- Alternative asset classes will benefit from increased diversification as investors look for reasonable levels of returns
- MPG’s Melius Fixed Income Fund, which invests in corporate, high yield and
- insurance-linked securities has returned 7.67% in the 12 months to December
Equity markets are heading for a ‘choppy ride’ in the year ahead as the higher yield market takes hold, Managing Partners Group (MPG), the international asset management company, believes.
It is predicting rate cuts of 1.5% and 2% over the year ahead in the US and a rate cut of 0.5% in the UK in the first quarter and says the Bank of England has the scope to cut rates to 4% by the end of 2024.
The yield driven market worldwide will temper performance expectations for fixed income funds and those aiming for double digit performance will need to increase exposure to corporate bonds, and other higher yielding securities, MPG predicts.
Alternative asset classes are also set to benefit from increased diversification as investors look for reasonable returns, the international asset management firm says.
Jeremy Leach, Chief Executive Officer at MPG, said: “We are now very much in a yield driven market and we expect equities to have a choppy ride with some downward pressure to accommodate the higher yield market we are now in, which demands higher dividend rates per share.
“If our forecasts are correct, it will give the UK property market a huge boost as it will be much easier to predict interest rates for the next five years enabling more competitive fixed rate mortgage deals to be on offer.”
MPG, which runs the Melius Fixed Income Fund investing in corporate, high yield and insurance linked securities, predicts the UK will narrowly avoid recession but will only achieve growth of between 0.5% and 0.75% lagging behind the US and the EU.
It is forecasting GDP growth of closer to 1.5% for the US, France and Germany but warns there is a bigger recessionary risk in the US during the first half of 2024 that the Fed will aim to avert by dropping interest rates. It expects inflation to drop to around 2.25% in the UK and EU by the end of the year.
Inflation dropping below prevailing rates of interest in main markets will enable savers to maintain the real value of their savings without taking too much risk, MPG adds.
Its study [1] The Growing Opportunities for Investors in the Fixed Income Sector found that 90% of investment professionals working for pension funds, insurance asset managers, family offices, other institutional investors and wealth managers expect yields on fixed income instruments to continue to rise over the next six months.
They have responded by increasing allocations - 72% of institutional investors and wealth managers have moved more money into fixed income assets with 19% making dramatic increases to allocations. Just 10% have cut allocations.
However, 69% of investors and wealth managers believe they are still under-exposed to fixed income, which is offering the highest yields since the global financial crisis hit in 2008.
Just over a quarter (26%) say they have the right level of exposure to fixed income, and five percent say they are overexposed.
MPG’s Melius Fixed Income Fund which invests in corporate, high yield and insurance linked bonds, has returned 7.67% in the 12 months to December 2023 outperforming the iShares Core US Aggregate Bond benchmark by 10.01% over the period, benefiting from an exposure to fixed income in the USA, UK, Europe and Switzerland. Melius has a yield driven investment strategy that carries less pricing sensitivity to interest rate movements.
