Financial Market Update from George Square Financial Management in Conjunction with Albemarle Street Partners.
Some stronger returns lead us into 2024
The past year has brought some relief for long-term investors with stronger returns emerging particularly in recent months from markets relieved that inflation is receding. Interest rate rises, whilst a blunt tool to cure inflation, have proven effective. Indeed, we can take some comfort that whilst high interest rates have imposed pain on the economy, this process has demonstrated to us that the policy which is supposed to keep the global economy working does in fact broadly work.
Many have spent much of the past year worrying that inflation would run away to 1970s levels and claiming central banks would fail in their efforts. The key lesson, though, is that a long-term perspective, faith in fundamentals, and transparency from policymakers ultimately pays off.
Performance:
• Portfolios have shown strong returns in the final quarter of the year as both bonds and equities rallied. Our allocation to US equities as well as government and corporate bonds helped portfolios outperform benchmarks over 2023.
• World equities gained 16.63% last year, with US and European equities advancing 18.28% and 13.42% respectively. UK large caps lagged, with the FTSE 100 up just 6.47% last year. UK mid-caps have rallied 10.4% over the past 3 months. Asian indices lagged in 2023 as continued economic weakness impacted investor sentiment.
• In fixed income, UK Government bonds finished 2023 roughly flat, with bond interest payments accounting for the bulk of the return last year. Falling inflationary pressures have fuelled market predictions that central banks will embark on interest rate cuts in 2024 which could help bond prices recover.
• Global high yield debt was up 13.72% last year, aided by strong gains over the past quarter. High yield debt has rebounded as concerns surrounding a deep recession in the US have been allayed.
• We rebalanced portfolios in the fourth quarter and used the opportunity to add to high yield debt and active funds in Asia and Japan.
• We introduced an active fixed income allocation which alters its sensitivity to bond yields based on inflation signals.
• We reduced portfolio allocations to gilts, global infrastructure, and Asian equity index funds.
The economic outlook remains a source of concern for investors as we enter 2024. Manufacturing surveys are pointing to slowing growth and labor markets are starting to weaken. However, monetary conditions are likely to continue to ease in the second half of the year. Still, corporate profits face growing risks in the interim.
We remain optimistic that the backdrop provides opportunity for stronger recent returns to continue as bond yields settle and corporate profitability stabilize.
We are also excited by elevated expected returns while recognising risks remain. We take a balanced approach - keeping high quality anchors that participate in rallies, while gradually rotating into
beaten-down assets as data improves.
© 2022 George Square Financial Management Ltd. All Rights Reserved The content of this material is a marketing communication, and not independent investment research. As such, the legal and regulatory requirements in relation to independent investment research do not apply to this material and it is not subject to any prohibition on dealing ahead of its dissemination. The material is for general information purposes only (whether or not it states any opinions). It does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) legal, financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by George Square Financial Management Ltd that any particular investment, security, transaction, or investment strategy is suitable for any specific person. Although the information set out in this marketing communication is obtained from sources believed to be reliable, George Square Financial Management Ltd. makes no guarantee as to its accuracy or completeness. George Square Financial Management Ltd. shall not be responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein. This material may include charts displaying financial instruments’ past performance as well as estimates and forecasts. Any information relating to past performance of an investment does not necessarily guarantee future performance. George Square Financial Management Ltd. is authorised and regulated by the Financial Conduct Authority
Proud Members of
