned by many international
investors after Brexit.
We increased our target allocations for Asia Pacific and
emerging market equities following our strategic review
last quarter. The re-opening of China after it lifted its
Covid restrictions in December will provide them with
further support and they are benefiting from favourable
long-term demographics. Emerging markets have
proven themselves to be better at dealing with inflation
than developed countries, providing a supportive
environment for companies.
It is better to maintain a broadly diversified portfolio and
reap returns from across the asset classes, but we
are seeing good entry points in several assets
that offer promising long-term potential.
