WHAT DOES THIS MEAN FOR YOUR INVESTMENTS?
Coutts have seen signs of an improving backdrop for some time and had already made changes within their client portfolios and funds to reflect that.
Over recent months, they increased their overall investment in global equities, buying stocks through active managers well positioned to pick companies that could navigate the market environment.
They also increased their exposure to global investment grade debt, which can perform well through a resilient economy, and bought a position in long maturity US government bonds. This position increases their sensitivity to changes in US government bond yields, offering potential gains should they fall (and prices rise), which is more likely in an improving economy.
But with ongoing uncertainties in markets, they also bolstered portfolio diversification for their clients by adding gold – an asset that can perform well in a range of economic situations.
THIS MONTH’S SPOTLIGHT: HOW IS THE UK ECONOMY PERFORMING AND WHEN WILL INTEREST RATES FALL?
There were few surprises for investors in the UK Chancellor’s Autumn Statement, with markets largely unmoved. But the government’s tax cuts, in the form of National Insurance and business rate reductions, would have been unthinkable earlier in the year due to concerns around inflation. Coutts are seeing a wider shift towards a world where governments and central banks are becoming more comfortable with the rate at which prices are rising.
The cuts were no doubt made with an election next year in mind as well though, and challenges do remain for the UK economy. UK GDP has been fairly weak for much of the year, and the Office for Budget Responsibility now expects it to grow by just 0.7% in 2024, down from its previous forecast of 1.8%.
Lilian says, “We believe UK inflation should continue to fall this year, offering some respite for investors, but the government’s recent tax cuts may slow its decline, giving the Bank of England another reason to keep interest rates higher for longer. In fact, while an interest rate cut was widely expected in mid-2024, it might not come until late next year.”
At Coutts, they hold fewer UK stocks than their benchmark and have a slight bias towards quality and mid-cap stocks, which they see as attractive over the longer term as they are good quality companies that represent good value.